Botswana a Mono-Diamond Economy or Not?

Botswana is a country known for being the world’s largest producer of diamonds in value. The product contributes substantially to the country’s GDP and revenues. It is the major single export of Botswana. However, diamond is a non-renewable natural resource. This article is intended to establish whether Botswana has any comparative advantage in other products other than diamonds in order to have sustainable development beyond mining of diamonds.


INTRODUCTION
Botswana was a dusty poor country in early 1960s with heavy reliance on subsistence agriculture. The country was relatively unknown then. However the fortunes of Botswana changed with the discovery of diamonds. Botswana is situated in Southern Africa. It is a founder member and hosts the headquarters of the Southern African Development Community (SADC). On the political front, Botswana was one of the frontline states which contributed a lot towards the attainment of independence in Zimbabwe, Namibia and South Africa. It sheltered refugees from Rhodesia, South Africa and South West Africa. It was often raided by apartheid regime from South Africa. It is also a member of Southern Africa Customs Union (SACU) and the Commonwealth. With the new found wealth of Botswana through mining diamonds, this paper explorers whether Botswana will be able to sustain development after the diamonds have been exhausted.    Mohohlo (2011) who states that Botswana has good governance record. FDI is very sensitive to governance indicators (Mzumara, 2011b). It is not known whether FDI went to the vibrant mining sector alone or there are other sectors which have benefitted. According to Lipsey and Chrystal (1995) FDI links domestic economy with foreign, transfers superior management skills and alters terms of trade of a country and comparative advantage and improvement in competitiveness via technology transfer. This paper will attempt to establish whether Botswana has comparative advantage in other products other than diamonds

METHODOLOGY
The paper employed the technique developed by Balassa (1965) the Revealed Comparative Advantage (RCA). The Commission of the European Communities (1990) used the RCA to analyse and evaluate the sectoral impact while preparing to introduce a single market. Richardson and Zhang (1999) used RCA to analyse the United States economy for variations of patterns across time, industries and states. Yue (2001) also used the RCA index to show that China altered its export pattern inline with its comparative advantage. Mirzaei, Yazidani, Mostafavi and Gharahdaghi (2004) used the RCA to examine the comparative advantage of chicken meat export of Iran to the Middle East. Batra and Khan (2005) used RCA to analyse comparative advantage of India and China. Krugell and Matthee (2009)  (2011a) but same digit level with Mzumara (2011b). An RCA equal or greater than 1 indicates a country has revealed comparative advantage in the product.

PRESENTATION OF THE RESULTS
5403 product lines were examined and their RCA computed for each year from 2001 to 2010 except 2008. Then average RCA for 9 year period was computed to arrive at an overall RCA for a particular product. Only products which had RCA equal or greater than 1 are reported in table 3 below.  Table 3 shows that Botswana has Revealed Comparative Advantage (RCA) in 244 product lines out of the 5403 products computed for RCA over a 9 year period. This translates to 5% of all the products so far tested for possible Revealed Comparative Advantage. There was no evidence of any Revealed Comparative Advantage (RCA) in 5159 products. That means Botswana does not have Revealed Comparative Advantage in 95% of the products tested. The question the paper was addressing was whether Botswana is a mono-diamond economy or not. The results show that Botswana has other products other than diamonds in which it has comparative advantage hence it is not a mono-diamond economy. Botswana shows highly specialised in other products other than diamonds. The description of the products in which Botswana has a comparative advantage are presented in the Appendix. However, Botswana has also Revealed Comparative Advantage in low value products such as brooms, brushes, buttons, pens, pencils, balloons, sewing needles, balls etc. These are low value products no matter the world demand that can be there, they cannot earn much for Botswana to match earnings from diamonds. This is the main reason all the other products Botswana exports only add up to 30% to exports earnings.

CONCLUSION AND RECOMMENDATIONS
Botswana is not a one product (diamonds) economy despite its heavy reliance on the product. The country is highly specialised in the production of other products apart from diamonds. Botswana has demonstrated efficiency in production of such products. These products can take over as Botswana's major exports in the event that diamonds are fully exhausted however some products constitute a group of low value products. It is recommended that Botswana should be promoting other products it has comparative advantage also. The current emphasis on diamonds can hurt other products in the long run as it is perceived as if Botswana only produces diamonds. There is a need to further diversify so that the economy does not rely on one particular primary commodity in this case diamonds constituting 70% of export earnings. Any negative changes in the diamond movement would reduce the economy into a forced recession. Botswana should use its earnings to diversify and enter into higher level manufacturing producing high value products than simply producing balloons, pencils, buttons, etc.
It can use its resources to import raw material and other inputs and engaged in real high level value added manufacturing away from steaming tomato sauce. The government should also diversify its revenue base so that no particular product has a monopoly to bring in 50% of its revenue. There is a need that the government prepares for the eventuality when it will have exhausted mining the diamonds and widen its revenue base well before the resource is exhausted. Further there are other countries which have recently discovered diamonds such as Zimbabwe, such countries will lead to Botswana's receipts decreasing including its market