Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Diamonds once propelled Botswana
Speaker 1: to become the richest Sub Saharan nation per capita, but
Speaker 1: that boom could be turning to bust. We now offer
Speaker 1: lab grown dream diamonds.
Speaker 2: You can actually afford discover real brilliance at fabulous prices.
Speaker 3: It's time to upgrade your own engagement ring with a
Speaker 3: lab grown diamond. They cost seventy five percent list.
Speaker 1: Lab grown diamonds are flooding the market, leaving demand for
Speaker 1: natural diamonds in crisis and Botswana's economy in decline.
Speaker 4: For too long, Botana's economy has leaned and relied heavily
Speaker 4: on diamonds. The limitations of this reliance are increasingly becoming unbearable.
Speaker 4: If left unaddressed, there's a real risk of the situation
Speaker 4: becoming not just an economic challenge but social time bline.
Speaker 1: On today's episode of The Next Africa Podcast, we'll look
Speaker 1: at what's gone wrong in Botswana's economy and where Botswana
Speaker 1: turns if the diamonds in the ground become worth little
Speaker 1: more than just rocks. I'm Jennifer Zabasaja and this is
Speaker 1: the Next Africa Podcast, bringing you one story each week
Speaker 1: from the continent, driving the future of global growth with
Speaker 1: the context only Bloomberg can provide. Joining me this week
Speaker 1: is Bloomberg's Matthew Hill and Botswana based reporter Bongani Mungumi.
Speaker 1: They're also both the co authors of a report out
Speaker 1: on Bloomberg right now about this guys, thank you both
Speaker 1: for being here and really fascinating story that you've put out. Matthew,
Speaker 1: maybe we can start with you and you can give
Speaker 1: us a bit of context as to how important diamonds
Speaker 1: have been to Botswana's economy. You talk about this sort
Speaker 1: of in the historical sense in your story, but share
Speaker 1: a bit about that with us.
Speaker 3: I've got a question for you. Picture the scenario, all right.
Speaker 3: You walking into a jewelry store. You want to buy
Speaker 3: a diamond ring. You see two rings look exactly the same.
Speaker 3: You pick them up, they feel exactly the same. One
Speaker 3: costs one thousand dollars, the other costs five thousand dollars.
Speaker 3: Which do you buy?
Speaker 1: I mean, you're probably talking to the wrong girl. I'd
Speaker 1: probably go with the cheaper option. I don't know if
Speaker 1: that's necessarily a good thing, But so.
Speaker 3: Gen Z, I know that you call yourself that on
Speaker 3: your ex handle you are making the same choice as
Speaker 3: two out of three US based buyers of engagement rings
Speaker 3: that are from gen Z. That's according to the data
Speaker 3: that jewelry insurance company Brighton Coke put out last month,
Speaker 3: and that's basically what's helped to put Botswana in this
Speaker 3: incredibly tight position. The diamond market has gone into an
Speaker 3: incredibly deep slump, but started out after a spike in
Speaker 3: twenty twenty one post COVID where everybody was essentially buying
Speaker 3: everything and the price of everything went up. Then demand slumped.
Speaker 3: There was a slowdown in demand in the US and
Speaker 3: China because of difficult economic conditions inflation, etc. But then
Speaker 3: in the years after that, this phenomenon of lab grown
Speaker 3: diamonds rarely came to the fore. So for Botswana, a
Speaker 3: small African economy, what this means is that eighty percent
Speaker 3: of its exports diamonds are now taking a really, really
Speaker 3: big hit. It also accounts for thirty three percent of
Speaker 3: government revenues and makes up for a quarter of the
Speaker 3: total economy. They've gone into contraction last year and are
Speaker 3: likely to again this year. That means the first two
Speaker 3: years of the economy shrinking since the country got independence
Speaker 3: from the UK in nineteen sixty six. And also it
Speaker 3: means that the budget shortfall that the government has is
Speaker 3: the highest basically in Africa this year eleven percent of
Speaker 3: gross domestic product.
Speaker 1: Wow, and I mean you mentioned Matt, Botswana is a
Speaker 1: small economy, but of course, as you were just pointing
Speaker 1: out there clearly very resource rich, which brings me to
Speaker 1: Umbongani because you are there on the ground. Can you,
Speaker 1: as Matt was just pointing out there, can you talk
Speaker 1: a bit about the diamond money and how it's affected
Speaker 1: Botswana over the past few decades. How did it translate
Speaker 1: into growth of infrastructure projects, public services. What's been the
Speaker 1: transformation over the past few decades.
