WEBVTT - Can Botswana Survive the Lab-Grown Diamond Boom? 0:00:02.520 --> 0:00:11.400 Bloomberg Audio Studios, podcasts, radio news. Diamonds once propelled Botswana 0:00:11.400 --> 0:00:15.080 to become the richest Sub Saharan nation per capita, but 0:00:15.160 --> 0:00:19.000 that boom could be turning to bust. We now offer 0:00:19.160 --> 0:00:20.680 lab grown dream diamonds. 0:00:20.720 --> 0:00:25.760 You can actually afford discover real brilliance at fabulous prices. 0:00:25.840 --> 0:00:28.320 It's time to upgrade your own engagement ring with a 0:00:28.400 --> 0:00:31.440 lab grown diamond. They cost seventy five percent list. 0:00:31.960 --> 0:00:35.279 Lab grown diamonds are flooding the market, leaving demand for 0:00:35.440 --> 0:00:39.680 natural diamonds in crisis and Botswana's economy in decline. 0:00:40.080 --> 0:00:45.320 For too long, Botana's economy has leaned and relied heavily 0:00:45.840 --> 0:00:51.239 on diamonds. The limitations of this reliance are increasingly becoming unbearable. 0:00:51.880 --> 0:00:56.280 If left unaddressed, there's a real risk of the situation 0:00:56.480 --> 0:01:02.320 becoming not just an economic challenge but social time bline. 0:01:02.360 --> 0:01:05.479 On today's episode of The Next Africa Podcast, we'll look 0:01:05.520 --> 0:01:08.920 at what's gone wrong in Botswana's economy and where Botswana 0:01:09.040 --> 0:01:12.160 turns if the diamonds in the ground become worth little 0:01:12.160 --> 0:01:19.480 more than just rocks. I'm Jennifer Zabasaja and this is 0:01:19.520 --> 0:01:23.039 the Next Africa Podcast, bringing you one story each week 0:01:23.040 --> 0:01:25.880 from the continent, driving the future of global growth with 0:01:25.959 --> 0:01:30.720 the context only Bloomberg can provide. Joining me this week 0:01:30.800 --> 0:01:35.200 is Bloomberg's Matthew Hill and Botswana based reporter Bongani Mungumi. 0:01:35.480 --> 0:01:38.360 They're also both the co authors of a report out 0:01:38.400 --> 0:01:41.240 on Bloomberg right now about this guys, thank you both 0:01:41.280 --> 0:01:44.760 for being here and really fascinating story that you've put out. Matthew, 0:01:44.760 --> 0:01:47.440 maybe we can start with you and you can give 0:01:47.520 --> 0:01:50.360 us a bit of context as to how important diamonds 0:01:50.440 --> 0:01:53.680 have been to Botswana's economy. You talk about this sort 0:01:53.680 --> 0:01:56.680 of in the historical sense in your story, but share 0:01:56.720 --> 0:02:00.360 a bit about that with us. 0:02:00.840 --> 0:02:04.080 I've got a question for you. Picture the scenario, all right. 0:02:04.160 --> 0:02:07.760 You walking into a jewelry store. You want to buy 0:02:07.760 --> 0:02:11.760 a diamond ring. You see two rings look exactly the same. 0:02:11.880 --> 0:02:15.080 You pick them up, they feel exactly the same. One 0:02:15.520 --> 0:02:20.880 costs one thousand dollars, the other costs five thousand dollars. 0:02:21.720 --> 0:02:22.800 Which do you buy? 0:02:23.360 --> 0:02:26.079 I mean, you're probably talking to the wrong girl. I'd 0:02:26.160 --> 0:02:29.040 probably go with the cheaper option. I don't know if 0:02:29.040 --> 0:02:31.560 that's necessarily a good thing, But so. 0:02:31.840 --> 0:02:35.920 Gen Z, I know that you call yourself that on 0:02:35.960 --> 0:02:40.800 your ex handle you are making the same choice as 0:02:40.960 --> 0:02:47.160 two out of three US based buyers of engagement rings 0:02:47.320 --> 0:02:52.600 that are from gen Z. That's according to the data 0:02:52.680 --> 0:02:57.480 that jewelry insurance company Brighton Coke put out last month, 0:02:57.560 --> 0:03:04.040 and that's basically what's helped to put Botswana in this 0:03:04.840 --> 0:03:10.240 incredibly tight position. The diamond market has gone into an 0:03:10.280 --> 0:03:15.160 incredibly deep slump, but started out after a spike in 0:03:15.400 --> 0:03:20.840 twenty twenty one post COVID where everybody was essentially buying 0:03:20.919 --> 0:03:25.600 everything and the price of everything went up. Then demand slumped. 