For decades, Botswana has largely followed the policy prescriptions set out in the World Bank’s reform playbook. It has maintained fiscal discipline, built strong macroeconomic institutions, accumulated reserves, and invested heavily in public goods. These policies underpinned one of Africa’s most successful development stories, transforming the country from one of the poorest at independence into an upper-middle-income economy.
Yet that success has not translated into a diversified, export-driven economy. Diamonds still dominate exports, while productivity growth outside the mining sector has remained weak for decades.
According to economists Keith Jefferis and Gabriël Loubser, this is not a failure of implementation but a limitation of the reform model itself.
“The Bank’s orthodox prescriptions are inadequate for addressing Botswana’s challenges,” they said in research paper titled “Moving Beyond Manufacturing in East Asia to a New Natural Resource Middle-Income Trap: Lessons from Botswana’s Diamond-Led Transformation’.
The World Bank recommends a range of horizontal policies. However, Jefferis and Loubser argue that this model of reform remains inadequate, particularly its reliance on broad, economy-wide measures as the primary tool for transformation.
The World Bank’s current diagnosis, according to Jefferis and Loubser, is rooted in the “middle-income trap” framework. This view holds that the trap emerges when wage growth outpaces productivity gains, leaving economies like Botswana uncompetitive in labour-intensiveproduction—historically their growth engine—while lacking the productive capacity to compete in advanced sectors.
The policy response under this orthodox framework emphasises horizontal reforms, including investment in education and infrastructure, trade liberalisation, financial market development, improved government efficiency, and strengthened macroeconomic stability.
However, Jefferis and Loubser argue that this framework misreads Botswana’s economic structure. Unlike the East Asian economies on which the middle-income trap theory is based, Botswana did not grow through labour-intensivemanufacturing. Its growth was resource-based, driven by diamonds. As a result, the dynamics of slowdown are fundamentally different.
This distinction, they argue, has important policy implications. If the constraint is not labour costs but the limits of a resource-based growth model, then improving market conditions alone will not generate new sources of growth.
In such cases, growth slowdowns emerge not from wage-productivity dynamics but from the exhaustion of natural resource-driven expansion, as production frontiers are reached and prices decline, limiting both output growth and the state’s ability to deploy resource revenues.
“Reaching the ‘peak resource’ stage, the point at which growth slowdowns occur, should not solely be read as failure,” they note.
In Botswana’s case, this turning point is already visible. The contribution of diamonds to GDP and fiscal revenues has declined significantly from its peak, even as government expenditure has remained elevated. The result is a widening gap between revenues and spending, placing increasing pressure on public finances.
According to Jefferis and Loubser, this is where the limits of the standard reform approach become clearer. The assumption underlying these reforms is that improving the business environment will allow firms to respond, expand, and compete. But Botswana’s private sector is not structured in a way that makes this automatic.
Much of the non-mining economy is oriented toward domestic demand, largely driven by government spending. Firms have developed within this environment, with limited exposure to international competition and weak integration into global value chains.
“Few Botswana firms are integrated into competitive global value chains and will face more challenges in upgrading,” the authors note.
They argue that policies which reduce constraints—through deregulation, improved infrastructure, or better access to finance—are only effective if firms already have the capability to respond. In Botswana, that capability base remains limited.
Building it, they say, requires a different kind of policy intervention that goes beyond improving markets to actively shaping them. This includes targeted support for specific sectors, vertically oriented industrial policy, coordination between firms and the state, sustained efforts to build technological and production capabilities, and a greater tolerance for risk.
However, this is where another constraint emerges.
“The Botswana state has concentrated capacity at the macro-policy level, leaving it ill-equipped for interventions in more ‘productionist’ areas,” Jefferis and Loubser argue.
Crucially, many of these reforms have already been attempted. Botswana’s economic model since the 1990s incorporated much of this policy framework, yet the results have not matched expectations. Productivity has contributed negatively to GDP growth over multiple decades, including the 1990s, 2000s, and 2010s.
This suggests that improving the general business environment, while necessary, has not been sufficient to generate sustained productivity growth or structural transformation.
The institutions that enabled Botswana to manage its diamond wealth—strong fiscal policy, effective revenue collection, and macroeconomic stability—are not the same institutions required to build competitive industries. The skills, incentives, and organisational structures needed for industrial policy are fundamentally different.
“Resource-based growth and escaping the middle-income trap require fundamentally different state capacities,” the authors emphasise, noting that these capabilities are not easily transferable.
This creates a structural dilemma. Botswana must build new industries and capabilities at the same time that its fiscal space is narrowing. As diamond revenues decline, the state’s ability to finance large-scale transformation is becoming more constrained, even as the need for intervention increases. At the same time, non-resource sectors are typically less profitable and harder to tax, making it difficult to replace lost revenues.
This introduces a long-term fiscal challenge alongside the structural transformation problem, narrowing the window for policy action.
According to Jefferis and Loubser, Botswana is not in its current position because it ignored orthodox reforms. It is there because it has largely exhausted what those reforms can deliver under a resource-based growth model.
Improving the business environment, while necessary, will not on its own generate new export sectors or integrate local firms into global production networks. What is required instead is a deeper shift: a second phase of state transformation focused on building production capacity, supporting firms in tradable sectors, and aligning policy more directly with export competitiveness.
That transition, they argue, is inherently more complex, more risky, and more resource-intensive than the first phase of development Botswana successfully navigated.
“Escaping the trap requires a secondary state transformation, in addition to the first which was crucial to resource-based growth,” Jefferis and Loubser said.
