The undiversified economy

... is vulnerable, even if historically successful:

Botswana’s economy contracted by 6.7 percent last year as revenue from diamonds plummeted, Central Bank Governor Linah Moholo said.

“Mining was hard-hit, with its share of gross domestic product dropping from 41.2 percent to 24 percent,” she said.

This succinctly summarizes the problem for Botswana. Although its growth record for decades has been impressive, it remains too undiversified. Diamonds and cattle remain large sectors of the economy. When diamond revenues plummet, the economic consequences are severe. Add in the HIV/AIDS situation with a contracting economy can quickly turn an African success story into another African Growth Tragedy.

Now, a 7% downturn amidst the greatest economic crisis in generations is not the end of the world, especially if you managed to average 9% annual GDP growth for over three decades. On the other hand, even the staunchest efficient market skeptics and industrial policy promoters would have to concede that "happen to have and focus your economy on a small basket of commodities that will outperform over the coming decades" is not a viable (or at least generalizable) economic development strategy to start with.

From the Stationary Bandit, via the Roving Bandit.