FDI-Driven Graduation of Botswana and Equatorial Guinea from Least-Developed Countries: Challenges Ahead

Botswana and Equatorial Guinea (EG) stand out among resource-rich African least developed countries in that they successfully used FDI in natural resources to avoid the resource curse and to advance to the group of upper-middle income (UMI) countries. However, they have fallen into the middle-income trap. Botswana’s growth has slowed down, and EG has run into a deep crisis and lost much of the earlier income gains, remaining however an UMI country. Overcoming the trap requires a new growth model, featuring diversification towards more productive and dynamic activities, based on private sector investment, including FDI. We identify industries for diversification and provide insights into required policy actions and institutions. Generic policy actions are the same for both Botswana and EG and, for that matter, any country dependent on FDI in natural resources. Specific actions differ because they are determined by both countries’ resource endowments (defining areas for diversification), governance systems (democracy vs. autocracy), geographical location (land-locked vs. maritime country), institutions (e.g., advanced FDI promotion in Botswana and the lack of it in EG) and situations in five policy areas.