0:03:25.720 --> 0:03:28.680 There was a slowdown in demand in the US and 0:03:28.840 --> 0:03:33.880 China because of difficult economic conditions inflation, etc. But then 0:03:33.960 --> 0:03:38.240 in the years after that, this phenomenon of lab grown 0:03:38.360 --> 0:03:43.840 diamonds rarely came to the fore. So for Botswana, a 0:03:43.880 --> 0:03:49.200 small African economy, what this means is that eighty percent 0:03:49.400 --> 0:03:54.880 of its exports diamonds are now taking a really, really 0:03:54.920 --> 0:03:59.040 big hit. It also accounts for thirty three percent of 0:03:59.560 --> 0:04:03.680 government revenues and makes up for a quarter of the 0:04:03.720 --> 0:04:08.160 total economy. They've gone into contraction last year and are 0:04:08.320 --> 0:04:11.640 likely to again this year. That means the first two 0:04:11.720 --> 0:04:16.800 years of the economy shrinking since the country got independence 0:04:16.839 --> 0:04:23.000 from the UK in nineteen sixty six. And also it 0:04:23.160 --> 0:04:26.840 means that the budget shortfall that the government has is 0:04:27.520 --> 0:04:31.880 the highest basically in Africa this year eleven percent of 0:04:32.080 --> 0:04:33.320 gross domestic product. 0:04:33.800 --> 0:04:38.120 Wow, and I mean you mentioned Matt, Botswana is a 0:04:38.200 --> 0:04:40.680 small economy, but of course, as you were just pointing 0:04:40.680 --> 0:04:44.719 out there clearly very resource rich, which brings me to 0:04:44.880 --> 0:04:48.360 Umbongani because you are there on the ground. Can you, 0:04:48.720 --> 0:04:50.800 as Matt was just pointing out there, can you talk 0:04:50.839 --> 0:04:53.880 a bit about the diamond money and how it's affected 0:04:53.960 --> 0:04:57.880 Botswana over the past few decades. How did it translate 0:04:57.960 --> 0:05:02.960 into growth of infrastructure projects, public services. What's been the 0:05:03.000 --> 0:05:04.839 transformation over the past few decades. 0:05:05.600 --> 0:05:08.480 As Matt mentioned, from independence in nineteen sixty six, So 0:05:08.480 --> 0:05:10.560 if you look at the Bosona economy at the time, 0:05:11.160 --> 0:05:14.960 it was largely agrarian and that was subsistence farmers or 0:05:15.080 --> 0:05:17.920 communal farmers. And then it was the budget was largely 0:05:18.080 --> 0:05:22.039 don't led so from the former United Kingdom authority. And 0:05:22.080 --> 0:05:24.520 so what diamonds did the revenues from those built up 0:05:24.560 --> 0:05:28.599 primary and secondary infrastructure throughout the country. It's a very 0:05:28.640 --> 0:05:32.200 expansive country, but with the sparse population so there was 0:05:32.240 --> 0:05:35.320 are high costs and low returns for any kind of investment. 0:05:35.800 --> 0:05:40.359 So diamonds allowed state led primary secondary infrastructure. Today we 0:05:40.440 --> 0:05:44.440 have tertiary level infrastructure. It also allowed for the subsidized 0:05:44.480 --> 0:05:48.960 rollout of services such as health education. More importantly, though, 0:05:49.120 --> 0:05:53.640 beyond that, diamonds anchored the growth of the financial sector, 0:05:54.400 --> 0:05:58.680 and it's through that financial sector that the broader development 0:05:58.720 --> 0:06:02.080 and sophistication of the enemy has come about over the years. 0:06:02.320 --> 0:06:05.360 The diamond industry is self employees about five thousand people. 0:06:06.080 --> 0:06:08.799 Total employment in Botswana is anyway up to one hundred 0:06:08.800 --> 0:06:11.720 and fifty thousand people on a full time basis. So 0:06:11.839 --> 0:06:15.480 diamonds enabled the growth of these other sectors that are 0:06:15.520 --> 0:06:19.599 now I wouldn't say tittering, but they're now unsteady because 0:06:19.640 --> 0:06:22.279 of the impact on the anchor of the economy. 