Abstract
While the governance challenges associated with mineral dependency are well established in the literature, most recent studies are cross-country analyses and not much country-specific empirical analysis has been done on the relationship between mineral dominance and governance, especially in Africa. This paper uses time-series cointegration methodology and a dynamic error-correction model to investigate this relationship in Botswana, a mineral dependent African economy. The results establish that mining dominance in Botswana has indeed had a long-term influence on government effectiveness, such that the effectiveness of governance systems has in part been predicated on strong mining sector receipts. The error correction model shows that the influence from mineral dependency feeds back into current changes in government effectiveness on an annual basis as the system adjusts towards the long-run level of government effectiveness. In addition, scaled up improvements in the control of corruption and in citizen participation (represented by voice and accountability data) both have a significant and positive impact, generating larger improvements in the current year’s government effectiveness.
This is an update and significant expansion (broader coverage with cointegration analysis and an error correction model; use of log values rather than levels; use of R-studio rather than Excel) of an earlier 2014 paper presented in Gaborone at a Frederich-Ebert-Stufig/Botswana Institute of Development Policy Analysis Conference titled: Are Diamonds Forever? Prospects for a Sustainable Development Model for Botswana.
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- 1.
Sixteenth Century Spain—Large inflow of gold and other wealth into Spain from the Americas, Australian gold rush—Documented by Cairns in 1859, Netherlands in the 1960s, Norway—oil boom in the late 1970s, ’80s and early ’90s, Mexico—oil boom in 1970s, early 1980s, Australia—mineral commodities (current), Russia—oil, natural gas (current), Canada—oil (current), oil sands in the province of Alberta and Saskatchewan, Nigeria and Zambia—with large natural-resource endowments; up until recent years, economic management inadvertently created serious impediments to domestic investment and growth. More recently, see Elbadawi et al. (2007).
- 2.
Traded goods and services are those that are exportable, and as such are either sold to the domestic market (often substituting for imports) or exported. In the Botswana context, these goods and services are critical to sustainable, long-term growth because of the demand limitations imposed by the smallness of the Botswana market.
- 3.
Polity Qualities: How Governance Affects Poverty , Mick Moore, Jennifer Leavy, Peter Houtzager and Howard White; The Institute of Development Studies at the University of Sussex, Brighton BN1 9RE UK, September 1999.
- 4.
The term “rent” in rent-seeking is short for “economic rent” and refers to what a government earns without any effort. In Botswana’s case, revenues from diamonds are not earned through government effort. Government does not have to exert that much effort at expanding the economic base off which it earns tax revenue. History shows us that around the world bureaucrats and people in authority have sometimes maneuvered to position themselves to access “rents” or to create situations where they can be paid unearned income (bribed). Where government officials have discretion in applying government regulations, individuals are often willing to pay bribes to officials to circumvent the rules in order to counter delays and inefficient service. These rent-seeking activities have been shown to exact a heavy economic and social toll. They are illegal and represent a corrupting influence (Mauro 1997).
- 5.
Published by UNCTAD in 1999 in Development Policies in Natural Resource Economies, edited by Jorg Mayer, Brian Chambers and Ayisha Farooq.
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The amount going to public and parastatal remuneration in Botswana, as a share of GDP, was almost three times the OECD average.
- 7.
Household Income and Expenditure Survey.
- 8.
It is worth noting here that over a decade earlier, in 1984 World Bank staff (Nimrod Raphaeli, Jacques Roumani and A. C. MacKellar) had commended Botswana for the effectiveness of its fiscal management system in which “planning and budgeting remain(ed) under the domain of a unified Ministry of Finance and Development Planning ensuring a considerable measure of integration and cohesiveness between them.” The bullet is puzzling, therefore, unless internal restructuring between 1984 and 2006 weakened or removed the alignment between planning and budgeting.
- 9.
See Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi (2010). The Worldwide Governance Indicators: A Summary of Methodology, Data and Analytical Issues, World Bank Policy Research Working Paper No. 5430. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682130.
- 10.
The Durbin-Watson test statistic tests the null hypothesis that the residuals from the regression are not autocorrelated. A value near 0 indicates positive autocorrelation, near 2 indicates no autocorrelation and near 4 indicates negative autocorrelation. For the critical values, the regression has no lagged dependent variable, and there is no constant term, so the applicable table by Durbin (Farebrother Tables) is used. The lower bound for the dynamic error correction model is 0.694 while the upper bound is 1.41 at the 1% level of significance. The test statistic of 1.2 is close enough to the upper bound that it is acceptable, in this context, not to reject the null, so we can conclude that it is likely that there is no autocorrelation.
- 11.
The literal interpretation given the data used, is that perceived improvements or deterioration in government effectiveness are influenced by changing perceptions regarding the control of corruption and voice and accountability. So if government is able to improve the control of corruption and of voice and accountability enough to improve perceptions of both on a sustained basis, this will enhance government effectiveness.
