Sustainable Development in Mineral Economies: The Example of Botswana

Botswana has consistently reinvested most of its mineral revenues in accordance with criteria explicitly aimed at sustainability and the enhancement of the stock of physical and human capital, and overall policy is set in a long-term framework, guided by a series of six-year National Development Plans (NDPs) and, more recently the objectives of Vision 2016 (Presidential Task Group, 1996 and 1997)3. As such, Botswana is widely considered to be an excellent example of resource management with future generations in mind. For example, in early 2001 the country was given investor grade sovereign credit ratings higher than any other African country and which compare favourably on a worldwide basis. As a result of prudent management, the country

has accumulated a substantial portfolio of international financial assets, valued at $6.3 billion, or approximately 130 percent of GDP, at the end of 2000. At the same time, however, the central role that government has played in developing the economy brings to the fore the issues of investment productivity, and whether this is adequately addressed by the existing policy framework (Wright 1995, 1997a). 

This ability to transform one form of wealth, non-renewable mineral wealth, into other forms of productive wealth is the key to successful economic development of resource-rich economies. This paper investigates the process of wealth transformation for Botswana, one of the most successful resource-rich countries. The organisation is as follows. Section 2 discusses the methodology and data used for this study. This section describes the environmental accounts which were recently constructed for Botswana to assess the value of its mineral assets, and reviews policy guidelines for the share of resource rent that should be reinvested, including the one which Botswana has established for itself, the Sustainable Budget Index (SBI). Section 3 reviews Botswana's economic sustainability over the past 20 years with respect to the capital maintenance rule, using an expanded definition of wealth that includes mineral assets and net foreign financial assets. The changing level and composition of Botswana's national wealth is assessed to determine whether depletion of mineral assets has been compensated for by increases in other assets. 

This is followed by an analysis of the process by which mineral revenues have been transformed by government into other forms of wealth. The productivity of different categories of public investment is evaluated and the SBI is adjusted for non-productive capital expenditures. This assessment is intended not only to improve the indicator of sustainability, but also to provide more detailed information to improve the allocation of revenues from minerals among different types of public sector investment. Concluding remarks about management of mineral revenues are provided in the final section.