Fossil fuels are dead, long live fossil fuels: Botswana’s options for economic diversification.

Ross Harvey
2015

Summary

Botswana is at a critical historical juncture. It has enjoyed a stable democracy since 1965 and strong, quality economic growth for the last few decades.  However, the diamond revenues on which the country depends are likely to decline in the near future. This report examines how Botswana can best harness it’s ample fossil fuel supply for regional energy security at the least possible cost to the environment. In line with the current consensus, it argues that economic diversification is a pressing policy concern for the country’s political and economic stability.

The report reviews literature on ecological economics; examines the hidden costs of coal on human and environmental wellbeing; and explores Botswana’s political economy and the economic viability of the country’s coal industry.

Key findings

  • Botswana’s options are relatively limited. It does not possess a large, well-educated population, and the distribution of wealth is heavily concentrated among the top 10% of income earners. Botswana’s primary comparative advantage remains in the natural resource sector.
  • There is pressure from within the government to build a new coal line, but the assumption that coal will remain lucrative is problematic. It is grounded in an unrealistic expectation of Botswana’s ability to export coal for 30 years at a price of $70–75/tonne, and doesn’t recognise the local and global negative environmental effects.
  • Tourism is an important future driver of economic growth, but coal extraction and transportation, and the need to balance ecological sustainability pose potential threats.
  • Many view Botswana’s economic and political progress as exceptional, with typical accounts often failing to explain Botswana’s relative success.
  • Botswana’s continued stability is strongly linked to the governance of its natural resources. At present there may be some over reliance on diamond rents.
  • Solving energy storage problems associated with solar power appears imminent, thus narrowing the window of opportunity for Botswana to export its coal.

Recommendations

  • Prioritise eco-tourism. It is an inherently sustainable  source of revenue generation as it is dependent on a non-exhaustive supply of pristine wilderness.
  • Orientate towards the possibility of combining coal, iron ore and copper to forge a local steel industry.
  • Partner with communities on mining ventures. Skills transfer, local procurement and appropriate timelines should feature prominently in negotiated licence agreements, within the rational parameters of economic efficiency. In the case of mining near environmentally sensitive areas, mining companies should seek to contribute to the preservation of those areas.
  • Invest remaining diamond rents in human and physical capital. Downstream beneficiation of minerals should not be viewed as a solution for development, as competitiveness in this area cannot be guaranteed.
  • Consider investments in new technology, especially renewable energy such as solar power, given the country’s natural abundance of sunshine.

Source

Harvey, R. (2015). Fossil fuels are dead, long live fossil fuels: Botswana’s options for economic diversification (Research Report No. 20). Johannesburg: South African Institute of International Affairs (SAIIA).