African Success Story
African Success Story
African Success Story
Balkumari, Lalitpur
DEVELOPMENT ECONOMICS
Case Review
Section- C
The case talks about the success story of Botswana in attaining the highest average per capita
growth rate despite of having high population growth, geography constraints and stricken by an
outrageous disease.
1)Despite Botswana being one of the poorest nation with high population growth, geographical
2)What are some of the challenges that Botswana is still facing in attaining development in the
Issue 1
Botswana having high population and being a land locked country with very only 4 percent of
land being cultivated is still moving forward in attaining good economic performance due to
various reasons. Growing foreign direct investment is one of the reason for its purring economic
growth. Similarly, Botswana is gifted with the wealth of diamonds. Favorable contracts were
achieved with the De Beers diamond cartel that resulted in fully half of diamond profits going to
the state in tax revenue. Government has played a constructive role in the economy by providing
infrastructure, extension services, and subsidized veterinary services and other support for the
development of the cattle industry. Government has also constructively managed relationships
with mining interests, encouraging exploration by foreign companies and demanding and getting
a share of profits. Good institutions, effective governance and proper allocation of resources has
played a huge role in achieving favorable conditions for economic development in Botswana.
Issue II
Despite having good institutions, effective governance role there are still some challenges and
obstacles faced by Botswana in achieving growth with development. Botswana is facing high
income inequality as well as high unemployment which are the major challenges for Botswana to
outrageous disease i.e. HIV AIDs. According to UN reports, the HIV prevalence rate is as high
as 24% of the adult population aged 15–99—and a stunning 33% among pregnant women. About
60 percent of youths do not have access to proper reproductive health. One third of the working
force population is infected with this disease which has decreased productivity and has
Analysis
Foreign Direct Investment (FDI) is the investment of funds by an organization from one country
into another, with the intent of establishing ’lasting interest’. Foreign direct investment plays a
great role in boosting the economy of any country. In the case, Botswana’s diamond wealth is
vast and government has also given much focus in the mining sector of Botswana encouraging
foreign companies to invest in this industry. In turn the government could receive the share of
profits without losing the investors. As mentioned in the case, favorable contracts were achieved
with the De Beers diamond cartel that resulted in fully half of diamond profits going to the state
in tax revenue. This means that the foreign direct investment has may benefits as it creates
advancement takes place through diversification, generates tax revenue from FDI due to
establishment of industries and factories as well as from the employees. Therefore, it helped the
government of Botswana to collect tax revenue which can be effectively invested in the
development activities of the nation that would ultimately raise the national income of the nation.
The figure illustrates the laffers curve. When government focuses on the foreign investment and
with the optimal charge of tax rate it may be able to attract more foreign investment in the
country which in turn leads to optimal collection of tax revenue by the government. As in the
case Botswana is favorable for mining industry due to abundance of Diamonds. The government
of Botswana has focused in encouraging foreign countries to invest in this sector as a result it has
led to establishment of industries creating the employment opportunities in one hand and the
government of Botswana receiving revenue on the other hand which has been invested in the
Capital and land are passive factors of production but human-resource is active factor of
production, which utilizes capital and naturals resources. The skills and knowledge are the
important tools for effectively utilizing the physical capital. Education is regarded as the national
investment and helps in formation of human capital. Without investment in human capital no
As in the case we can see that government has put many efforts for increasing FDI in the country
which also creates the opportunities for providing better skills and training to workforce and
helps in the effective human capital formation. Similarly, the tax revenue which has been
collected by the government of Botswana from the foreign direct investment in mining sectors is
being utilized and is invested in the education sector heavily as mentioned in the case. Botswana
has attained essentially universal primary education which is a rare achievement in Africa, and
more than half of children are enroll in secondary education which is twice the average
elsewhere in sub-Saharan Africa. This indicates that the revenue collected from FDI has been
invested effectively in the education sector by Botswana which means that the country is
investing to achieve the social development in the nation. With the effective investment in the
education sector better and well trained human capital can be formed which will help to increase
the productivity of the nation as a whole which is one the reason for Botswana moving towards
economic development
3) Aggregate demand
a) Consumption
In the case we can see that Botswana’s government played a good role in encouraging the
foreign direct investments. The policies like property protection rights, encouragement of exports
of diamonds increased the foreign direct investment in the country. With the increase in FDI,
factories and industries are built that in turn created employment opportunities which increase
b) Investment