0:06:23.480 --> 0:06:25.640 And that's sort of come at the foot of the 0:06:25.680 --> 0:06:29.280 new President Dumaboko, who's not only having to deal with 0:06:29.320 --> 0:06:33.760 the economic situation but also the negotiating happening with the 0:06:33.800 --> 0:06:38.000 government and some of the diamond companies in the country. Matthew, 0:06:38.600 --> 0:06:41.800 can you talk about what we've heard from Dumaboko and 0:06:41.880 --> 0:06:46.080 what he's said publicly about the financial and the economic 0:06:46.160 --> 0:06:47.880 situation that the country's in right now. 0:06:48.360 --> 0:06:54.640 Yeah, that's an important question. I know. Before the Botswani elections, 0:06:54.680 --> 0:07:00.080 when I interviewed Dumaboko, he mentioned that he had a 0:07:00.080 --> 0:07:03.280 plan if he won the elections that happened at the 0:07:03.320 --> 0:07:06.520 end of last year, his new government would want to 0:07:06.600 --> 0:07:11.080 take a majority stake in the Beers, which is the 0:07:11.160 --> 0:07:15.760 world's biggest diamond producer by value, against the vast majority 0:07:15.880 --> 0:07:20.400 of its stones from Botswana, where it already has a 0:07:20.480 --> 0:07:26.800 fifty to fifty joint venture with the Botswana government. That 0:07:26.920 --> 0:07:32.760 might seem counterintuitive, because when your economy is absolutely bleeding 0:07:32.920 --> 0:07:37.240 because of an over dependence on diamonds, it seems strange 0:07:37.360 --> 0:07:43.040 to want to actually become even more dependent on diamonds. 0:07:43.240 --> 0:07:47.960 But Bokor has said in the interview last year that 0:07:49.720 --> 0:07:54.680 the perfect time to buy is during a crisis. His 0:07:54.760 --> 0:08:01.720 government's also been trying to together with other diamond producing nations, 0:08:01.760 --> 0:08:10.320 including neighboring Namibia and also Angola, to resuscitate demand for 0:08:10.480 --> 0:08:16.160 natural diamonds over the much cheaper lab grown gems. These 0:08:16.160 --> 0:08:21.040 countries have pledged to spend one percent of their diamond 0:08:21.120 --> 0:08:27.440 revenues on marketing and promoting natural diamonds. But I mean, 0:08:27.800 --> 0:08:30.240 we don't know how effective this is going to be 0:08:31.560 --> 0:08:35.199 and how long it might take to win consumers back. 0:08:35.640 --> 0:08:38.079 And hold that thought, Matthew. When we come back from 0:08:38.120 --> 0:08:40.800 the break, we'll talk about what more the Botswana government 0:08:40.880 --> 0:08:44.200 is trying to do to reinvigorate the economy and whether 0:08:44.320 --> 0:08:47.000 or not it's actually going to work. We'll be right back. 0:08:51.240 --> 0:08:54.920 Welcome back today and the podcast. We're talking about Botswana 0:08:55.000 --> 0:08:58.080 and how the rise of lab grown diamonds is leaving 0:08:58.200 --> 0:09:02.520 the economy in big trouble. We have Matthew Hill and 0:09:02.760 --> 0:09:07.280 Bonganygouni joining us. So Bongany, before we went to the break, 0:09:07.520 --> 0:09:11.120 Matthew was saying that the economy is bleeding. Talk about 0:09:11.200 --> 0:09:15.240 what it's like on the ground there for Botswanans today. 0:09:15.360 --> 0:09:17.200 Give us some color if you can. 0:09:17.840 --> 0:09:19.920 I think what you can tell is that there's a 0:09:19.960 --> 0:09:23.680 great appreciation just through public debate, through a lot of 0:09:23.679 --> 0:09:26.120 engagements that we have with both the public and the 0:09:26.120 --> 0:09:29.280 private sector, there's a lot of appreciation that diamonds can 0:09:29.320 --> 0:09:32.240 no longer anchor the economy and that the attempts from 0:09:32.600 --> 0:09:35.880 decades ago to diversify the equoding away from its reliance 0:09:35.920 --> 0:09:39.360 on diamonds have become an urgency. I