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Diamonds once propelled Botswana to become the richest Sub Saharan nation per capita, but that boom could be turning to bust.

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Lab grown diamonds are flooding the market, leaving demand for natural diamonds in crisis and Botswana's economy in decline.

For too long, Botana's economy has leaned and relied heavily on diamonds.

The limitations of this reliance are increasingly becoming unbearable.

If left unaddressed, there's a real risk of the situation becoming not just an economic challenge but social time bline.

On today's episode of The Next Africa Podcast, we'll look at what's gone wrong in Botswana's economy and where Botswana turns if the diamonds in the ground become worth little more than just rocks.

I'm Jennifer Zabasaja and this is the Next Africa Podcast, bringing you one story each week from the continent, driving the future of global growth with the context only Bloomberg can provide.

Joining me this week is Bloomberg's Matthew Hill and Botswana based reporter Bongani Mungumi.

They're also both the co authors of a report out on Bloomberg right now about this guys, thank you both for being here and really fascinating story that you've put out.

Matthew, maybe we can start with you and you can give us a bit of context as to how important diamonds have been to Botswana's economy.

You talk about this sort of in the historical sense in your story, but share a bit about that with us.

I've got a question for you.

Picture the scenario, all right.

You walking into a jewelry store.

You want to buy a diamond ring.

You see two rings look exactly the same.

You pick them up, they feel exactly the same.

One costs one thousand dollars, the other costs five thousand dollars.

Which do you buy?

I mean, you're probably talking to the wrong girl.

I'd probably go with the cheaper option.

I don't know if that's necessarily a good thing, But so.

Gen Z, I know that you call yourself that on your ex handle you are making the same choice as two out of three US based buyers of engagement rings that are from gen Z.

That's according to the data that jewelry insurance company Brighton Coke put out last month, and that's basically what's helped to put Botswana in this incredibly tight position.

The diamond market has gone into an incredibly deep slump, but started out after a spike in twenty twenty one post COVID where everybody was essentially buying everything and the price of everything went up.

Then demand slumped.

There was a slowdown in demand in the US and China because of difficult economic conditions inflation, etc.

But then in the years after that, this phenomenon of lab grown diamonds rarely came to the fore.

So for Botswana, a small African economy, what this means is that eighty percent of its exports diamonds are now taking a really, really big hit.

It also accounts for thirty three percent of government revenues and makes up for a quarter of the total economy.

They've gone into contraction last year and are likely to again this year.

That means the first two years of the economy shrinking since the country got independence from the UK in nineteen sixty six.

And also it means that the budget shortfall that the government has is the highest basically in Africa this year eleven percent of gross domestic product.

Wow, and I mean you mentioned Matt, Botswana is a small economy, but of course, as you were just pointing out there clearly very resource rich, which brings me to Umbongani because you are there on the ground.

Can you, as Matt was just pointing out there, can you talk a bit about the diamond money and how it's affected Botswana over the past few decades.

How did it translate into growth of infrastructure projects, public services.

What's been the transformation over the past few decades.

As Matt mentioned, from independence in nineteen sixty six, So if you look at the Bosona economy at the time, it was largely agrarian and that was subsistence farmers or communal farmers.

And then it was the budget was largely don't led so from the former United Kingdom authority.

And so what diamonds did the revenues from those built up primary and secondary infrastructure throughout the country.

It's a very expansive country, but with the sparse population so there was are high costs and low returns for any kind of investment.

So diamonds allowed state led primary secondary infrastructure.

Today we have tertiary level infrastructure.

It also allowed for the subsidized rollout of services such as health education.

More importantly, though, beyond that, diamonds anchored the growth of the financial sector, and it's through that financial sector that the broader development and sophistication of the enemy has come about over the years.

The diamond industry is self employees about five thousand people.

Total employment in Botswana is anyway up to one hundred and fifty thousand people on a full time basis.

So diamonds enabled the growth of these other sectors that are now I wouldn't say tittering, but they're now unsteady because of the impact on the anchor of the economy.

And that's sort of come at the foot of the new President Dumaboko, who's not only having to deal with the economic situation but also the negotiating happening with the government and some of the diamond companies in the country.

Matthew, can you talk about what we've heard from Dumaboko and what he's said publicly about the financial and the economic situation that the country's in right now.

Yeah, that's an important question.

I know.

Before the Botswani elections, when I interviewed Dumaboko, he mentioned that he had a plan if he won the elections that happened at the end of last year, his new government would want to take a majority stake in the Beers, which is the world's biggest diamond producer by value, against the vast majority of its stones from Botswana, where it already has a fifty to fifty joint venture with the Botswana government.

That might seem counterintuitive, because when your economy is absolutely bleeding because of an over dependence on diamonds, it seems strange to want to actually become even more dependent on diamonds.

But Bokor has said in the interview last year that the perfect time to buy is during a crisis.