Speaker 2: As Matt mentioned, from independence in nineteen sixty six, So
Speaker 2: if you look at the Bosona economy at the time,
Speaker 2: it was largely agrarian and that was subsistence farmers or
Speaker 2: communal farmers. And then it was the budget was largely
Speaker 2: don't led so from the former United Kingdom authority. And
Speaker 2: so what diamonds did the revenues from those built up
Speaker 2: primary and secondary infrastructure throughout the country. It's a very
Speaker 2: expansive country, but with the sparse population so there was
Speaker 2: are high costs and low returns for any kind of investment.
Speaker 2: So diamonds allowed state led primary secondary infrastructure. Today we
Speaker 2: have tertiary level infrastructure. It also allowed for the subsidized
Speaker 2: rollout of services such as health education. More importantly, though,
Speaker 2: beyond that, diamonds anchored the growth of the financial sector,
Speaker 2: and it's through that financial sector that the broader development
Speaker 2: and sophistication of the enemy has come about over the years.
Speaker 2: The diamond industry is self employees about five thousand people.
Speaker 2: Total employment in Botswana is anyway up to one hundred
Speaker 2: and fifty thousand people on a full time basis. So
Speaker 2: diamonds enabled the growth of these other sectors that are
Speaker 2: now I wouldn't say tittering, but they're now unsteady because
Speaker 2: of the impact on the anchor of the economy.
Speaker 1: And that's sort of come at the foot of the
Speaker 1: new President Dumaboko, who's not only having to deal with
Speaker 1: the economic situation but also the negotiating happening with the
Speaker 1: government and some of the diamond companies in the country. Matthew,
Speaker 1: can you talk about what we've heard from Dumaboko and
Speaker 1: what he's said publicly about the financial and the economic
Speaker 1: situation that the country's in right now.
Speaker 3: Yeah, that's an important question. I know. Before the Botswani elections,
Speaker 3: when I interviewed Dumaboko, he mentioned that he had a
Speaker 3: plan if he won the elections that happened at the
Speaker 3: end of last year, his new government would want to
Speaker 3: take a majority stake in the Beers, which is the
Speaker 3: world's biggest diamond producer by value, against the vast majority
Speaker 3: of its stones from Botswana, where it already has a
Speaker 3: fifty to fifty joint venture with the Botswana government. That
Speaker 3: might seem counterintuitive, because when your economy is absolutely bleeding
Speaker 3: because of an over dependence on diamonds, it seems strange
Speaker 3: to want to actually become even more dependent on diamonds.
Speaker 3: But Bokor has said in the interview last year that
Speaker 3: the perfect time to buy is during a crisis. His
Speaker 3: government's also been trying to together with other diamond producing nations,
Speaker 3: including neighboring Namibia and also Angola, to resuscitate demand for
Speaker 3: natural diamonds over the much cheaper lab grown gems. These
Speaker 3: countries have pledged to spend one percent of their diamond
Speaker 3: revenues on marketing and promoting natural diamonds. But I mean,
Speaker 3: we don't know how effective this is going to be
Speaker 3: and how long it might take to win consumers back.
Speaker 1: And hold that thought, Matthew. When we come back from
Speaker 1: the break, we'll talk about what more the Botswana government
Speaker 1: is trying to do to reinvigorate the economy and whether
Speaker 1: or not it's actually going to work. We'll be right back.
Speaker 1: Welcome back today and the podcast. We're talking about Botswana
Speaker 1: and how the rise of lab grown diamonds is leaving
Speaker 1: the economy in big trouble. We have Matthew Hill and
Speaker 1: Bonganygouni joining us. So Bongany, before we went to the break,
Speaker 1: Matthew was saying that the economy is bleeding. Talk about
Speaker 1: what it's like on the ground there for Botswanans today.
Speaker 1: Give us some color if you can.
Speaker 2: I think what you can tell is that there's a
Speaker 2: great appreciation just through public debate, through a lot of
Speaker 2: engagements that we have with both the public and the
Speaker 2: private sector, there's a lot of appreciation that diamonds can
Speaker 2: no longer anchor the economy and that the attempts from
Speaker 2: decades ago to diversify the equoding away from its reliance
Speaker 2: on diamonds have become an urgency. I think the President's
Speaker 2: Book of us an existential threat, and so you're seeing
Speaker 2: a lot of efforts. And what's really quite evident is
Speaker 2: the fact that it's the highest level of engagement between
Speaker 2: the government and the private sector that we've seen in
Speaker 2: years around transformation. It's quite clear that the new government's
Speaker 2: openness to engage the private sector and infrastructure development is
Speaker 2: something that was previously I would say it was lesser
Speaker 2: regarded by the prior administrations because those efforts winters urgent
Speaker 2: when the revenues from diamonds are coming in. So just
Speaker 2: in terms of the picture on the ground, that's what
Speaker 2: we're seeing. We're seeing that the private sector has risen
Speaker 2: to the fore they've always been asking for government to
Speaker 2: open the door and reduce its size in the economy
Speaker 2: in certain sectors so that the private sector could play
Speaker 2: a much sharper role. I think that's what is quite
Speaker 2: clear at the moment.
