Sub-Saharan Africa is an economic basketcase. Elsa Artadi and Xavier Sala-i-Martin reviewed sub-Saharan Africa's economic growth performance in the National Bureau of Economic Research working paper, "The Economic Tragedy of the XXth Century: Growth in Africa." As summarized by Les Picker in "The Economic Decline in Africa":
"While the rest of the world's economy grew at an annual rate of close to 2 percent from 1960 to 2002, growth performance in Africa has been dismal. From 1974 through the mid-1990s, growth was negative, reaching negative 1.5 percent in 1990-4. As a consequence, hundreds of millions of African citizens have become poor: one half of the African continent lives below the poverty line. In sub-Saharan Africa, per capita GDP is now less than it was in 1974, having declined over 11 percent. In 1970, one in ten poor citizens in the world lived in Africa; by 2000, the number was closer to one in two. That trend translates into 360 million poor Africans in 2000, compared to 140 million in 1975."
But what about Botswana? Little, land-locked Botswana, 84% of which is uninhabitable, third poorest country in the world in at independence in 1965, was the fastest growing nation in the world between independence in 1965 and 1995. Scott Beaulier tells what happened in his new paper, "Explaining Botswana's Success: The Critical Role of Post-Colonial Policy"):
"From 1965 to 1995, Botswana was the fastest growing country in the world. During that 30-year stretch, Botswana's average annual rate of growth was 7.7 percent, and Botswana moved from being the third poorest nation in the world to being an "upper middle income" nation. In 2001, Botswana's real per capita income was $7,820, nearly twice as high as the average East Asian tiger's per capita income of $3,854, and more than four times the $1,826 average per capita in-come of an individual living in sub-Saharan Africa (World Bank 2002)."
How did Botswana do it? Finding diamonds certainly didn't hurt. But Beaulier argues that it might not have helped if Botswana hadn't adopted good policies at independence.
"Botswana's crucial moment came in 1965 when the BDP and Seretse Khama won their elections. The future of Botswana depended on the decisions made by Khama and his administration. At the moment of crisis, Botswana's future depended on the people in power rather than on Botswana's past. Unlike other African leaders, Khama adopted pro-market policies on a wide front. His new government promised low and stable taxes to mining companies, liberalized trade, increased personal freedoms, and kept marginal income tax rates low to deter tax evasion and corruption. In addition, Khama preserved the kgotlas [The kgotlas were indigenous institutions - 19th Century chiefs held these "town meetings" with their people; these gave "all adult males the opportunity to criticize and advise the chief"] and many elements of customary law."
The policies initiated by Khama, and continued thereafter, provided a stable environment, hospitable to foreign direct investment. Botswana apparently had a functioning democracy, encouraged freedom of thought and expression, and a racially tolerant society.
P.S. January 16: Tyler Cowen beat me to Beaulier's work in this Marginal Revolution post from last October 11: "Why Botswana?". Cowen summarizes an alternative view - one that Beaulier critiques in his paper, points to Mauritius as a second success story, and provides a link to a very interesting post by Abiola Lapite on "Ethnic Homogeneity and Economic Growth in Africa."