His government's also been trying to together with other diamond producing nations, including neighboring Namibia and also Angola, to resuscitate demand for natural diamonds over the much cheaper lab grown gems.

These countries have pledged to spend one percent of their diamond revenues on marketing and promoting natural diamonds.

But I mean, we don't know how effective this is going to be and how long it might take to win consumers back.

And hold that thought, Matthew.

When we come back from the break, we'll talk about what more the Botswana government is trying to do to reinvigorate the economy and whether or not it's actually going to work.

We'll be right back.

Welcome back today and the podcast.

We're talking about Botswana and how the rise of lab grown diamonds is leaving the economy in big trouble.

We have Matthew Hill and Bonganygouni joining us.

So Bongany, before we went to the break, Matthew was saying that the economy is bleeding.

Talk about what it's like on the ground there for Botswanans today.

Give us some color if you can.

I think what you can tell is that there's a great appreciation just through public debate, through a lot of engagements that we have with both the public and the private sector, there's a lot of appreciation that diamonds can no longer anchor the economy and that the attempts from decades ago to diversify the equoding away from its reliance on diamonds have become an urgency.

I think the President's Book of us an existential threat, and so you're seeing a lot of efforts.

And what's really quite evident is the fact that it's the highest level of engagement between the government and the private sector that we've seen in years around transformation.

It's quite clear that the new government's openness to engage the private sector and infrastructure development is something that was previously I would say it was lesser regarded by the prior administrations because those efforts winters urgent when the revenues from diamonds are coming in.

So just in terms of the picture on the ground, that's what we're seeing.

We're seeing that the private sector has risen to the fore they've always been asking for government to open the door and reduce its size in the economy in certain sectors so that the private sector could play a much sharper role.

I think that's what is quite clear at the moment.

Is there any sense whether or not these plans are actually realistic?

Are people hopeful this time around?

Absolutely.

One thing that has been said again and again by analysts is that the coming in of the new administration brings in people who don't own the architecture, the culture, the systems and the attitudes of the old administration.

So they don't own it.

They don't need to have the same attitudes and approach that the previous administration had over the is fifty eight years in power.

So even as President Boco works on his first National Development Plan, it's going to run for about five years, there is the sense of optimism and as I said, the private sector which has they've become tired of promises of public private participation in the kind of thing.

But this time around they're actually leading the conversations and they're holding these engagements.

So the plan that has been developed is called the Economic Transformation Plan.

President Boco put this together with some advisors from Malaysia.

They've gone around the country collating, testing, costing projects that they believe are transformational projects that are going to be leading to diversification.

Just this Tuesday, some of these projects that the banko Botswana, there was an investor road show.

So these projects were set before asset managers, before insurance funds, before pension funds for potential investments.

And you could see from the engagements that were taking place there were people are talking about potential yields, potential returns packed.

This has never been seen before in Boswana.

Infrastructure development and transformational projects have always been under the purview of the government.

The government has got its own agenda that it develops and it says this is what we're going to do.

And so boco's new administration has come at a point when this crisis is enabling that faster transformation and there's a lot of injection of hope in the economy.

That is an optimistic point there.

Mangani Matt, if you could just wrap things up for us here, because the story that you both worked on really sort of culminates in a tail right for economies that are focused on a single commodity.

I wonder if there's a lesson you think to be learned when we look at some of the other African economies that are potentially reliant on a single commodity.

Are we seeing a change?

Are there different perspectives that you think we'll see going forward?

This is one hundred percent coutiary tale to other countries that are too heavily reliant on any single commodity.

I mean, bots one has always been held up as this real African success story where a government has avoided the resource curse, but for decades the government became incredibly complacent in not pushing these diversification efforts.

But what's one is still a country with massive promise.

It's got some of the best tourism assets in Africa.

Its nature parts are favorites among celebrities like Prince Harry and Megan Merkel.

It's got a nascent copper mining industry.

But yet if the government had promoted and pushed for the growth of these industries years ago, or even decades ago, preferably, then the outcome could have been far better for the country.

Other countries that are benefiting from booms in commodities right now, you've got Congo and Zambia really riding the copper wave.

This is really a lesson to them not to grow complacent and make sure that you do diversify into other industries.

To you and you can read all of Bongeny and Matthew's reporting from Botswana and elsewhere around the region on Bloomberg platforms.

Now here's some of the other stories we've been following across the region this week.

The National Bank of Ethiopia governor has resigned after serving the role for two and a half years, during which he helped implement extensive reforms to overhaul the nation's economy and oil giant Shell is returning to Angola after a twenty year hiatus, highlighting a shift in sentiment towards the nation's oil sector as reforms aimed at attracting global capital start to show results.

And you can follow these stories across Bloomberg platforms now, including the Next African Newsletter.

Put a link to that in the show notes.

This program was produced by Adrian Bradley and tiwa Adebayo.

Don't forget to follow and review this show wherever you usually get your podcasts.

I'm Jennifer's Abasaga.

Thanks as always for listening.