Speaker 1: Is there any sense whether or not these plans are
Speaker 1: actually realistic? Are people hopeful this time around?
Speaker 2: Absolutely. One thing that has been said again and again
Speaker 2: by analysts is that the coming in of the new
Speaker 2: administration brings in people who don't own the architecture, the culture,
Speaker 2: the systems and the attitudes of the old administration. So
Speaker 2: they don't own it. They don't need to have the
Speaker 2: same attitudes and approach that the previous administration had over
Speaker 2: the is fifty eight years in power. So even as
Speaker 2: President Boco works on his first National Development Plan, it's
Speaker 2: going to run for about five years, there is the
Speaker 2: sense of optimism and as I said, the private sector
Speaker 2: which has they've become tired of promises of public private
Speaker 2: participation in the kind of thing. But this time around
Speaker 2: they're actually leading the conversations and they're holding these engagements.
Speaker 2: So the plan that has been developed is called the
Speaker 2: Economic Transformation Plan. President Boco put this together with some
Speaker 2: advisors from Malaysia. They've gone around the country collating, testing,
Speaker 2: costing projects that they believe are transformational projects that are
Speaker 2: going to be leading to diversification. Just this Tuesday, some
Speaker 2: of these projects that the banko Botswana, there was an
Speaker 2: investor road show. So these projects were set before asset managers,
Speaker 2: before insurance funds, before pension funds for potential investments. And
Speaker 2: you could see from the engagements that were taking place
Speaker 2: there were people are talking about potential yields, potential returns packed.
Speaker 2: This has never been seen before in Boswana. Infrastructure development
Speaker 2: and transformational projects have always been under the purview of
Speaker 2: the government. The government has got its own agenda that
Speaker 2: it develops and it says this is what we're going
Speaker 2: to do. And so boco's new administration has come at
Speaker 2: a point when this crisis is enabling that faster transformation
Speaker 2: and there's a lot of injection of hope in the economy.
Speaker 1: That is an optimistic point there. Mangani Matt, if you
Speaker 1: could just wrap things up for us here, because the
Speaker 1: story that you both worked on really sort of culminates
Speaker 1: in a tail right for economies that are focused on
Speaker 1: a single commodity. I wonder if there's a lesson you
Speaker 1: think to be learned when we look at some of
Speaker 1: the other African economies that are potentially reliant on a
Speaker 1: single commodity. Are we seeing a change? Are there different
Speaker 1: perspectives that you think we'll see going forward?
Speaker 3: This is one hundred percent coutiary tale to other countries
Speaker 3: that are too heavily reliant on any single commodity. I mean,
Speaker 3: bots one has always been held up as this real
Speaker 3: African success story where a government has avoided the resource curse,
Speaker 3: but for decades the government became incredibly complacent in not
Speaker 3: pushing these diversification efforts. But what's one is still a
Speaker 3: country with massive promise. It's got some of the best
Speaker 3: tourism assets in Africa. Its nature parts are favorites among
Speaker 3: celebrities like Prince Harry and Megan Merkel. It's got a
Speaker 3: nascent copper mining industry. But yet if the government had
Speaker 3: promoted and pushed for the growth of these industries years ago,
Speaker 3: or even decades ago, preferably, then the outcome could have
Speaker 3: been far better for the country. Other countries that are
Speaker 3: benefiting from booms in commodities right now, you've got Congo
Speaker 3: and Zambia really riding the copper wave. This is really
Speaker 3: a lesson to them not to grow complacent and make
Speaker 3: sure that you do diversify into other industries.
Speaker 1: To you and you can read all of Bongeny and
Speaker 1: Matthew's reporting from Botswana and elsewhere around the region on
Speaker 1: Bloomberg platforms. Now here's some of the other stories we've
Speaker 1: been following across the region this week. The National Bank
Speaker 1: of Ethiopia governor has resigned after serving the role for
Speaker 1: two and a half years, during which he helped implement
Speaker 1: extensive reforms to overhaul the nation's economy and oil giant
Speaker 1: Shell is returning to Angola after a twenty year hiatus,
Speaker 1: highlighting a shift in sentiment towards the nation's oil sector
Speaker 1: as reforms aimed at attracting global capital start to show results.
Speaker 1: And you can follow these stories across Bloomberg platforms now,
Speaker 1: including the Next African Newsletter. Put a link to that
Speaker 1: in the show notes. This program was produced by Adrian
Speaker 1: Bradley and tiwa Adebayo. Don't forget to follow and review
Speaker 1: this show wherever you usually get your podcasts. I'm Jennifer's Abasaga.
Speaker 1: Thanks as always for listening.