Botswana and Mauritius have bucked the African trend and achieved long-term strong economic performance. Institution building plays a part.
Just two African countries stand out for their consistently strong long-run economic performance. Botswana and Mauritius succeeded in achieving real per capita GDP growth of 5.3% and 3.7% respectively between 1960 and 2000, compared with an average of 0.8% a year in sub-Saharan Africa, 2.7% in industrialised countries and 2.3% for all developing countries over the same period.
The question on the minds of economists and policy-makers is why. Do these countries offer a development blueprint that can be applied elsewhere on the continent? Or do they possess a uniqueness that precludes other African states from replicating their success?
Growth determinants
Researcher Arvind Subramanian provides an analysis in the International Monetary Fund’s World Economic Outlook 2004. He looks first at the variables identified in cross-country analyses that are important determinants – at least initially – of growth. These include human capital variables such as schooling and life expectancy, economic variables such as commodity dependence and the level of initial income, and geographic variables such as tropical climate and access to the sea.
Although Botswana and Mauritius do fare better on balance, these variables explain only a fraction of the difference in performance between Botswana and Mauritius and the rest of sub-Saharan Africa, says Mr Subramanian.
Botswana and Mauritius did maintain lower inflation rates than the rest of Africa and also a lower share of government consumption in GDP, although the difference in the latter is more striking in the case of Mauritius (8.8% versus 16.4% for sub-Saharan Africa) than Botswana (13.4%). In contrast, though, Botswana’s trade policies were similar in terms of their restrictiveness to those of the average African country, while those of Mauritius were more restrictive.
So liberal trade policies, which cross-country evidence suggests have a positive impact on growth, cannot explain the performance of these countries. And, to the extent that sound macroeconomic policies can explain it, the question is then why these countries were able to pursue such policies, but not the rest of Africa.
Superior institutions
“One, and perhaps the key, difference is that the quality of institutions in Mauritius and Botswana is much higher than in the rest of Africa, and indeed is comparable to those elsewhere in the world,” Mr Subramanian concludes. “The recent research on the impact of institutions on long-term development suggests that the superior institutional quality in Botswana and Mauritius helps explain the difference in their higher levels of income.”
In addition to the standard benefits that good economic institutions provide (namely, an enabling climate for private investment), Mr Subramanian highlights three particular ways that are noteworthy in an African context in which institutions helped Botswana and Mauritius.
First, for Botswana, institutions were crucial in preventing the natural resource curse that has been shown to depress long-run growth. The political influence of the cattle-exporting groups also ensured that rising diamond production did not lead to an overvalued exchange rate, which could have crowded out the tradable sector.
Second, in Mauritius, strong political institutions provided the scope and space for participation by all groups, where ethnic and linguistic divisions are almost as acute as in the rest of Africa, thereby minimising conflict that has had such a detrimental impact on economic activity.
Shock absorption
Third, strong institutions played an important role in helping these countries to adjust to commodity shocks. Robust domestic institutions, especially those that provide for wide participation, allow the distributional conflicts entailed by adjustment to be handled at the least possible cost, and prevent the initial economic shock from being further magnified by the shocks emanating from such conflicts.
Mr Subramanian concedes that both countries benefited from circumstances that aid institutional development. Even before colonial rule, Botswana had institutions for political participation. The kgotla, which was an assembly of adult males in which public interest issues were addressed and criticisms of the ruler voiced, was left relatively untouched by colonial rule. In the case of Mauritius, participatory political institutions were seen to be imperative at the time of independence to assuage the concerns of the minority groups that voted against independence in a referendum.
Challenge for Africa
“As these experiences suggest, institution-building, – a prerequisite for sound long-run economic performance – is a slow process and the challenge for Africa is to find ways of accelerating it. Over the past few years, the reduction in civil conflicts, the growing democratisation of the continent and the adoption of more market-oriented policies have improved the prospects of countries in sub-Saharan Africa being able to meet this challenge,” says Mr Subramanian.
