Fossil Fuels are Dead, Long Live Fossil Fuels: Botswana’s options for economic diversification

Image: Wikimedia Commons, Cretep
Image: Wikimedia Commons, Cretep

Botswana is at a critical historical juncture. It has enjoyed a stable democracy since 1965 and strong, quality economic growth for the last few decades. However, the diamond revenues on which the country depends are likely to decline in the near future. Economic diversification is therefore a pressing policy concern.

This report considers Botswana’s options in this respect. It frames these options in terms of ecological economics, the fundamental premise being that natural capital should not be treated as a free good to be consumed. The extraction of minerals entails negative externalities that often undermine alternative sources of revenue generation. Botswana should seek to avoid these negative trade-offs insofar as possible, especially in the light of its abundant pristine wilderness areas. Coal and iron ore should be viewed as intermediate sources of revenue, preferably harnessed for domestic beneficiation rather than exported in raw form by rail. At the same time, such downstream beneficiation should not be viewed as a panacea for Botswana’s development. Existing diamond rents should be widely invested in human and physical capital. Tourism should be viewed as the country’s primary source of future revenue generation, given that its sustainability depends on environmental preservation.

A more broadly available supply of human and physical capital would likely support a much larger tourism industry. It may also open up economic opportunities in fields such as renewable energy. In the long run, it would be more efficient for Botswana to be a world leader in the generation of solar power, for instance, than to be an exporter of raw coal. This report explores Botswana’s options and concludes by offering relevant policy suggestions.

28 Aug 2015