The African Natural Resources Center (ANRC) has commissioned a series of case studies to bridge the knowledge gap in natural resources project-driven SME development, supply chain based domestic linkages, extractives revenue management, public-private partnerships and fiscal policy formulation. This case study examines the experience of a resources-dependent country’s approaches to mining revenue management.

In the natural resources sector, national governments perform a central role by acting as stewards in resources development. This requires a balance of policy, legal and institutional considerations. It also requires governments to consider the needs of various stakeholders. In the extractives sector, the importance of protecting inter-generational benefits is a particular challenge given the finite nature of resources. This places an extra burden on policymakers to increase the value obtained from extractives while giving investors a fair return.

Additionally, to increase development outcomes, governments must make informed choices while meeting public expectations to benefit more from extractives projects. A particular challenge facing both investors and governments is to ensure that the impact of extractives projects is felt as early as possible. Another is to ensure that countries begin to enjoy the benefits despite the time lag between project commissioning, production and payment of taxes.

Equally important is the need to stabilize the project environment such that, regardless of the project life cycle, commodity market conditions and level of profitability, projects continue to have a positive effect on human development. The answer in part lies in delinking revenue from human development strategies by assisting governments with other options for delivering tangible benefits.

Other important challanges facing countries include:

• Striking a balance between the impact on local and national economies;

• Making the correct trade-off between fiscal and non-fiscal benefits;

• Integrating projects into national economies to ensure local content while capitalizing on the global outreach of multinational corporation supply chains and related economies of scale;

• Ensuring that public-private partnerships increase human impact, promote small and medium enterprises (SMEs) and deliver social welfare services directly to those affected by extractives projects;

• Securing inter-generational value by investing revenue in productive assets.

Many resource-rich countries need to generate concrete solutions and knowledge to overcome these challenges they face and build their own capacity. In view of this the African Natural Resources Center (ANRC) has commissioned this series of case studies to benchmark best practices. Ultimately, through these studies, we want to offer countries practical solutions and a coherent policy foundation with which to improve development outcomes through natural resources projects.

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Mineral Revenues, Expenditure and Savings Policy in Botswana

Introduction

In many African countries, the exploitation of natural resources is a major driver of economic growth, exports, fiscal revenues and development. Although many countries in the continent are well-endowed with both renewable and non-renewable natural resources, it is by no means assured that these endowments will automatically translate into broad-based social and economic development. Resource-based economies face particular challenges, arising from price and market volatility, the fiscal challenges of capturing resource rents, macroeconomic impacts of real exchange rate appreciation and governance challenges that often result in planning failures and corruption. Mineral resources are also finite and therefore raise issues of intergenerational fairness – how the proceeds of mineral exploitation should be shared between current and future generations. Several resource-based economies have managed to avoid some or most of these problems, and their policy choices and institutional design might provide useful insights for other countries. Botswana is one such economy. It is often cited as an example of a country that has avoided the adverse impacts of the “resource curse” through appropriate policy and governance choices.

The mining sector continues to be the backbone of Botswana’s economy, despite efforts to diversify. Mining is, by some measures, the largest contributor to gross domestic product (GDP), generates the majority of export earnings and makes a major contribution to government revenues. The use of mineral revenues is, therefore, of critical importance for sustainable development. Botswana has received widespread praise for the way in which it has managed mineral revenues and invested them in education, health care and other forms of assets. In some respects, it has managed to avoid what is commonly known in the literature as the “mineral curse” and “Dutch Disease” through appropriate macroeconomic, exchange rate and fiscal policies, as well as institutional design.

It is important, however, that past success should not lead to complacency. It is also critical to recognize that policy changes may be required in response to changing circumstances, both domestically and internationally. As this report will show, the peak of the contribution of minerals to the Botswana government’s revenues appears to have passed, and the fiscal importance of minerals is likely to decline in future. At the same time, some Dutch Disease and resource curse characteristics can be observed, such as high unemployment, high-income inequality, slow growth of non-mining exports and questionable public spending decisions.