Strategic partner or shot caller? The De Beers factor in Botswana's development.

Author:Gapa, Angela


The relationships between African states and multinational corporations have been hotly debated. Proponents of multinational activity in developing states contend that states whose policies do not actively promote foreign direct investment are often less developed than their open-market counterparts. As a result, states have become heavily reliant on multinationals to integrate their economies into the world market in order to boost economic development. However, one of the main problems created by the growing influence and power of multinational corporations is the erosion of state sovereignty. Multinational corporations are among the greatest threats to the sovereignty and autonomy of small states. Due to their capital sway and being profit-making in nature, multinationals usually lobby and manipulate governments to maintain obstructive measures so they can secure maximal benefits from distorted markets. In addition, certain companies have been embroiled in accounting scandals and allegations of egregious labor practices, (1) suggesting that multinational corporations do not always encourage development, but sometimes seek to corrupt governments and destroy domestic economies in the name of profit.

Multinational corporations are money-making entities that have indubitably shaped the economic and political development of many African countries. In contemporary Africa, military and diplomatic interventions, foreign direct investment, and external aid have all reinforced the continent's dependence on outside agents to address their current developmental problems. As a result, African states suffer from a crisis of sovereignty. Botswana is no exception. At the time of independence in 1966, the country faced the daunting task of crafting an autonomous development policy. Its economy was dwarfed by Apartheid South Africa, the regional powerhouse that controlled a significant amount of trade through its hegemony within the Southern African Customs Union. The Botswana economy was still highly dependent on external aid from its former colonizer, Britain, bolstered by preferential beef export arrangements. (2) The discovery of diamonds soon after independence, however, became a great challenge to Botswana's autonomy with the introduction of the powerful diamond multinational corporation De Beers into the arena. This would profoundly transform the state and catapult it to a position as one of the fastest growing economies in the developing world for over 40 years, a feat that the country could not have achieved alone. The relationship between De Beers and the Botswana government has been lauded as a strategic, mutually beneficial partnership. (3) However, De Beers' influence in Botswana has not remained apolitical. At various pivotal moments in the country's political history, De Beers has intervened and seemingly "called the shots," begging the question, exactly what is the nature of this relationship?

This paper analyzes the asymmetrical relationship between the Botswana government and De Beers and challenges the prevalent literature contending that the relationship is a strategic mutual partnership. It argues that at many crucial points in the country's history this highly intrusive multinational maintained significant control of both economic and political choices. Although Botswana possessed leverage as the world's premier producer of rough gem diamonds, it remained the more passive actor within the partnership. De Beers used its means and access to influence Botswana's political and economic development to make the country a better investment environment for cartel behavior and profit-maximization. As a result, the relationship between De Beers and Botswana was one of manipulation of government policies in favor of maintaining the economic and political status quo.

Conceptual Framework

The Developing State and the Multinational--An Asymmetric Relationship

The relationship between small states and large multinational corporations can best be described as asymmetric. The institutional development of most African countries has been shaped and influenced by skewed relationships with external actors whose established structures are fashioned to cater to the needs, not of the territories themselves, but of the national and business interests of larger states. Multinational corporations are by definition organized corporations that acquire cost advantages through centralized production in places where cheaper resources are available. (4) While these corporations provide developing countries with the critical financial infrastructure and capital needed for economic and social development and integration into the global economy, they sometimes bring with them relaxed codes of ethical conduct that can serve to exploit the resources of developing countries. Furthermore, the interests of small states and firms differ greatly and are often in conflict. Whereas states are territorially defined, and provide a framework for the political, economic, social and cultural activities of domestic actors, in addition to pursuing national interests in order to promote the welfare of their population, multinational corporations cope with diverse political, economic, social and cultural environments in acquired markets and are driven purely by private interests based on economies of scale, effective international management and global economic trends. (5) These two completely different world political actors pursue their goals in the same arena of the developing state. In sub-Saharan Africa, the relationships between states and multinational corporations are unbalanced, particularly in countries whose economies are based on extractive industries. This is because most relationships between African states and multinationals in the extractive mining and energy industries were established during colonialism, and are structurally skewed towards exodus of profits from African states and accrual of those profits by the multinationals themselves and their home states. Due to these colonial origins, multinational corporations are a great threat to the sovereignty of developing countries.

After independence, African states repositioned themselves as custodians of wealth, creating institutional capabilities within their jurisdictions and heralding new partnerships and new competition with transnational firms. (6) Today, developing countries are dependent on multinationals, because the latter possess the capital, technology, expertise and access to global markets required to transform national resources and labor into domestic wealth. Correspondingly, transnational firms cannot function without the labor and raw materials that only states can provide. As a result, because states are dependent on multinationals to achieve basic developmental goals, weaker states have found this juxtaposition challenging, particularly in terms of the amount of influence multinational companies can exert. Multinational activity is slowly making the nation-state outmoded, leading to a decline in state sovereignty and autonomy. (7) The control exerted by small states on their economic affairs has been compromised; multinationals can provide domestic economic welfare and establish effective production of goods on a much more efficient scale than small nation-states. Additionally, the majority of governments are unwilling or unable to sacrifice the advantages that transnational firms bring to their economies. Furthermore, most states are limited by the global strategies of multinationals, and as a result are unable to respond to economic conditions in their home states. As a result, the global network of multinationals serves as a channel for larger states to influence smaller states.

Accepting foreign private investment from developed states increases the economic, technical, and cultural dependency of less developed countries, a circumstance that underwrites hierarchical and exploitative relationships between multinationals and small states. (8) The presence of multinationals can be likened to a Trojan horse that allows outside states to exert their influence on host nations from within. (9) Because of their size and economic clout, transnational firms can positively and negatively affect levels of income, employment rates and general standards of living in entire countries. As a result, they have powerful political leverage that they may seek to use to influence government decisions. Multinationals also stimulate certain patterns and processes of economic development that may have longterm political reverberations, particularly for developing countries. Multinationals tend to promote economic development primarily in the modem sector, reinforcing existing societal dualities. They perpetuate bias toward the production of certain types of products, stimulate certain types of consumption, and utilize dominant technologies, all of which may help to further increase the gap between rich and poor, urban and rural. As a matter of self-interest, multinational corporations normally use their economic power for bargaining to extract concessions from governments on matters such as protection, tax rebates, investment allowances, choice of factory sites, and access to resources. Because they deal primarily with elite groups in the business and government sectors, they may encourage patterns of external orientation that alienate these groups from the wants and needs of the masses. Moreover, multinational corporations tie developing states into mutually interdependent, international networks that narrow social choices among states. (10)

Multinationals are essential to the preservation of capitalism's economic exploitation of peripheral countries. (11) This is demonstrated by the enlistment of coalitions of goods suppliers who thrive in the absence of diversified self-sufficient economies and who stand to lose by the growth of competitive industrial capitalism. These coalitions...

To continue reading