Botswana’s investment and management in diamonds paying off

July 1, 2013 12:25 am0 comments by:

Botswana diamondsThis week, the government of Botswana announced that it would start auctioning its own diamonds for the first time ever, moving much of its precious stone trade internally, away from the usual markets in the United Kingdom (UK) and Europe. The auctions will be operated by the government-owned Okavango Diamond Company. This comes on the heels of the announcement by diamond giant De Beers that it would be moving its sales auction to Botswana’s capital of Gaborone. Couple this with the fact that De Beers’ sorting operations and largest mines are already functioning within Botswana and the whole operation has made a monumental shift to Africa. The government of Botswana already owns 15 percent of De Beers’ holdings, and this partnership has relinquished outstanding results for a country that has become the model of economic growth and development in Africa.

Botswana is already the world’s largest diamond producer by value, and the second largest by volume. A move of this magnitude ensures that the diamond industry will not only continue to carry the country’s economic prospects in the future, but increase the overall value of the industry. In addition, this will enable most of the money to stay within the borders of Botswana, further increasing its importance to the economic makeup of the country.

The move from DeBeers is a monumental change away from history, as they first started selling diamonds in 1889 sent back to London from South Africa by Cecil Rhodes. The company held a virtual monopoly on the industry throughout the 20th century as the brand name became almost synonymous with the global diamond trade. Now Russian mining has swooped in to take a significant portion of the lion’s share and DeBeers has countered with the move to Botswana. The strategy is to turn Gaborone into a trading hub to match Antwerp, Tel Aviv and Mumbai, but with the added bonus of having the mines in close proximity to the polishing, cutting and trading floors.

For Botswana itself, this move is just another feather in the cap of the model of development and stability in Sub-Saharan Africa. Since its independence from the UK in 1966, Botswana has maintained one of the world’s highest economic growth rates, rarely dipping into the red, which has been fueled by the diamond trade. By a stroke of good luck, diamonds were discovered the year after independence in 1967, providing a sustainable natural resource that would become paramount to transforming Botswana from an impoverish nation to one of economic prominence, with the per capita gross domestic product (GDP) hovering just under $17,000 annually. With diamonds as the centerpiece of economic growth, speculation began in 2009 during the global economic crisis whether it was sustainable to base an economy on one commodity. However, with the transformation of Botswana into a diamond hub, the security of such trade could boost the economy even further.

Now, Botswana is not without their problems. The country holds the second highest rate of HIV/AIDS in adult prevalence, as well as an unemployment rate that is rapidly approaching 20 percent. However, with jobs from DeBeers moving in house, as well as continued diamond mine discoveries and the implementation of exploration technologies, the country seems primed to fill those holes internally, cutting into the core of its deficiencies. Increased capital from the diamond trade can be invested in education and healthcare to stop the HIV/AIDS epidemic.

All of these gains have come despite other large diamond competitors profits dwindling. South Africa’s plummet in the diamond industry began after 2005 when they boasted a record in production with 15.7-million carats. Since that point major declines have continued in the trade due to energy inconsistencies, labor unrest and the threat of nationalization. The 2012 figures look to be less than half of those in 2005. The decline in diamond production of South Africa only strengthens Botswana’s corner on the market, as vast resources, creative management and stability have swayed giants like DeBeers to move their business to the landlocked country.

Inevitably Botswana will need to invest much of this new capital into generating new business, such as tourism, financial services and farming, but the windfall of internal diamond profits will provide them with the flexibility needed to expand their economy into a variety of new endeavors. With Botswana ranking as one the least corrupt states on the globe according to Transparency International’s Annual Corruption Perception Index, the prospect of that money trickling down for the good of the country and its inhabitants is strong. This could possibly catapult Botswana into a position as a model of good practice and development on the continent, providing insight into strong nation building for its neighbors, especially those that hold vast mineral wealth like the Democratic Republic of Congo. Only time will tell if this windfall will pay off long-term for Botswana, but the future looks bright for the diamond-rich nation.

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