Botswana: A Diamond in the Rough Essay

1) The Harvard case, Botswana A Diamond in the Rough, describes the exceptional case of Botswanas sustained scotch rise from near downright poverty to a rural with a 10% average yearly GDP growth for more than four decades. This case shows that healthy economical gains can be gaind by a mixture of formal institutions and ad hoc substitutes for missing institutions.When Botswana gained its independence in 1966, the country overleaped well-nigh(prenominal) of the institutions deemed essential for economic growth by close to prosperous developed nations. These absent institutions include a central bank, a bailiwick funds, basic administrative structures, commercialize institutions, and the ability to connect to the global markets and apply external tariffs. Yet, Botswana was unique among its neighbors in that it held institutions such as a shelter, democratic government supported by a charismatic leader and a constitution which upheld the liberties of a unblock press, lega l transparency, and quality rights. Botswanas institute of government also lacked the discriminatory practices and home(a) strife present in many of the neighboring countries.Botswana was able to accessary its lack of many formal institutions with substitute ad hoc solutions which filled many gaps. The countrys initial lack of its own central bank and national currency was supplemented with the countrys use of the siemens African Monetary Union until Botswana was able to indicate its own currency and central bank in 1976. Similarly, Botswana relied on the South African Customs Union (SACU) for application of import tariffs used to inflame tax revenue and protect infant domestic industries.Gaps left in the countrys infrastructure by weak public funding and an underdeveloped confidential sector were patched with help from financing and administration given by multinational firms, development institutions, as well as the creation of nearly of its own formal institutions. The mo st prominent of these situations was the countrys brokered relationship with the DeBeers dope which provided the country which technical expertise in a highly profitable industry, the establishments of baseball ball field townships complete with working infrastructure, as well as a practically needed source ofrevenue.Botswana also used funds derived from development precaution organizations and the financing agents such as the World Bank and the Canadian remote(a) Development Agency to substitute for its lack of private equity markets and banks. In addition, the country used the publicly traded company, Botswana RST, to attract hostile investment to economic aid in fully exploiting their natural resource potential. Investors in this company include multinational mining firms including AMAX and Anglo-American. Botswanas history of stability and protection of intellectual property rights also contributed to private foundations and major drug companies such as Harvards back u p Institute, Bill and Melinda Gates AIDS initiative, and Merck helping to combat the brutal attempt of the AIDS virus in the country.Botswana used a series of national development plans completed by its Ministry of Finance and Development to guide futurity government spending. Contributions and returns from foreign investment were reinvested into infrastructure and education, while budget surpluses were stockpiled to dodge against sudden drops in revenue haved by potential downturns in the rhombus market. Institutions such as the Mineral Right in Tribal Territories identification number vested mineral rights in the central government rather than the hands of the tribal leaders while the two special funds, the Public Debt Service strain and the Revenue Stabilization Fund, were established to funnel mining revenues into loans for local authorities and parastatal bodies. The Botswana Housing Corporation was a formal institution which used baseball diamond revenues to finance construction projects while the Botswana Power Corporation and the Water Utilities Corporation were created to serve similar functions for electricity and water. The Botswana Development Corporation, National Development Bank, and the Botswana try Development Unit were charged with allocating diamond revenue to diversify the economy.Botswanas institutional development was a process. It began with virtually no formal institutions. informal solutions led to the development of formal institutions, which allowed for Botswanas idiosyncratic economic stability.2) The most evident pro of nationalizing Botswanas diamond industry would be to achieve the short gains by selling stockpiled diamonds. Unfortunately, doing so would cost Botswana years of established believability as it would require the country to renege on their previous agreements with the DeBeers Corporation. much(prenominal) an action would deter future investors into Botswana, as well as cause the privation of their larg est foreign investor, DeBeers. Loss of the DeBeers connection would cost Botswana the future gains associated with go along expertise in the field of diamond mining, infrastructure improvements historically provided by DeBeers in areas servicing the mines, and also the administrative capability of a major international corporation.The most significant con would likely be the loss of DeBeers as a steward of the cartel practices necessary to preserve the charge premium associated with stockpiling diamonds. If left to navigate the sales and stockpiling of diamond by itself, the country would face the historically difficult task for a poor government that relies heavily on goodness sales to self-regulate commodity sales, and thus government revenues, while still balancing the demands of maintaining the cartel.3) The extent to which Botswanas simulate is replicable outside of Botswana would certainly depend on a variety of factors some within the control of central governments, and o thers environmentally or socially determined.The heraldic bearing of an extremely valuable natural resource(s) is a key component in Botswana growth model. While other countries also share this component, many lack the peace and stability associated with a stable government body and a tolerant society. Botswanas government offers stability and social climate free of the restrains presented by ethnic, tribal, and religious conflicts. Additionally, mining interests are centrally controlled and not subject to regional battles over mineral wealth. Likewise, discrimination between groups is not a normal issue in this country.Botswana also benefited from Tsekedi Khamas strong leadership in transport new policies to the forefront and unifying the countrys economic policies among the various tribal groups. The countrys fastening to prudent social and macroeconomic policies also held a large federal agency in the creation of anatmosphere of growth and foreign investment. The credibility established through years of sound economics practices, legal transparency, property rights, stable government, and free press created a more welcoming environment for foreign investment than many other developing nations.The extent to which this model is replicable outside of Botswana depends on the level of faithfulness to the social and macroeconomic policies described preceding(prenominal) and a working mix of formal institutions and adequate substitute organizations. Although a full range of formal institutions are not necessary to achieve continued economic growth, substitutes must arise where the institutions are lacking to provide the necessary functions lost by their absence.