Economic policy and development: Botswana and Zimbabwe compared

African Public Finance

The Heritage Foundation released its 2012 annual Economic Freedom Index which measures "10 benchmarks that gauge the economic success of 184 countries around the world" (Heritage.org. About. 2012. PP. 1 ). Two direct neighbors in Sub-Saharan Africa: Botswana and Zimbabwe demonstrate the extent to which government policy can engender or strangle: economic activity, capital formation, national savings, infrastructure development, and foreign direct investment. Botswana is a marker for economic freedom and strong growth with the "second best score (69.6) out of 46 countries in the Sub-Saharan Africa region…and a world rank of 33" (Heritage.org. Botswana. 2012. PP. 1). Contrastly, Zimbabwe's overall score of 26.3 leaves the nation last in the "46 countries in the Sub-Saharan Africa region…and 178th in world ranking (Heritage.org. Zimbabwe. 2012. PP. 1). This data leads to significant conclusions regarding policy choices for other African nations in specific areas of: property taxation, tax structure, and protection of property rights.

Overview

With a developed and thriving economy based on market orientations, open and free trade, limited government, and significant property right protections Botswana has a five-year annual growth rate of 3.5%, GDP of 28.5 billion and $15,849 per capita, public debt at 13.2% of GDP, and a stable low inflation rate (Heritage.org. Botswana. 2012. PP. 1-2). Zimbabwe conversely has a negative five-year growth rate of 2.4%, GDP of 5.5 billion and $434 per capita, public debt at 56.2% of GDP, and continues to suffer from a decade long bout with pernicious hyperinflation (Heritage.org. Zimbabwe. 2012. PP. 1-2). While Botswana is marked with social, political, and economic stability; Zimbabwe under the regime of Robert Mugabe has devolved from "a diversified economy with a well-developed infrastructure, and an advanced financial sector…to an economic and social destruction characterized by instability and volatility" (Heritage.org. Zimbabwe. 2012. PP. 2). African nations surveying these economic divergences can discern useful lessons on creating a balance between private and public sector roles within a greater framework of economic philosophy and governance.

Tax Policy

The stability and prosperity of Botswana is reflected in a tax regime which is built to raise revenue to fund necessary government service but encourages economic freedom and dynamic free markets. Zimbabwe presents a complex and confiscatory system which discourages entrepreneurial activity and wealth accumulation. Tax structures must provide transparency, low rates, as broad a base as possible, and a configuration which allows expansion of individual investment and savings. The goal of lower income African nations should be to build a flat rate system which strives to reduce the "total tax burden as a percentage of total domestic income" (Heritage.org. About. 2012. PP. 1-2) to a level which balances private investment with government spending needs on infrastructure.

Looking at Botswana and Zimbabwe, the former provides top income and corporate tax rates of 25% and a low value added tax of 12%; equally important the resident and non-resident individual and corporate entity are treated as equals under the tax code (Deloitte.com. Botswana. 2012. PP. 1-2). Zimbabwe has since the collapse of their state currency impacted meaningful change on their tax rate regime however, the rates are still significantly higher than Botswana, with the top income tax rate of 35%, corporate rate of 25%, and VAT of 15% (Deloitte.com. Zimbabwe. 2012. PP. 1-2). Additionally there is opaqueness in the tax code on foreign investment and non-resident incomes. Interesting to note also that the hyperinflation of the 00's under Mugabe