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How Botswana Will Find Independence

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Nov 26, 2015 9:07 AM   By Avi Krawitz
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RAPAPORT... Fifty years on from independence, Botswana still finds itself in desperate need of improvements in its economic diversity. Its unsustainable reliance on diamonds is the reason why.

That much was evident at an industry conference held this past week in Gaborone.

Diamonds have done a lot of good for the country over the years. From 1966 to 2014, the gross domestic product (GDP) per capita grew at an annual average rate of 5.9 percent, one of the highest in the world during the period, according to a paper published by De Beers for the conference.

And last year, diamonds were the direct or indirect source of more than 34,000 jobs for the southern African country, contributing 33 percent of its GDP. The partnership between De Beers and the national government is the largest contributor to the economy besides the government itself, the paper concluded.

But that was 2014, an almost embarrassingly good year for De Beers.

This year presents a different reality for the company and, by default, the country. Rapaport expects De Beers revenue will slump about 44 percent in 2015, which would translate to a notable drop in its value contribution to the economy. The country’s rough diamond exports plunged 41 percent year on year in the third quarter and by 23 percent in the first nine months of the year, according to Bank of Botswana data.

Fifty years on from independence, Botswana still finds itself dependent on the vagaries of the rough diamond trade. But the government must help improve competitiveness and productivity if it hopes to diversify the economy and diminish its reliance on diamonds, according to several of the conference presenters.

Weakness Exposed

Financial and economic crises tend to expose the weakness of African countries reliant on one commodity, Katso Tshipinare, an economist at Barclays Bank, told the conference. As much as the government benefited during the growth years, the decline in diamond demand and prices has depressed its budget and will likely lead to a deficit in 2015/16.

The current downturn will probably be a prolonged one. As this column noted in September, Botswana has reserves to see it through the short term but not necessarily withstand an extended crisis (see ‘Blinging Down Botswana’s Economy’). The question of how to navigate the current crisis received only scant attention at the conference, though a meeting of De Beers shareholders scheduled for November 26 was expected to tackle just that question ahead of the December sight.

Botswana’s rough and polished diamond sectors can be its own catalyst to gain a competitive edge. The country itself has to ensure its diamonds meet the social, ethical and marketing standards of millennial consumers who are driving today’s consumption trends.

All of which makes one wonder about the one thing missing from the conference discussion: How to develop a strong ‘Made in Botswana’ diamond brand.

With Okavango Diamond Company selling purely Botswana-mined rough, and through a network of 20 cutting and polishing factories operating there, a purely Botswana diamond would appeal to millennials, who so many marketers and consumer trend consultants see as crucial to the future of retail diamond sales. Outsourcing the finished jewelry to local designers and manufacturers could enhance that message even more.

Economic Backbone

Certainly, the country needs to invest in its people, particularly in skills development and entrepreneurship. However, that will only be possible with a sustainable diamond industry as the economy’s backbone over the next three-to-four decades before Botswana’s primary natural resource is depleted.

The options to diversify the economy seem limited. Conference presenters suggested that exploiting coal reserves and the limited iron-ore potential runs counter to how Botswana might be viewed in the eyes of socially responsible millennials. Instead, Ross Harvey, senior researcher on governance of Africa’s Resources program at the South African Institute of International Affairs saw potential in solar energy, noting that the one thing – besides diamonds – that Botswana has in abundance is sunshine. Eco-tourism is another obvious potential growth area.

Still, the diamond trade must lead the drive to invest in Botswana’s people and the conference called on the industry to support further diversification. For its part, government should provide stronger incentives for diamond manufacturers who’ve invested millions of dollars in their Gaborone factories. The promise of rough supply hasn’t proved enough in 2015.

However, the promise of profitable rough would. After all, the country’s rough diamond production remains the key driver of GDP growth and Botswana’s budget will remain under pressure if no one is buying its diamonds. The global trade has to derive value that they don’t currently see in De Beers rough or they’ll simply stop traveling to Gaborone for their supply.

Change Needed

Martin Rapaport, chairman of Rapaport Group, this week called on De Beers to lower rough prices by 30 percent to 50 percent to inject liquidity and profitability to the trade and ensure its long-term sustainability for those dependent on diamonds. (See the article ‘Rough Bubble Bust’ published on November 24).

“Cutting prices would restart the engine of growth that is provided by hundreds of thousands of people in the trade making healthy profits by adding value to and selling diamonds,” Rapaport said. By doing so, De Beers and the government, would ensure future growth not only for the diamond industry, but for Botswana’s economy moving forward.

Fifty years on, it’s time for Botswana to become independent.
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Tags: Avi Krawitz, beneficiation, Botswana, De Beers, mining
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