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Appendices
Annex I
Annex II: Policy Implications—Details
Correcting incentives faced by Government officials through accountability
The fortunes (welfare) of government officials and politicians should move in tandem with those of the Botswana they serve:
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An adverse economic climate for people in the non-mining sector should correspond to an adverse “economic climate” for public servants.
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Losses and waste of public resources impact Botswana negatively; they should impact the responsible parastatals, officials and ministers in public agencies, likewise.
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Non-performance and poor service delivery by the public sector impacts Botswana negatively; they should impact the responsible parastatals, ministers, managers and officials likewise.
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Loopholes and corruption impact Botswana negatively; they should impact the responsible parastatals, ministers, managers, officials and politicians likewise.
Correcting Government’s organisational effort
Organisational effort should be directed at domestic non-mining business sector growth and development:
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Ministry, Central Bank and other Parastatal efforts should focus as much on improving the welfare of Botswana by growing the domestic business sector as on attracting foreign investors;
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Develop firm capabilities and more products. Focus to date has been on competitiveness policy, which is about improving the quality of what already exists—but if you don’t have much by way of products to start with, then part of the mileage you would get out of a competitive environment is lost. In Botswana it is clear that more non-mining products are needed. Attention is being given to mineral beneficiation, however, given the poor connectedness of mining to the non-mining economy, the standard corrective measure of adding value to the raw materials—though beneficial, is not enough to diversify the economy. Mining has limited linkages and limited downstream scope. Progress in diversification beyond mining can be made by advancing in repeated short spurts to other products similar to or associated with those non-mining products already produced, along a well-defined value chain (Norway, Australia and Chile provide examples). Government has to be committed to providing the public inputs and unbiased price environment needed to support non-mining production and to build relevant capabilities in the current working population (not just in students). Innovation should be used to accumulate and enhance relevant capabilities useful for the diversification program looking forward.
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Ensure microeconomic policies target and serve local businesses efficiently—not just mining and foreign investors.
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Ensure macroeconomic policies are appropriate to non-mining private sector growth (avoid Dutch Disease tendencies).
Strengthening and safeguarding accountability systems
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Use technical team decisions for high-cost expenditure activities and remove discretionary powers and veto powers of senior officials and ministers.
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Reinstate the appropriate checks and balances to counter rent-seeking and enforce them.
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Eliminate personal and institutional conflicts of interest and take immediate corrective action to remove such conflicts when they arise.
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Act in response to perceptions of corruption (for example, by suspending officials who are being investigated). This is essential because perceptions of corruption that are not acted on embolden those that are already corrupt and attract more corrupt agents; as much as confirmed corruption itself does.
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Implement best practice used in comparable countries without qualifying and amending to maintain status quo.
Strengthening management and operational systems
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Build stronger managers. Have formalised compulsory management training of top global ranking, for current and upcoming managers (including Ministers if they are expected to manage), track and systemise the use of skills taught and rebuild stronger program and project management systems. Efficient and effective project and program management and implementation are critical. Efficiency monitoring is also important to avoid waste and the dissipation of resources and efforts, on low priority, low impact spending.
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Do not allow complacency to weaken or remove systems that work; or to remove or ignore checks and balances. For example, in the past use of social cost-benefit analysis where possible was mandatory, to assess expected project impacts on output/GDP or public welfare and prioritise efforts and procurement around the highest impact projects. While this is a critical task, it is no longer mandatory. However, the return on government spending must be measured, and consistently improved—a challenge—but especially critical.
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Build systems and know-how within government, for private sector development. The World Bank Group’s International Finance Corporation (IFC) has numerous systems and mechanisms geared to this very purpose and could be a valuable partner in developing government officials’ capabilities in this regard.
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Safeguard and perpetuate institutional memory. Accumulated knowledge resides in the heads of employees; once they go that knowledge is lost forever unless safeguards address this. Many corporations and countries use people who excelled in a given job, or in the same type of work, to serve on a fixed contractual basis as Advisors and mentors to new management incumbents, in order to pass on knowledge, avoid costly mistakes and sustain institutional memory. A post-contract bonus can be dependent on how well the incumbent delivers over the year after the Advisor leaves. Government systems have to be well entrenched and robustly structured—enough to ensure that newcomers do not drop the ball or reinvent the wheel due to ignorance of internal systems and processes, the rationale behind them and of past lessons. A new generation of officials is entering the civil service (as the first two generations leave or retire)—and maybe consideration should be given to requiring A or B grades on a compulsory civil service best-practice exam for incumbents and new entrants.
Annex III: Charts of Variable Levels
Charts of Model Residuals
Cointegration model
Dynamic error correction model
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Mannathoko, I.M. (2019). Governance in the Mineral Dependent Economy: The Case of Botswana. In: Elhiraika, A., Ibrahim, G., Davis, W. (eds) Governance for Structural Transformation in Africa. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-03964-6_5
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