Bank of Botswana 50th Anniversary Symposium Keynote HTML File

Bank of Botswana 50th Anniversary Symposium Keynote

September 12, 2025

Opening & Context

Good afternoon, Governor, distinguished guests, colleagues, and friends.

It is an honor and a privilege to join you for the commemoration of Bank of Botswana's 50th anniversary Symposium. Over the past five decades, the Bank of Botswana has not only been a steward of monetary and financial stability but also a guardian of the nation's hard-earned economic achievements. This milestone invites both celebration and reflection-celebration of how far the country has come, and reflection on the challenges that lie ahead.

Coming at a time when Botswana is facing serious macroeconomic challenges, the main theme of this symposium-"Enhancing Resilience"-is particularly topical. Resilience is not an abstract concept. It is the capacity to absorb shocks, adapt to changing circumstances, and sustain progress over the long term. Of the various suggested discussion areas offered in the symposium notes, I have chosen to focus my remarks on "Economic Diversification." I am indeed convinced that-at a time of great uncertainty about the prospects for the natural diamond sector, which has been the cornerstone of Botswana's success since its independence-it is essential that other sectors develop to ensure Botswana's long-term prosperity.

In the following minutes, I will take you through Botswana's remarkable development journey, outlining the pillars of Botswana's success story. I will then argue that there are signs that the growth model underpinning this success has lost sone of its strength in recent years. Building on the lessons from countries that have faced economic collapses due to commodity dependence, but also from peers that have successfully diversified, I will suggest a forward-looking agenda-one that leverages Botswana's institutional strengths to build a services-led growth model capable of sustaining inclusive prosperity well into the next 50 years.

Botswana's Phenomenal Takeoff

When it gained independence in 1966, Botswana was one of the poorest countries in the world. The nation had limited infrastructure, a largely subsistence-based economy, and was heavily reliant on foreign aid. Yet, within a single generation, it became one of the richest countries in Sub-Saharan Africa, with a per capita income surpassing South Africa's since the early 2000s.

This transformation was not accidental. It was built on visionary leadership, a commitment to prudent macroeconomic management, and strong, rules-based institutions. Botswana's leaders established from the outset a reputation for sound governance, anchored in transparency and accountability. These qualities not only attracted investment but also ensured that the country's vast diamond wealth was managed responsibly.

The transformation was also remarkable for its inclusiveness. The country invested heavily in education, health, and infrastructure, ensuring that mineral revenues translated into improvements in human capital and living standards. Literacy rates rose dramatically, child mortality rates fell, and paved road networks expanded to connect previously isolated communities.

Based on this success, Botswana has often been seen as a model for resource-rich economies-a rare example of a country that has managed to avoid the so-called "resource curse." The country's economic takeoff has been studied by many economists, including Acemoglu, Johnson, and Robinson (2001), who name as contributing factors to its success a combination of strong institutions, prudent fiscal management, and a meritocratic civil service, among others.

Pillars of Success

Several core pillars underpinned Botswana's resounding success. I already mentioned some of them but allow me to review them in more detail.

First, institutional strength. Botswana ranks among the highest in Africa on governance indicators. Rule of law, control of corruption, and regulatory quality have provided a stable environment for investment and growth. This institutional solidity allowed policy decisions to be implemented effectively, supported long-term planning, and kept macroeconomic discipline at the forefront of decision-making.

Second, macroeconomic stability. Inflation was kept low for most of the post-independence period, the exchange rate was managed prudently, and fiscal policy avoided chronic deficits. These fundamentals, and the accumulation of substantial fiscal and external buffers, helped build credibility both at home and abroad, reassuring investors and shielding the economy from the volatility that has plagued many resource exporters.

Third, capital stock accumulation. Mineral revenues were translated into massive investments in both physical and social infrastructure. Schools, hospitals, roads, and telecommunications networks expanded rapidly. By the early 2000s, public investment rates consistently exceeded 10 percent of GDP-an impressive figure by international standards.

