1. The Mineral Dependent Economic Structure and Incentives Faced by Government Conference: Are Diamonds Forever? Prospects for a Sustainable Development Model for Botswana 27-28 August, 2014 Ita Mannathoko

2. 2 Mineral Dependent Structure Distorts the Performance Incentive Government Faces Source: Adapted from Mick Moore (2007), Institute of Development Studies

3. Distorted Incentives Affect Public Sector Performance Over Time: e.g. 1

4. Distorted Incentives Affect Public Sector Performance Over Time e.g. 2

5. Main Corrective Actions A. Correct incentives faced by government: the fortunes (welfare) of government officials and politicians should move in tandem with those of the Batswana they serve B. Correct government’s organizational effort so it is directed at non-mining business sector growth and development C. Strengthen & safeguard accountability systems D. Strengthen management and operational systems

6. Main Corrective Actions A. Correct incentives faced by government: the fortunes (welfare) of government officials and politicians should move in tandem with those of the Batswana they serve ◦ An adverse economic climate for people in the non-mining sector should correspond to an adverse economic climate for public servants ◦ Losses and waste of public resources impact Batswana negatively => should impact the responsible officials and ministers in public agencies, parastatals, likewise ◦ Non-performance and poor service delivery by the public sector impacts Batswana negatively => should impact the responsible managers and officials likewise ◦ Loopholes and corruption impact Batswana negatively => should impact the responsible managers, officials, politicians likewise

7. Main Corrective Actions B. Correct government’s organizational effort so it is directed at non-mining business sector growth and development ◦ Ministry and Parastatal efforts should focus as much on improving the welfare of Batswana by growing the domestic business sector as on attracting foreign investors ◦ Develop firm capabilities and more products ◦ Ensure microeconomic policies target and serve local businesses - not just foreign investors ◦ Ensure macroeconomic policies are appropriate to non-mining sector growth (avoid Dutch Disease tendencies)

8. Main Corrective Actions C. Strengthen & safeguard accountability systems ◦ use technical team decisions for high-cost activities and remove discretionary or veto powers of senior officials and ministers ◦ Re-instate the appropriate checks and balances ◦ Eliminate personal and institutional conflicts of interest and take corrective action to remove such conflicts when they arise D. Strengthen management and operational systems ◦ Ensure strong managers and strong program and project management systems ◦ Build systems & know-how for private sector development ◦ Do not allow complacency to weaken or remove systems that work or remove checks and balances ◦ Safeguard and perpetuate institutional memory

9. Importance of the Right Approach Adverse incentives arising from an economic structure that works against diversification have to be corrected; incentives don’t motivate officials to serve Batswana in private sector Diversification requires that we produce more and different non-mining products; Products require capabilities Diversified economies have more capabilities and so are able to make more products (Hausmann) Botswana wants to graduate from the “poor economy” model that is dependent on mining because of a lack of capabilities in its people; to The model of a middle income economy with many capabilities enabling it to produce different and more complex products; However.. Botswana has not developed the requisite capabilities (along value chains) to match private sector expansion needs

10. Thank You