Diamonds are not forever, recession reminds Botswana

Gaborone  - Forty-three years ago, when Botswana achieved independence from Britain in 1966, the vast desert country had 8 kilometres of paved road, a handful of schools and no university.

Within 25 years, the country had 4,200 kilometres of tarred roads and a virtually fee-free university boasting some of the best research facilities in southern Africa.

The secret? Diamonds.

Botswana say it has rained on every independence day celebration in their country and that rain is a sign of luck. It must have bucketed down on September 30, 1966 because within a year Botswana had struck diamonds.

From one of the world's poorest countries, the country went on to become the richest in sub-Saharan Africa, even richer than gold-rich South Africa in per-capita terms.

However, unlike some resource-rich African countries, the leaders of the world's biggest diamond producer have ploughed that wealth into a welfare state, rather than their own pockets.

Basic healthcare is free and education to tertiary level is also virtually free.

But diamonds are not forever, as Botswana was reminded during the global recession, which smashed demand for the stones, particularly in the United States.

"The situation was so bad that towards the end of last year for almost two months running we didn't have any sales for diamonds," President Ian Khama said in an interview.

Prices for diamonds fell by over 20 per cent forcing Debswana, a joint venture between the government and mining giant de Beers, to shut down the country's four mines for several weeks.

After growing on average 13 per cent for the first 25 years of independence, slowly to a more stately 3 per cent in 2008, the economy went into a tailspin in the first quarter of 2009 and shrunk by 20 per cent.

Africa's model pupil was forced to borrow 1.5 billion dollars from the African Development Bank to plug the hole in the budget.

Few of the country's miners lost their jobs but many were forced to accept reduced hours. Downstream, 12 fledgling cutting and polishing companies shed around 1,000 jobs between them, while the new state-of-the-art Diamond Trading Company Botswana (DTCB) that supplies them began offering voluntary redundancies.

With unemployment already estimated at between 20 and 30 per cent, the situation prompted introspection about Botswana's future.

Even if the demand for diamonds, which account for about a third of the economy, show signs of recovery, what happens when they they run out in around 20 years, observers wonder. Many say that spending cuts appear unavoidable in the med-term.

Education accounts for the biggest chunk of state spending. In the past most students at the University of Botswana got scholarships that covered their tuition, accommodation and living expenses. Opposition parties have warned that the number of full scholarships is waning.

Calls for the economy to be diversified have also gained urgency.

In an interview with the German Press Agency dpa Khama laid out a multi-pronged strategy to try to wean the country off diamonds, including stepping up exploration of other minerals such as coal and copper.

He also said he envisions transforming Botswana, which shares borders with four countries, into a manufacturing and services gateway to southern Africa.

In the med-term, Botswana is trying to squeeze more money out of diamonds by encouraging companies to cut, polish and design diamond jewellery locally. From three manufacturers two years ago, the DTC now has 16 local clients (sightholders) employing 2,100 people.

By the time the diamonds run out, Botswana hopes to be a diamond hub on a par with Israel or Dubai. The DTCB is already the biggest sorting facility in the world, with the capacity to sort up to 50 million carats a year.

Right now, however, Botswana is crossing its fingers for a bumper Thanksgiving.

"Americans are starting to save more and spend less," says DTCB director Brian McDonald. "We really need to see Americans buying (diamonds) again." (dpa)