Losing momentum - the time since about 2010 marks a turning point

Today, however, there are unmistakable signs that Botswana's economic model has lost momentum. The very drivers that propelled Botswana's success are showing diminishing returns. According to a recent World Bank analysis, the economy is experiencing a gradual exhaustion of its traditional drivers, higher vulnerability to shocks, and a decline in the effectiveness of policymaking.

Returns on physical and human capital investments have fallen - the distance of Botswana from the efficiency frontier in the infrastructure index presented above are testament to that. The structural transformation-from agriculture to higher productivity sectors-has plateaued. Mining revenues, once the engine of fiscal surpluses, are now declining as demand for natural diamonds faces both cyclical and structural pressures, including the increasing competition from lab-grown diamonds.

Economic, social, and environmental vulnerabilities are also rising, particularly with climate change intensifying drought cycles and threatening rangeland productivity. Progress in global indices measuring competitiveness, human development, and governance has slowed, and in some areas reversed. Public investment efficiency has also weakened in social sectors, with less value for money from each pula spent, and the economy ever more reliant on the mining sector.

Furthermore, while the state's role was instrumental in building infrastructure and providing public services, the large public sector workforce-combined with a high wage bill-has at times crowded out private sector activity. Hence, the central government's wage bill consumes over 13 percent of GDP (58 percent of total tax revenues), an increasing share of government resourcs and a share considerably larger than comparable peers - regardless of whether EMs, Frontier Markets, or small states (that in some cases require a larger share of state employees). Beyong the central government, public enterprises have dominated sectors that could otherwise be opened to competitive private investment while representing a heavy fiscal burden for the government. The private sector's contribution to job creation and economic dynamism remains constrained by the large footprint of the state, restrictive regulations, and insufficient competition.

This limited private sector development is reflected in persistently high unemployment, particularly among the youth, where joblessness has hovered above 35 percent in recent years. The lack of robust employment opportunities outside the public sector underscores the urgency of structural reforms to foster a more vibrant and inclusive labor market.

But perhaps most concerning is the fact that macro-fiscal-financial buffers have been eaten up, as diamonds are showing a structural downward trend in their value, and Botswana has not made significant progress in reducing poverty or expanding the middle class in recent years. These weaknesses and fragilities need to be addressed quickly to avoid larger socioeconomic crisis - examples of which there has been plenty in the past.

Lessons from Commodity Collapses

History offers sobering reminders of the risks that accompany overreliance on a single commodity.

Zambia's dependence on copper made it vulnerable to a severe price shock in the 2010s, which triggered a surge in public debt and necessitated an IMF-supported adjustment program. Nigeria, heavily reliant on oil, faced multiple price collapses that exposed deep fiscal rigidities and foreign exchange crises. Venezuela offers the starkest cautionary tale-collapsing oil production and prices, compounded by governance failures, led to hyperinflation, social collapse, and the largest peacetime economic contraction in modern history.

While Botswana has maintained stronger institutions and macroeconomic prudence, these cases offer relevant parallels. In various instances, natural resource dependence was accompanied by insufficient economic diversification, limited fiscal buffers, sometimes rising wage bills, and repeated delays in addressing widening fiscal deficits. Moreover, like Botswana recently, these countries struggled to convert public investment into sustained productivity gains, with weak project selection and implementation often undermining the growth impact of capital spending. These shared features underscore the risks of complacency in resource-rich settings and the importance of advancing structural reforms before external conditions deteriorate.

The key lesson is simple but critical: commodity dependence without adequate buffers is dangerous. When prices fall, the absence of fiscal and external cushions can turn a terms-of-trade shock into a full-blown economic crisis. To avoid such outcomes, resource-rich countries must diversify their economies, establish credible fiscal rules, and build stabilization funds that can be drawn upon in bad times.

Learning from Peers

If these cautionary tales provide helpful warnings about the potential dangers of inaction, some success stories offer hope.

Chile, whose dependence on copper once mirrored Botswana's reliance on diamonds, has diversified into agriculture, aquaculture, and industrial services. This was achieved through robust macroeconomic frameworks, trade liberalization-including free trade agreements with major global markets-investment in logistics, and a strong focus on education.

