MUGA: Lessons on economic policy from Botswana diamond industry

I learnt many years ago that – in the context of a late night at a Kenyan pub – there is one thing which is likely to provoke an incandescent fury in a fellow patron who had previously been arguing very lucidly on local politics.

And that thing is the simple statement that the most crucial factor holding back the Kenyan economy is policy failures rather than rampant corruption.

For many Kenyans, it is an article of faith that it is because we somehow always end up electing leaders who willingly preside over the massive theft of public resources, that we have not generated as much economic growth as we should have.

There are many otherwise calm and restrained Kenyans who turn apoplectic at any suggestion that it is not corruption that has “ruined” our country.

Now let me give you an example of the kind of logic which can get your teeth knocked out during an intense political discussion in a Kenyan pub: facts and data, impossible to refute, which suggest that rampant corruption does not explain all our problems.

China is generally considered to have pulled off the greatest economic miracle of the 20th century by lifting roughly 800 million of its citizens out of extreme poverty. This was done primarily through a shift from being a typical agrarian economy with most of its people engaged in small-scale farming, to massive industrialisation accompanied by equally great urbanisation as peasant farmers moved to the cities to take up jobs in factories.

But here is the thing. Throughout this period, China was not free of corruption at all. If you think Kenyan high officials are corrupt, consider the case of a Chinese national, Bai Tianhui – now “the late Bai Tianhui”, following his execution just three months ago – who managed to accumulate a private fortune of $156 million from bribes alone.

That is roughly Sh20 billion – the kind of sum we associate with a substantial infrastructure project here in Kenya.

In total, over a million Chinese officials have been tried for corruption in recent decades. And yet this level of corruption did not prevent those 800 million people previously trapped in extreme poverty from escaping their grim fate, when their government made the right policy decisions.

But Beijing is very far away. A closer example of a country which experienced rapid economic growth is that of Botswana. And in Botswana, what has been said over the years is that it serves to illustrate what is possible if a country has – effectively – slain the dragon of corruption.

For it is true enough that, starting with Botswana’s founding president, Sir Seretse Khama, the country has been blessed with leadership, at all levels, with impeccably clean hands.

What made these clean hands all the more remarkable is that Botswana has all along had an economy based on the exploitation of minerals – diamonds in this case.

And mineral wealth, as we all know, is the very thing that has proved to be a curse in many African nations, fuelling endless civil wars and secessionist movements in the mineral-rich regions of such countries.

But amidst all this glittering economic success, Botswana had one key policy failure that has since turned out to have the potential to undo all the good work done by Botswana’s various leaders over the years. This is that they failed to come up with policies that could enable them to comprehensively diversify their economy.

It has long been established that any nation that depends on a single export product, no matter how valuable that product may be, is skating on thin ice.

Poor demand for diamonds, coupled with the increased production of flawless “lab-grown” diamonds, has led to Botswana currently sitting on a huge stockpile of unsold diamonds.

The impact of this on Botswana’s export earnings can be nothing short of catastrophic.

I am not sure why Botswana has not been able to find a path to extensive diversification of its economy.

But what is for sure is that it has been a failure of policy, not a failure brought about by powerful corruption networks of the kind we are told are to be found in every economic sector in Kenya.