think the President's 0:09:39.440 --> 0:09:42.480 Book of us an existential threat, and so you're seeing 0:09:42.480 --> 0:09:46.439 a lot of efforts. And what's really quite evident is 0:09:46.559 --> 0:09:49.439 the fact that it's the highest level of engagement between 0:09:49.800 --> 0:09:52.400 the government and the private sector that we've seen in 0:09:52.520 --> 0:09:56.240 years around transformation. It's quite clear that the new government's 0:09:56.280 --> 0:09:59.960 openness to engage the private sector and infrastructure development is 0:10:00.040 --> 0:10:03.080 something that was previously I would say it was lesser 0:10:03.160 --> 0:10:09.319 regarded by the prior administrations because those efforts winters urgent 0:10:09.400 --> 0:10:12.280 when the revenues from diamonds are coming in. So just 0:10:12.320 --> 0:10:14.600 in terms of the picture on the ground, that's what 0:10:14.640 --> 0:10:17.240 we're seeing. We're seeing that the private sector has risen 0:10:17.280 --> 0:10:19.720 to the fore they've always been asking for government to 0:10:19.760 --> 0:10:23.520 open the door and reduce its size in the economy 0:10:23.520 --> 0:10:26.160 in certain sectors so that the private sector could play 0:10:26.200 --> 0:10:28.600 a much sharper role. I think that's what is quite 0:10:28.640 --> 0:10:29.360 clear at the moment. 0:10:29.760 --> 0:10:32.679 Is there any sense whether or not these plans are 0:10:32.720 --> 0:10:36.440 actually realistic? Are people hopeful this time around? 0:10:37.120 --> 0:10:40.760 Absolutely. One thing that has been said again and again 0:10:40.800 --> 0:10:43.439 by analysts is that the coming in of the new 0:10:43.440 --> 0:10:49.000 administration brings in people who don't own the architecture, the culture, 0:10:49.559 --> 0:10:53.520 the systems and the attitudes of the old administration. So 0:10:54.000 --> 0:10:56.080 they don't own it. They don't need to have the 0:10:56.160 --> 0:10:59.839 same attitudes and approach that the previous administration had over 0:10:59.880 --> 0:11:02.760 the is fifty eight years in power. So even as 0:11:03.080 --> 0:11:06.000 President Boco works on his first National Development Plan, it's 0:11:06.040 --> 0:11:08.120 going to run for about five years, there is the 0:11:08.240 --> 0:11:11.320 sense of optimism and as I said, the private sector 0:11:11.360 --> 0:11:15.760 which has they've become tired of promises of public private 0:11:15.880 --> 0:11:18.320 participation in the kind of thing. But this time around 0:11:18.400 --> 0:11:21.480 they're actually leading the conversations and they're holding these engagements. 0:11:21.840 --> 0:11:23.480 So the plan that has been developed is called the 0:11:23.559 --> 0:11:28.280 Economic Transformation Plan. President Boco put this together with some 0:11:28.440 --> 0:11:32.760 advisors from Malaysia. They've gone around the country collating, testing, 0:11:32.920 --> 0:11:36.920 costing projects that they believe are transformational projects that are 0:11:36.920 --> 0:11:41.040 going to be leading to diversification. Just this Tuesday, some 0:11:41.120 --> 0:11:43.880 of these projects that the banko Botswana, there was an 0:11:44.000 --> 0:11:48.440 investor road show. So these projects were set before asset managers, 0:11:48.480 --> 0:11:53.120 before insurance funds, before pension funds for potential investments. And 0:11:53.160 --> 0:11:55.760 you could see from the engagements that were taking place 0:11:55.800 --> 0:12:00.400 there were people are talking about potential yields, potential returns packed. 0:12:01.240 --> 0:12:04.720 This has never been seen before in Boswana. Infrastructure development 0:12:04.800 --> 0:12:07.920 and transformational projects have always been under the purview of 0:12:07.920 --> 0:12:10.520 the government. The government has got its own agenda that 0:12:10.559 --> 0:12:12.280 it develops and it says this is what we're going 0:12:12.360 --> 0:12:15.680 to do. And so boco's new administration has come at 0:12:15.720 --> 0:12:19.720 a point when this crisis is enabling that faster transformation 0:12:19.840 --> 0:12:22.120 and there's a lot of injection of hope in the economy. 