Costa Rica emerged from a deep economic crisis in the 1980s with double-digit inflation and a 9.4 percent GDP contraction. By pivoting toward export-oriented growth, establishing high-tech free trade zones, and attracting foreign direct investment in semiconductors, medical devices, and IT services, it reduced the share of primary goods in exports from 65 percent to just 26 percent.

Vietnam, once an agrarian economy, transformed into a manufacturing powerhouse through the Doi Moi reforms, WTO accession, and proactive FDI attraction. These were underpinned by significant investments in human capital and infrastructure, enabling the country to integrate into global value chains.

Across these examples, several common success factors emerge: macroeconomic stability; universal quality education and health; openness to trade; strong institutions for investment promotion; targeted, time-bound industrial policies; close public-private collaboration; and an export orientation toward high-value sectors.

Road Ahead for Botswana - A Services-Led Diversification Strategy

Botswana begins this next phase of its development with considerable strengths-political stability, strong institutions, low corruption, and a well-educated workforce. The question is how to deploy these strengths most effectively.

The evidence points toward tradable, skill-intensive services as a promising path. Advances in communications technology have sharply reduced the disadvantage of geographic distance, allowing small, landlocked economies to specialize in services such as IT, professional consulting, finance, and high-end tourism.

For obvious reasons, I will not offer here a roadmap but rather offer some high-level principles:

1. Accept that diversification will take time. It is a journey with no fixed destination.

1. It is a journey that will require constant course correction. We are in a period of economic upheaval-driven by geopolitics and the ongoing digital revolution. This offers huge opportunities. But it should also make us modest about being overly confident about what particular economic sectors will prevail.

1. An approach where the state is more a venture capitalist will be important. Focus on sectors that expand the range of existing economic activities and innovation. If/when investments do not meet outlined objectives, move on to other sectors. Too often, instead, policymakers tend to lower the bar and/or increase investment.

1. Sustain the focus on macroeconomic fundamentals. In particular, fiscal deficits need to be limited to the level consistent with debt sustainability. Also, the exchange rate should be allowed to adjust fully to reflect economic fundamentals and react to shocks. These have been instrumental in middle-income countries avoid harmful balance of crisis in recent years. It is countries that have run large fiscal deficits and/or not allowed the exchange rate to adjust that have endured the worst performance.

To realize its diversification vision, Botswana will need to maintain macroeconomic stability, invest heavily in human capital and digital infrastructure, and deepen regional integration under frameworks such as the African Continental Free Trade Area. The policy mix should combine horizontal reforms-education, infrastructure, competition policy-with targeted, time-bound industrial policies linked to export and skills performance.

But before plunging into complex industrial policy choices, it is even more important to sit down with Botswana's own successful entrepreneurs and listen to where they see their biggest "pain points." The 2023 World Bank Enterprise Survey, which for the first time covered over 600 firms across Botswana, offers a valuable "bottom-up" perspective on the constraints holding back private sector-led diversification. Firms consistently pointed to limited access to finance, corruption, difficulties in securing land, and unreliable electricity as their most pressing challenges-barriers that restrict investment, innovation, and expansion into more complex, tradable sectors. These micro-level findings align closely with broader macro-structural analysis, reinforcing that unlocking finance, strengthening governance, modernizing land administration, and improving infrastructure are essential to enable Botswana's businesses to drive diversification and sustainable growth.

Closing - In Sum

Botswana's journey from one of the poorest countries in the 1960s to one of the richest in Sub-Saharan Africa is a story worth celebrating. It was built on strong institutions, macroeconomic stability, and prudent management of diamond revenues. Yet, the warning signs are clear: diminishing returns from the traditional growth model, eroding buffers, and persistent overreliance on diamonds.

The urgency for decisive action cannot be overstated. Fiscal consolidation, deep structural reforms, and a bold diversification strategy are essential. The lessons from commodity collapses show what is at stake; the successes of Chile, Costa Rica, and Vietnam show what is possible.

If Botswana acts now-building on its governance strengths and positioning itself as a regional leader in tradable services-it can ensure that, at the Bank of Botswana's 100th anniversary, we will be celebrating not only resilience, but a high-income, truly diversified, inclusive, and sustainable economy.

Thank you.