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 receiving the allowance increases they were promised. This economic slowdown marks 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 fund tertiary education for students at home and abroad.
The discovery of diamonds in 1967 transformed Botswana from a rural backwater into the richest nation per capita on the sub-Saharan African mainland. However, 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 overly reliant on one commodity.
The Rise of Lab-Grown Diamonds
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. According to jewellery insurer BriteCo, lab-grown diamonds accounted for almost half of engagement ring purchases last year compared to just 5 percent in 2019. This shift is creating the biggest disruption in the market since abundant alluvial diamonds were discovered on Namibia’s beaches early last century.
While lab gems can be produced in weeks or months, the formation of natural diamonds can take billions of years. The synthetic rivals, which are much cheaper, are causing prices to plunge, choking off the revenue that accounts for 80 percent of Botswana’s exports and a third of government income. Mining historian Duncan Money notes that this is causing significant financial strain on the nation.
Economic and Social Impacts
President Duma Boko, who recently took office after displacing a political party that had ruled since independence, has described the situation as a “national social existential threat.” In response, the government has engaged Malaysia’s PEMANDU Associates to advise on accelerating economic diversification. However, the credibility of these efforts has been questioned, especially after a $12 billion investment announcement from Qatari group Al Mansour Holdings lacked details.
The economic challenges have led to a public health emergency, with shortages of medication, medical supplies, and equipment. Botswana Doctors Union president Kefilwe Selema has highlighted the dire situation in healthcare facilities. Meanwhile, construction companies are retrenching workers due to slower government spending, according to Tshotlego Kagiso, chairman of the Tshipidi Badiri Builders Association.
Fiscal Challenges and Future Prospects
The International Monetary Fund forecasts Botswana’s 2025 fiscal deficit climbing to 11 percent of GDP, the largest budget gap since the global financial crisis in 2009. Government debt is expected to double to 43 percent of GDP by 2025, exceeding legislative limits. The finance ministry has abandoned growth forecasts, predicting an economic contraction instead.
To address these challenges, Botswana is turning to debt, securing funds from the African Development Bank and the OPEC fund, and planning a domestic bond roadshow. However, the country’s investment-grade credit rating is under threat, with both Moody’s and S&P Global Ratings cutting its outlook to negative. S&P Global Ratings analyst Ravi Bhatia notes the severe pressure on the diamond sector, emphasizing the need for diversification and fiscal consolidation.
Long-Term Solutions and Challenges
Despite longstanding discussions about economic diversification, progress has been limited. Tourism, the second-biggest contributor after diamonds, accounts for just 12 percent of GDP. While some copper mines are being developed, and huge coal deposits remain underexploited, these sectors have not attracted the necessary investment.
With more than two-fifths of the population under the age of 24 unemployed, President Boko has emphasized the need for job creation, focusing on renewable energy, technology, and agriculture. However, funding these initiatives remains a significant challenge.
As Botswana grapples with these economic realities, the nation faces a pivotal moment in redefining its economic future beyond diamonds. The need for immediate and effective diversification strategies has never been more urgent.
