Across Botswana, the lines of patients outside government clinics are lengthening, construction companies dependent on state jobs are firing workers, and university students are threatening to boycott lectures after not getting the allowance increases they were promised.
The economic slowdown is a sharp reversal from just a few years ago, when the world’s richest diamond deposits allowed the sparsely populated desert nation of 2.5 million people to invest in free and efficient healthcare and plough money into funding tertiary education for students at home and abroad. Its robust finances allowed it to provide for its citizens in a way that made it the envy of southern Africa.
The discovery of gems in 1967 transformed what was a rural backwater, with only a few kilometres of tarred road at the time of independence from the United Kingdom a year earlier, into the richest nation per capita on the sub-Saharan African mainland. Six decades later, a diamond-market crisis has turned that find into an affliction and a cautionary tale of what can happen to an economy that becomes overly reliant on one commodity.
The market for natural diamonds (right) is in crisis, with cut-price lab-grown equivalents (left) hitting demand.Credit: Dominic Lorrimer/Bloomberg
“For decades, we have leaned and relied heavily on diamonds. While they served us well, we know painfully today that this model has reached its limits,” President Duma Boko, 55, said in an August speech. “This is no longer an economic challenge alone; it is a national social existential threat.”
The market for natural diamonds is in crisis, with cut-price lab-grown equivalents hitting demand particularly hard in the United States, the biggest market for the gems. They accounted for almost half of engagement ring purchases last year compared with 5 per cent in 2019, according to jewellery insurer BriteCo. The collapse of the luxury retail sector in China and the impact US tariffs have had on trade have also hurt the industry.
While lab gems can be produced in weeks or months, the formation of natural diamonds, made of crystallised carbon formed under extreme pressure and heat deep beneath the earth’s surface, can take billions of years before volcanic eruptions propel them upwards to depths where they can be mined or found on ocean or river beds. They also cost many times as much as their synthetic rivals, whose increasing popularity is creating the biggest disruption in the market since abundant alluvial diamonds were discovered on Namibia’s beaches early last century. This is causing prices to plunge, says mining historian Duncan Money.
It’s choking off the revenue that accounts for 80 per cent of Botswana’s exports and a third of government income. After repeated write-downs of its value, Anglo American is looking to sell De Beers, the world’s biggest diamond company that mines almost all of Botswana’s gems in a venture with the government.
Boko’s administration, which in October displaced a political party that had ruled since independence, is scrambling.
Former Botswanan president, Mokgweetsi Masisi, last year holds a 2492-carat diamond found in the country.Credit: AP
In July, the government engaged Malaysia’s PEMANDU Associates to advise on accelerating economic diversification and, on August 21, Boko took to Facebook to announce a plan for a little-known Qatari group, Al Mansour Holdings, to invest $US12 billion ($18 billion). There was scant information about how the capital would be deployed and the same group has in recent weeks promised more than $US100 billion in investment across six African countries, raising questions about the credibility of the pledge.
The president on August 25 declared a public health emergency and implored pension funds and insurers to help fund the response. The government has frozen recruitment and there are shortages of medication, medical supplies and equipment, says Botswana Doctors Union president Kefilwe Selema.
“The situation is very bad,” said Galeemiswe Mosheti, a 42-year-old diabetes sufferer who arrives at a government clinic in the capital, Gaborone, at 8am and can wait as long as eight hours for his medicine compared with just an hour a year ago.
“We’re spending long periods in the queue and our jobs suffer,” said the taxi driver, who loses income every time he waits to be attended to.
For construction companies dependent on government work, the situation is no better.
A mining truck carries diamond-bearing kimberlite rock away from the pit floor at the Jwaneng mine, operated by Debswana Diamond, a joint venture between De Beers and Botswana’s government.Credit: Bloomberg
“Most of our members have had to retrench workers,” said Tshotlego Kagiso, chairman of the Tshipidi Badiri Builders Association, the country’s largest building contractors’ organisation, which, before the current downturn, had more than 800 members, some of whom can no longer afford their membership fees.
“The majority have suspended operations and many have closed altogether due to slower government spending,” he added, saying, without being able to be more specific, that thousands of workers had lost their jobs.
The country’s economic statistics tell a story of rapid decline and belie De Beers’ marketing catchphrase, “A diamond is forever”.
The International Monetary Fund forecast Botswana’s 2025 fiscal deficit climbing to 11 per cent of gross domestic product. That’s the largest budget gap since the global financial crisis in 2009, and the biggest in sub-Saharan Africa this year. Government debt will rocket to 43 per cent of GDP in 2025, about doubling the ratio in just two years, according to data from the Washington-based lender, and exceeding a legislative limit.
In June, the finance ministry abandoned a forecast of 3.3 per cent growth in 2025 and instead said the economy might contract 0.4 per cent. Foreign reserves have slumped 27 per cent over the past year, and Citigroup in July forecast Botswana would need to keep devaluing its managed currency, the pula. A first-ever midterm budget review is planned for as early as next month, and Debswana, the country’s joint venture with De Beers, is operating at about 60 per cent of capacity.
Lab-grown diamonds accounted for almost half of engagement ring purchases last year compared with 5 per cent in 2019, according to jewellery insurer BriteCo.Credit: Getty Images
Botswana was “experiencing a significant decline in revenue inflows resulting in massive liquidity challenges that threaten financial stability and sustainability of government business operations”, Finance Ministry Permanent Secretary Tshokologo Kganetsano told a parliamentary committee in June.
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Already, after years of limited borrowing, the country is turning to debt. It secured $US304 million from the African Development Bank in May and $US200 million from the OPEC fund in July, and plans a domestic bond roadshow for investors on Tuesday. Its investment-grade credit rating, the highest in Africa, is under threat, with both Moody’s and S&P Global Ratings this year cutting its outlook to negative.
“The diamond sector is under severe pressure – both prices and volumes,” Ravi Bhatia, director and lead analyst at S&P Global Ratings, said in an interview. “They’re doing a combination of trying to diversify, fiscal consolidation and also austerity.”
While Botswana’s governments have been talking about economic diversification since the country’s first president, Seretse Khama, set up the Botswana Development Corp in 1970 to develop copper mining and beef production, little progress has been made.
Tourism, focused on luxury safaris in the country’s Okavango Delta wetlands and a wilderness that boasts the world’s largest elephant population, is the second-biggest contributor after diamonds, accounting for just 12 per cent of GDP. Some copper mines are being developed, while huge coal deposits, barely exploited, can no longer attract the funding needed for extraction.
That’s left more than two-fifths of the population under the age of 24 unemployed, according to the International Labour Organisation, with the diamond mines only employing a few thousand people, and reliant on government largesse. That’s a situation Boko described as “a huge risk”, in a January interview with Bloomberg.
“We must now focus on job creation,” Boko said as he laid out ambitious plans for investment in renewable energy, technology and agriculture.
Tourism, focused on luxury safaris in the country’s Okavango Delta wetlands and a wilderness that boasts the world’s largest elephant population, is the second-biggest contributor to the country’s economy after diamonds.Credit: Getty Images/iStockphoto
What he hadn’t bargained for was that there would be no money to pay for it.
While many other countries are reliant on a single commodity for the bulk of their earnings and go through cyclical downturns, for example, oil-reliant Nigeria and Angola, for Botswana the outlook is bleaker.
“The difference with the oil cycle is that diamond prices are unlikely to ever come back,” said Charlie Robertson, author of The Time Travelling Economist, a book on how developing economies industrialise. “Its economic model is likely to cease being one of the shining lights on the African continent.”
Bloomberg
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