The Mineral Dependent Economic
Structure and Incentives Faced by
Government
Conference: Are Diamonds Forever? Prospects for a Sustainable
Development Model for Botswana
27-28 August, 2014
Ita Mannathoko
Mineral Dependent Structure Distorts the
Performance Incentive Government Faces
Type of
Revenue
Source
Broad taxation
of citizens
Surpluses from
export of
natural
resource
products
Extent to Which the
Revenue Source is ‘Earned’
by the State in Terms of
Organizational Effort
High
(State focuses on collecting
revenues and electorate
typically will monitor delivery
by the state against election
promises)
Incentive for State
Accountability to
the Electorate
Ability of Economic Climate to
Guide Government
High
(Electorate typically
not understanding of
taxation without
representation)
High
(Business sector is an important
source of income – and the state
experiences similar economic
conditions to the private sector)
Low
(The state does not need to
exert any public sector
organizational effort that will
ensure effective public service
delivery, in order to safeguard
its income source)
Low
(The state relies on
the mineral export for
its revenue – not on
the electorate –
therefore it is not
readily held to
account on delivery)
Low
(State’s economic climate follows
that of its principal income source
– the mining sector. It may even
run surpluses when the nonmining economy is in recession,
and so is often out of touch with
the experience of the general
public and the private sector. )
Source: Adapted from Mick Moore (2007), Institute of Development Studies
2
Distorted Incentives Affect Public
Sector Performance Over Time: e.g. 1
Government Effectiveness
Percentile Rank (0=worst;100 = best)
80
78
76
74
72
70
68
66
64
62
60
1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
BOTSWANA
MAURITIUS
Botswana Trendline
Mauritius Trendline
Distorted Incentives Affect Public
Sector Performance Over Time e.g. 2
Regulatory Quality
Percentile Rank (0=worst;100 = best)
80
75
70
65
60
55
50
1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
BOTSWANA
MAURITIUS
Botswana Trendline
Mauritius Trendline
Main Corrective Actions
Correct incentives faced by government:
the fortunes (welfare) of government
officials and politicians should move in
tandem with those of the Batswana they
serve
B. Correct government’s organizational effort
so it is directed at non-mining business
sector growth and development
C. Strengthen & safeguard accountability
systems
D. Strengthen management and operational
systems
A.
Main Corrective Actions
A. Correct incentives faced by government: the fortunes
(welfare) of government officials and politicians should move
in tandem with those of the Batswana they serve
◦ An adverse economic climate for people in the non-mining
sector should correspond to an adverse economic
climate for public servants
◦ Losses and waste of public resources impact Batswana
negatively => should impact the responsible officials and
ministers in public agencies, parastatals, likewise
◦ Non-performance and poor service delivery by the public
sector impacts Batswana negatively => should impact the
responsible managers and officials likewise
◦ Loopholes and corruption impact Batswana negatively =>
should impact the responsible managers, officials,
politicians likewise
Main Corrective Actions
B. Correct government’s organizational effort
so it is directed at non-mining business sector
growth and development
◦ Ministry and Parastatal efforts should focus as
much on improving the welfare of Batswana by
growing the domestic business sector as on
attracting foreign investors
◦ Develop firm capabilities and more products
◦ Ensure microeconomic policies target and serve
local businesses - not just foreign investors
◦ Ensure macroeconomic policies are appropriate
to non-mining sector growth (avoid Dutch
Disease tendencies)
Main Corrective Actions
C. Strengthen & safeguard accountability systems
◦ use technical team decisions for high-cost activities and
remove discretionary or veto powers of senior officials and
ministers
◦ Re-instate the appropriate checks and balances
◦ Eliminate personal and institutional conflicts of interest and
take corrective action to remove such conflicts when they
arise
D. Strengthen management and operational systems
◦ Ensure strong managers and strong program and project
management systems
◦ Build systems & know-how for private sector development
◦ Do not allow complacency to weaken or remove systems
that work or remove checks and balances
◦ Safeguard and perpetuate institutional memory
Importance of the Right Approach

Adverse incentives arising from an economic structure that
works against diversification have to be corrected; incentives
don’t motivate officials to serve Batswana in private sector

Diversification requires that we produce more and different
non-mining products; Products require capabilities
Diversified economies have more capabilities and so are able
to make more products (Hausmann)




Botswana wants to graduate from the “poor economy”
model that is dependent on mining because of a lack of
capabilities in its people; to
The model of a middle income economy with many
capabilities enabling it to produce different and more
complex products; However..
Botswana has not developed the requisite capabilities (along
value chains) to match private sector expansion needs
Thank You