0:12:22.559 --> 0:12:26.280 That is an optimistic point there. Mangani Matt, if you 0:12:26.320 --> 0:12:30.240 could just wrap things up for us here, because the 0:12:30.280 --> 0:12:33.920 story that you both worked on really sort of culminates 0:12:33.960 --> 0:12:37.560 in a tail right for economies that are focused on 0:12:37.600 --> 0:12:40.360 a single commodity. I wonder if there's a lesson you 0:12:40.480 --> 0:12:43.160 think to be learned when we look at some of 0:12:43.200 --> 0:12:46.800 the other African economies that are potentially reliant on a 0:12:46.840 --> 0:12:50.800 single commodity. Are we seeing a change? Are there different 0:12:51.920 --> 0:12:55.600 perspectives that you think we'll see going forward? 0:12:56.200 --> 0:13:01.199 This is one hundred percent coutiary tale to other countries 0:13:01.679 --> 0:13:06.120 that are too heavily reliant on any single commodity. I mean, 0:13:06.720 --> 0:13:09.440 bots one has always been held up as this real 0:13:09.640 --> 0:13:14.520 African success story where a government has avoided the resource curse, 0:13:15.120 --> 0:13:21.440 but for decades the government became incredibly complacent in not 0:13:21.640 --> 0:13:26.160 pushing these diversification efforts. But what's one is still a 0:13:26.200 --> 0:13:29.160 country with massive promise. It's got some of the best 0:13:29.200 --> 0:13:36.000 tourism assets in Africa. Its nature parts are favorites among 0:13:36.440 --> 0:13:40.040 celebrities like Prince Harry and Megan Merkel. It's got a 0:13:40.120 --> 0:13:44.520 nascent copper mining industry. But yet if the government had 0:13:45.040 --> 0:13:51.160 promoted and pushed for the growth of these industries years ago, 0:13:51.320 --> 0:13:55.400 or even decades ago, preferably, then the outcome could have 0:13:55.480 --> 0:14:00.079 been far better for the country. Other countries that are 0:14:00.120 --> 0:14:04.839 benefiting from booms in commodities right now, you've got Congo 0:14:04.920 --> 0:14:08.360 and Zambia really riding the copper wave. This is really 0:14:08.400 --> 0:14:12.080 a lesson to them not to grow complacent and make 0:14:12.160 --> 0:14:15.079 sure that you do diversify into other industries. 0:14:15.120 --> 0:14:18.320 To you and you can read all of Bongeny and 0:14:18.480 --> 0:14:22.240 Matthew's reporting from Botswana and elsewhere around the region on 0:14:22.320 --> 0:14:27.080 Bloomberg platforms. Now here's some of the other stories we've 0:14:27.080 --> 0:14:30.520 been following across the region this week. The National Bank 0:14:30.520 --> 0:14:33.960 of Ethiopia governor has resigned after serving the role for 0:14:34.040 --> 0:14:37.040 two and a half years, during which he helped implement 0:14:37.200 --> 0:14:42.920 extensive reforms to overhaul the nation's economy and oil giant 0:14:43.000 --> 0:14:46.479 Shell is returning to Angola after a twenty year hiatus, 0:14:46.560 --> 0:14:49.920 highlighting a shift in sentiment towards the nation's oil sector 0:14:50.320 --> 0:14:54.560 as reforms aimed at attracting global capital start to show results. 0:14:55.040 --> 0:14:57.920 And you can follow these stories across Bloomberg platforms now, 0:14:57.920 --> 0:15:01.040 including the Next African Newsletter. Put a link to that 0:15:01.080 --> 0:15:06.000 in the show notes. This program was produced by Adrian 0:15:06.080 --> 0:15:09.480 Bradley and tiwa Adebayo. Don't forget to follow and review 0:15:09.520 --> 0:15:13.800 this show wherever you usually get your podcasts. I'm Jennifer's Abasaga. 0:15:13.920 --> 0:15:15.240 Thanks as always for listening.