Overcoming the “resource curse” and the foreign debt trap
The economic and political science literature have hypothesized the existence of a so-called resource curse in Africa. According to this highly conservative view, Africa’s natural wealth would not be a blessing that could provide a strong building block for its economic transformation but rather an impediment due to various alleged African idiosyncrasies – corruption, authoritarianism and the like. Related to this view is the belief that being a commodity producer necessarily condemns African countries to poverty and recurrent debt crises. To refute these debilitating clichés, Botswana is a good case in point.
An economic growth champion
Known as Bechuanaland during the colonial period, Botswana became politically independent in 1966 with a population of less than 600,000. Landlocked within Southern Africa, the country has been ruled by the same political party – the pro-British Bechuanaland Democratic Party, renamed Botswana Democracy Party – which won all the parliamentary elections until 2024, the year when the opposition leader Duma Boko was elected President. The longevity of the BDP is reminiscent of the experiences of some Asian developmental states, such as Japan, Singapore and China. Like these three countries, Botswana has been an economic growth champion.
Between 1960 and 1990, Botswana’s real GDP per capita (in 2015 constant US dollars) went from 394 to 4039, a ten-fold increase which represented an average annual growth of 8.1 %. This is the best performance worldwide for all the countries for which the data is available over this period. South Korea (7.6%), Oman (6.7 %), Singapore (6.4 %) and Japan (5.1%) are respectively the followers to Botswana (see Fig.1). To put that performance in a regional perspective, Botswana’s real GDP per capita only constituted 9.9 % of South Africa’s in 1960. Three decades later, the ratio increased to 88.9 %. Nowadays, Botswana is ranked among the “Upper middle income economies”.
Figure 1: Top 5 countries with the highest average annual rate of GDP per capita growth (1960-1990)
Source: World Bank International Development Indicators, visited on October 18 2025
What accounts for this stellar economic growth? The short and simplest answer is: diamonds1.
Leveraging diamonds
Botswana is rich in diamonds. Its leadership has wisely managed this resource for the benefit of the country. Established in 1968, after the discovery of diamonds, Debswana is a joint venture between De Beers and the government of Botswana, each owning 50 % of the diamond mining company’s shares. De Beers itself is 15 % owned by the government of Botswana and 85 % by AngloAmerican.2
From 1975 to 1985, Botswana experienced continuous and significant external deficits. However, the following two decades from 1986 were marked by very high levels of current account surpluses (see Fig. 2). While most countries in Africa and Latin America were facing “lost decades”, as a result of the imposition of structural adjustment programmes by the International Monetary Fund (IMF) and the World Bank, Botswana was gradually becoming a creditor to the rest of the world.
Figure 2: Current Account Balance of Botswana (1975-2024), % GDP
Source: World Bank International Development Indicators, visited on October 18 2025
Escaping the foreign debt trap
This creditor status has had three beneficial impacts. First, Botswana managed to deal relatively well with negative external shocks and other sources of external financial vulnerability. The best proof of this statement is that it has never received a loan from the IMF from its independence to now.3
Second, given its control over significant external assets4, Botswana has so far not been forced to borrow unreasonably from abroad. Whenever it has taken on debts denominated in foreign currencies, it has essentially relied on official creditors – multilateral and bilateral partners – and has avoided loans from foreign banks. In contrast to most of its African peers which became addicted to Eurobonds and often suffer high premia due to negative risk perceptions shaped by their low credit ratings, Botswana restrained from issuing bonds denominated in foreign currencies. In 2023, 94% of Botswana’s public external debts were owed to the African Development Bank and the World Bank (see Fig. 3). This leads to the ironic observation that one of the few African sovereigns considered “investment grade” by international credit rating agencies5 is the one that has not needed so far to tap on international capital markets.
Figure 3: Creditor Composition of Botswana foreign public debt stock in 2023
Source: World Bank International Debt database, visited on October 18 2025
Third, given its creditor status, its relatively low sovereign foreign debt and the creditor composition of the latter, Botswana did not suffer from high interest payments and external debt service. For example, during the 2000-2023 period, interest payments averaged 0.3 % of its exports and 0.2 % of its Gross National Income (GNI). Its debt service averaged 1.7 % of its exports and 0.8 % of its GNI. See Table 1.
Table 1: External debt ratios of Botswana (%)
Lessons from Botswana
Botswana is not an industrialized country, as it still heavily relies on diamond exports. Pearls, precious and semi-precious stones provide 85 % of the country’s export income.6 Yet, it managed to cement an important degree of financial sovereignty as evidenced by its low levels of foreign debt and the fact that it has never had to borrow from the IMF. Botswana convincingly demonstrates that resource-rich African countries, provided that they secure some technical and financial control over their natural endowments and that they use their external incomes wisely, are not destined to suffer from a “resource curse” and recurrent debt crises.
It’s important to clarify that the point made here is not to suggest that Botswana is unique or a perfect model. Given the tendency in the literature to exaggerate Botswana’s democratic credentials in explaining its economic performances, it is worth noting that oil-exporting Libya, under Gaddafi, was a creditor country with limited foreign debts and a significant degree of financial sovereignty. Libya also never borrowed from the IMF.
To be sure, Botswana faces several limitations. It struggled to diversify its economy while the future of the diamond industry is uncertain given the growing worldwide appetite for from grown lab diamonds and increased competition. De Beers’ decision to exit the diamond industry in Botswana has prompted the government to consider taking it over.7 Moreover, Botswana has not used its policy space to spur a more inclusive economic model. The level of poverty is very high for a country with its income per capita. As for most of its Southern Africa neighbors, income and wealth inequalities in Botswana are among the highest in the continent and the world.8
If Botswana is certainly not an accomplished paragon of transformative and inclusive economic development, it shows at least what Africa could achieve with its abundant resources. Asserting more control over these resources will certainly be key if the continent is to delink from foreign (predatory) finance, turn the page of IMF conditionalities, pursue a path of (green) industrialization and become a center of its own in the emerging multipolar world.
