The Country That Diamonds Built

When the news about conflict diamonds first broke, it was hard to look past the horrors in Sierra Leone and think that diamonds could be a force for positive change elsewhere in Africa.

But diamonds do, in fact, represent development and growth, and the nation of Botswana is living proof. Botswana became independent in 1966; diamonds were discovered there in 1967; and the country, once among the poorest nations in the world, now boasts an annual per capita GDP of approximately $7,800 (2002 figures)—roughly comparable to Mexico, Russia, and much of South America—and higher than India or China. It has the highest sovereign credit rating in Africa. Joseph Huggins, the U.S. ambassador to Botswana, says it’s one point higher than Japan’s. Its GDP annual growth rate is also among the fastest in the world.

The country is the longest-running democracy in Africa and was one of the first signers of the Kimberley accords. Its government is bicameral, parliamentary, and stable. Its population is young (median age 19.2 years) and highly educated, and the government pays for all its citizens’ education from elementary school through Ph.D.s. Save for left-hand driving and the pervasiveness of HIV/AIDS-awareness billboards, its capitol city of Gabarone looks more like Tucson, Ariz., than what most people perceive of Africa. And it’s almost all the result of diamond mining—something for which the government is both grateful and concerned.

“The good news is that diamonds are responsible for 70 percent of Botswana’s export revenue and 33 percent of its GDP,” says Kabelo Binns, corporate communications manager for Debswana, the company formed as an equal partnership between De Beers and the Botswana government. “The bad news is that diamonds are responsible for 70 percent of its export revenue and 33 percent of its GDP.”

Speaking to a group of American jewelry trade journalists last fall, Huggins and Binns outlined some of the advantages that diamond mining has brought about in the past 30 years. But both acknowledged the question on everybody’s mind: After the mines, what’s left to sustain the economy?

The country does have other resources. Botswana is a major producer of beef, exporting much of it to Africa and Europe, and its beef is some of the world’s best. Along with beef, of course, comes leather. Botswana exports a significant number of blue hides (unprocessed leather) to Italy. Copper and nickel are also important exports, and, naturally, tourism is a key component of the country’s economic future. But revenue from copper and nickel exports totals less than 10 percent of the revenue from diamond exports, and revenue from meat and leather totals less than 5 percent. And a 2000 report issued by the United Nations Conference on Trade and Development says that despite the revenue that diamond mining brings, the country overall doesn’t benefit quite as much as it could from it. Apart from direct employment, and expenditures by the mining and sorting operations on local goods and services, much of the revenue from diamonds does not flow into the local economy. A significant part of the diamond revenues goes to operating costs and dividends; and, apart from the Botswana government (as a partner in Debswana), most of De Beers’ shareholders live outside Botswana. The revenues that flow to the government are poured back into the economy, but also invested as a hedge against the future should diamond prices fall or the mines be exhausted. Also, due to security concerns, much of the diamond industry is somewhat isolated, whereas mining of base minerals tends to be more inclusive, says the report.

The country is working hard to encourage foreign investment, particularly in the financial and technology sectors. Botswana has liberal business and taxation laws. Binns calls it the “Switzerland of Africa,” owing to its lack of foreign currency exchange regulations. And at 15 percent, its corporate tax is the lowest in Africa.

But with progress come problems. Botswana has a high rate of unemployment (close to 40 percent), although Binns says the numbers don’t accurately reflect the true picture.

“There are actually plenty of jobs available, but many are low-wage jobs, and we have a highly educated population [that’s overqualified for these jobs].” Botswana also leads the world in the percentage of its people infected with HIV/AIDS. “That’s not a great honor,” says Huggins. “One out of every three citizens is infected, in a population of 7 million.” The United States, he says, has been very supportive of the Botswana government’s efforts to help stop the spread of HIV/AIDS. Both the U.S. government and private American sources such as the Bill and Melinda Gates Foundation, Merck, Bristol, Myers, Squibb, and Baylor University are actively helping, either through direct funding, research, or by providing counseling and testing centers. The U.S. government funds 16 centers for voluntary testing and counseling, says Huggins. No place in the country is more than 30 miles from a testing center.

“Originally, we were dealing just with the stigma and denial [of AIDS]. Now, just through the U.S. centers, more than 155,000 people have been tested.” Debswana, as well, has an active HIV/AIDS awareness program and offers voluntary testing and counseling.

Making the cut

Keeping more diamond-cutting profits in Africa, as opposed to only exporting rough, has become a central issue for diamond-producing nations. (See “Call Out of Africa,” page 92.) Botswana is already one of Africa’s three sorting centers, and there are three cutting factories there as well, according to Patrick Jacobs, general manager of the Botswana Diamond Valuing Company (a subsidiary of Debswana). But whether or not it will become one of the world’s major cutting centers has yet to be determined.

“[Diamond cutting] labor here isn’t cheap,” says Binns. “What costs $10 [to cut] in India and China costs $30 in Botswana.” The mines also have to be careful not to compete with their clients, he says.

But Lynette Hori, media relations manager for the Diamond Trading Company, says the belief that Botswana labor is too expensive is a myth, and Jacobs says that firms that do cut there receive tax breaks. He points to several major sightholders—Eurostar, Diarough, and Schacter & Namdar—that cut in Botswana, and Russian/Israeli diamond magnate Lev Leviev also has announced plans to begin cutting there.

Binns also points to a lack of consistency about what defines where a diamond comes from. Is it one that’s mined in the country, one that’s cut and polished in the country, or both? “To call a diamond a Botswana diamond, it has to be mined, cut, and polished here, whereas that’s not the case in other countries,” he says. Many countries—India, Israel, and even Canada—will call a diamond native even though it’s not mined there, he says.