Increase in foreign direct investment leads to increase in incentive for government to invest in
development activities like in the case the increase in foreign direct investment created incentive
for the government to invest its wealth in the education sectors, providing extension services,
support for the development of cattle industries. So investment in development activities has
c)Government expenditure
As the FDI created the job opportunities and incentives for investments. The government is able
to collect the optimum tax revenue from these development activities; as a result, the government
expenditure also increases. As seen in the case the government of Botswana is spending its
revenue for supporting cattle industries, developing infrastructure, supporting the education
sector and encouraging the exports too. This shifts the aggregate demand upward and increases
d)Exports
In the case we can see that government of Botswana is supporting foreign companies to invest in
the mining sector of the country as, it is rich in diamond resources. The government has
encouraged the exports of these diamonds to foreign countries. As a result, there is inflow of
foreign currency in the nation. Thus increase in exports of diamond from Botswana shifts the
The figure illustrates the upward shift in the aggregate demand from AD to AD1 due to the
positive effect of the foreign direct investment to increase consumption, investment, government
spending and net exports in Botswana. The shift in the aggregate demand increase the national
Botswana’s per capita growth rate has been remarkable. The growth rate was 8.4 percent per
year over 1965 to 1990, 6 percent in 1990-2005. It is one of 13 countries identified by the Spence
Commission as having ever experienced a 25-year period averaging at least 7% growth rate. But
the problem of high income inequality is still prevalent due to which the richest 20 percent
receive the highest share of national income whereas the poorest 20 percent receive the lowest
share of national income. It creates a huge gap between rich and poor which is one of the main
reason of creation of poverty trap where the rich become richer while poor become poorer.
The literacy rate is also improving. People of Botswana is suffering from the incidence of HIV
AIDS due to which the mortality rate is high. The HIV prevalence rate is as high as 24% of the
adult population aged 15–99—and a stunning 33% among pregnant women. The life expectancy
The HDI rank of Botswana is 98th out of 159 countries listed on the 2010 Human Development
Index which is 38 points lower than its GDP rank would predict. Botswana’s human
development is significantly lower than predicted by its level of real per capita income. The HDI
of Botswana has been better than the sub Saharan Africa but it could have been better if the
epidemic disease AIDS could have been controlled. The incidence of this disease is one the main
LS2
W2
W1
The figure shows the labor market where the x axis represents the quantity of skilled and healthy
labor supplied and the y axis represents the wage rate. In the case we can see that people in
Botswana is suffering from the incidence of the epidemic disease that is HIV AIDS due to which
the life expectancy at birth is low only 55 years. According to UN reports, the HIV prevalence
rate is as high as 24% of the adult population aged 15–99—and a stunning 33% among pregnant
women. It means that there is decrease in the supply of skilled and healthy labor as people are
suffering from AIDS and are not being able to work due to health issues. Due to the shift of
supply of healthy and skilled labor to the left while demand remaining constant, the wage rate of
the available labors increases. This increases the labor cost increasing the cost of production for
the firm as well as due to large pool of youths being a victim of AIDS, they are not being able to
utilize the resources of the country. As a consequence, the productivity decreases which hampers
the development process of Botswana. So, the incidence of HIV AIDS in Botswana is one the
Solutions
1. Health education and sex education should be provided from the school level so that
youths could be made aware about HIV AIDS so that it could be prevented and cured at
time. Government should implement and invest in the health sector in order to control the
implementing progressive tax in the country. So that FDI could be encouraged as well as
the country could collect optimal tax revenue that could be invested in the development
3. Botswana being a landlocked country should also invest in the agricultural sector through
which income could be generated by attaining the food needs of the country as well as it
can also export the agricultural products which would increase the inflow of foreign
4. Government policies should focus in creating effective job opportunities by the proper
investment of the tax revenue in economic activities with a target of raising the per capita
human capital that would help Botswana to receive economic growth with meaningful
development.
Managerial Implications
From this case we can learn good institution and good policies plays a great role for the
development of any organization as seen in the case of Botswana. The case talked about the role
Similarly, for a company to achieve success and better performance, the company must utilize
the available resources to the optimum level. Equal opportunities and good incentives should be
provided to the employees so that the employees are dedicated to work for the betterment of the
company. Several challenges and obstacles are faced by every organization. The challenges
should not be taken as weakness but with the mutual cooperation of each department, an
organization can easily curtail any challenge and obstacle that takes place while working.
Reference
Michael P. Todaro, Stephen C. Smith-Economic Development, 11th Edition (The Pearson Series
Honor code
On my honor as a student, I pledge that I have neither given nor received aid on this assignment.
Anamika Shakya