Diamonds and Development: Addressing Botswana's Slowed Poverty Reduction and Inequality

Botswana's Poverty Assessment highlights the country's progress from poverty to upper-middle-income status driven by diamond wealth but reveals slowed poverty reduction, persistent inequality, and significant economic and labor market challenges. The report emphasizes the need for inclusive economic growth, improved human capital, and robust social protection systems to address these issues.

Botswana's journey from one of the world's poorest countries to an upper-middle-income status has been fueled by diamond-driven economic growth, substantial public investment, and political stability. The World Bank's Botswana Poverty Assessment, co-authored by Carolina Diaz-Bonilla, Santiago Garriga, and Giselle del Carmen, with contributions from Ugo Gentilini, Victoria Monchuk, Ifeanyi Nzegwu Edochie, and Daylan Salmeron Gomez, provides a detailed analysis of these changes. With a relatively small and youthful population of 2.3 million, Botswana has leveraged its mineral wealth to significantly improve infrastructure, education, and healthcare, leading to better living standards.

Stalled Progress in Poverty Reduction and Rising Inequality

However, the rapid poverty reduction experienced between 2003 and 2009 has slowed considerably, with the poverty rate decreasing only marginally from 19.3% in 2009 to 16.1% in 2016. This slowdown in poverty reduction is coupled with persistent high inequality. Despite a decrease in the Gini Coefficient from 60.5 in 2009 to 54.9 in 2016, Botswana remains one of the most unequal countries globally. The report attributes this persistent inequality to weaker pro-poor growth and real consumption declines among wealthier households. Rural areas have borne the brunt of these challenges, with rural poverty rates increasing from 24.4% to 26.8% between 2009 and 2016, while urban poverty rates have declined. The economic shocks of 2015, including a major drought and electricity and water shortages, significantly impacted rural households, exacerbating poverty and unemployment.

Labor Market Challenges and Limited Job Creation

The labor market in Botswana faces significant challenges, with job creation lagging behind labor force growth. Between 2003 and 2009, employment growth outpaced labor force growth, contributing to poverty reduction. However, from 2009 to 2016, job creation was insufficient to keep pace with the growing labor force. Employment in agriculture has declined, while public sector expansion, particularly through the Ipelegeng public works program, has driven job creation. Despite these efforts, the labor market has not been able to absorb the growing number of job seekers, resulting in higher unemployment rates and increased rural poverty. Non-monetary dimensions of poverty, such as access to electricity, sanitation, and other basic services, remain highly unequal, particularly in rural areas. While electrification rates have improved, significant gaps persist between rich and poor villages. The COVID-19 pandemic further exacerbated these challenges, revealing gaps in Botswana's social protection system. The government's response included emergency feeding programs and wage subsidies, but the report emphasizes the need for more robust social protection mechanisms to mitigate future shocks.

Economic Volatility and Diversification Struggles

Botswana's economic growth has also become more volatile since 2010. The country faced recessions in 2012, 2015, and 2020, highlighting its vulnerability to external shocks due to its reliance on minerals and the public sector. Despite strong rebounds after each recession, overall growth has remained relatively low and more volatile. The 2015 recession was caused by a decline in global demand for diamonds, exacerbated by a major regional drought and electricity and water shortages. The COVID-19 pandemic and global lockdowns led to another recession in 2020, further weakening the economy. The shocks that hit the economy between 2015 and 2020 underscored the weak economic diversification. While the service industry grew as mining declined, this growth was primarily in small, low-productivity firms serving the domestic market, resulting in limited economic growth and job creation. Despite efforts to invest in infrastructure, health, and education, private sector participation in nonmineral exports and transformative sectors has been limited, restricting economic growth, diversification, and job creation.

Pathways to Sustainable Growth and Poverty Eradication

The government's aim of achieving high-income-country status by 2036 requires a significant and sustained boost in economic growth. Botswana's strong growth throughout the 1990s and early 2000s resulted in one of the highest incomes among its structural peers, but recent growth has been slow. The country faces a fast-changing local and global context characterized by growing challenges and risks, but also fresh opportunities. Increasing international uncertainty, volatile commodity prices, high inflation and interest rates, revamping global value chains, geopolitical transformation, and protracted conflicts pose challenges to Botswana's economic growth. However, global trends also offer new opportunities. The report highlights that Botswana could build on its potential comparative advantages in areas such as renewable energy, exports of battery minerals, livestock value chains, and ecotourism. To achieve its goals of poverty eradication and high-income status, Botswana needs to transition towards a more diversified and inclusive growth model that supports private sector job creation and is more resilient to shocks. This requires accelerating inclusive economic growth based on dynamic private-sector-led job creation, investing in quality human capital among the poor, improving infrastructure and shock-responsive systems, and strengthening data for evidence-based policy design. Overall, the Botswana Poverty Assessment underscores the need for sustained and inclusive economic growth, targeted social protection, and robust data systems to address poverty and inequality in Botswana.