Botswana ponders a future beyond diamonds

Despite being aware for a long time that it has to prepare for a post-diamond future, the country has not done enough to make diversification a reality, experts said at a conference in Gaborone this week.

It was organised by the global diamond giants De Beers, the British think tank Chatham House and the Botswana government to explore ways of taking Botswana beyond the diamond era which has served it so well.

Bruce Cleaver, head of strategy for De Beers, said that Debswana – the 50/50 partnership between De Beers and the Botswana government for mining the country’s diamonds – had largely contributed to Botswana sustaining an average annual growth rate of six percent since diamonds were discovered almost 50 years ago. This was the third highest growth rate over that period in the world.

In half a century, Botswana had been transformed from one of the poorest countries in the world to a modern, upper middle-income country.

Botswana had three secondary schools 50 years ago; now it had over 300 and every child was given free education to the age of 13. Back then it had five kilometres of tar roads, now it had nearly 6,000 kms; from one doctor for every 48,000 people 50 years ago, it now had one for every 3,000 people.

This success had largely been built on Debswana; plus very high standards of governance, political stability and judicious government investment of diamond revenues in the country’s physical infrastructure and its people.

The diamond success story offered lessons for the many other countries which had squandered their raw materials and become victim of the “resource curse”.

De Beers CFO Gareth Mostyn said last year Debswana had directly contributed $4 billion to the Botswana economy- 27% of national GDP – and supported 34,000 jobs.

Debswana’s efforts to add value to diamonds have also reaped success. The transfer of De Beers Global Sightholder Sales (DBGSS) – the company’s sales arm – to Botswana late in 2013 had been a “fantastic success”- contributing US$410 million to Botswana’s GDP in 2014, said DBGSS vice president Paul Rowley.

Minister of Minerals, Energy and Water Resources Onkokame Kitso Mokaila said that the Botswana government had made the beneficiation of diamonds the key element of its diversification strategy by developing a vibrant cutting and polishing industry.

The country now has about 20 companies doing this and they employ about 5,000 people.

And a Debswana report published this week said the company’s programmes of procuring supplies locally, improving its employees’ skills and promoting entrepreneurs had also added value to the mere extraction of diamonds.

Alex Vines, head of the African programme at Chatham House agreed Botswana had achieved a lot but said there was no room for complacency. The tremendous gains which the country had made over the last 50 years would be lost unless it reappraised its economy to find ways of sustaining its growth path.

The conference heard that Botswana’s diamond extraction would start diminishing next year and so it should be preparing for a post-diamond economy.

Keith Jefferis, managing director of of Econsult and former deputy governor of the Bank of Botswana said that Botswana had been relatively successful in diversifying the economy. Non-mining now accounted for nearly 70% of the economy, versus 50% in 2002.

But Botswana was still highly dependent on diamonds for export revenue – in 2014 about 85% of export revenues were still derived from diamonds. The country also depended very heavily on diamonds for taxation.

Ryan Short of Genesis Analytics said diamond revenues had also funded much redistribution in Botswana through social welfare, creating a large public sector that was a dominant actor in the economy and a relatively weak private sector.

This had created a culture of entitlement and had reduced pressure to grow other parts of the private sector and improve competitiveness and productivity. He said the World Economic Forum’s Global Competitiveness Index had ranked Botswana only 74th of 144 countries.

Deputy trade and industry minister Sadique Kebonang said too many of his people, including graduates, “just want to work in offices” rather than roll up their sleeves and work in supermarkets for instance.

Jefferis said Botswana’s success so far had been the result of “good luck, well managed”. It had been lucky to discover large reserves of diamonds, which were relatively easy to extract and had managed that extraction well.

But it now needed to put in place a legal and policy framework to make the country more productive and competitive to take it beyond diamond mining.

This should include making it easier to import and export goods by making one-stop border posts and keeping major border posts open round the clock instead of closing them at night, as the Botswana government now did.

The government should also make it easier for enterprises to hire skilled workers from abroad.

The new challenge was to institute – and implement- the policies to make Botswana a non-mining economy.

Ross Harvey from the South African Institute of International Affairs suggested Botswana could use its extensive coal and iron ore reserves in a smelter to make and export pig iron. This could bridge the country from diamonds to a non-mining future economy