Role of diamonds in developing Botswana’s economy

The economic role of diamond mining
The role of diamonds in developing Botswana’s economy is largely self-evident, particularly for those familiar with the
country. The development of the capital city, Gaborone, is a good case in point. The original town planners thought
that the population of the city would grow to 30 000 by the late 1980s, but it had grown far beyond the number at the
time. In fact by 2001 the population had risen to about 190 000, and this does not include those living in suburban
areas around the city. Currently, diamonds contribute approximately 50 percent to government revenue, 30 percent
to GDP and comprise about 80 percent of exports. The economic forecasts for NDP 6 (1985/86–1990/91) assumed
that diamond output had already reached a plateau at around 15 million carats per annum; but production more than
doubled in 2007 to about 33 million carats. In reality, the much-talked-about failure to diversify the economy is in
large part due to the continued success of diamond mining rather that a lack of growth in other sectors. The
Government is the single most important mechanism linking the mining sector to the rest of the economy. This is done
by channelling diamond revenues to other sectors of the economy through investments in human capital formation,
infrastructural development and incentives for non-mining activities. The substantial human development has
transformed a largely rural, agrarian population into an increasingly educated and trained urban labour force. While
the scourge of HIV/AIDS threatens to turn back much of the human development progress, there continues to be
investments in health and skills development. Although income inequality, as measured by the Gini coefficient, is high
and has not been reduced over the past two decades, the growth of real incomes has been spread throughout the
economy, and a substantial portion of the population has been rescued from poverty. The one area where diamonds
have not directly contributed in proportion to the importance of the sector is employment. According to the most
recent estimates, mining accounts for only 4 percent of total formal sector employment, and many of these employees
work for non-diamond mining operations. Indeed the creation of additional employment opportunities is a principal
objective of the ongoing beneficiation initiative.

Recent indicators of renewed growth in the non-mining private sector are encouraging; and some opportunities exist
across a range of Botswana’s economic sectors. First, benefits from diamond mining should spread through
manufacturing into increased demand for related services. Second, mining is rapidly diversifying away from diamonds
to a variety of other minerals, with potential for supporting major energy-related projects to serve the region. Last but
not least, recent studies have indicated tremendous potential for diversified development of the tourism sector. There
is no doubt that, in order to seize these opportunities, Botswana must be fully aware of the constraints that need to
be overcome, and some of them require taking difficult policy decisions. In recent reviews, both Moody’s Investors
Service and Standard & Poor’s have made it clear that Botswana needs to step up at least one gear if there is to be an
upgrade. It goes without saying, therefore, that a lot of progress still needs to be made to maintain the current
sovereign credit ratings. Those tasked with maintaining sound macroeconomic policies also face challenges. The 3

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Government needs to plan for a situation where revenues from diamonds will start to slow down. This will require a
proper control of spending programmes and possibly a build-up of adequate foreign exchange reserves or savings. For
the Bank of Botswana, the challenge of containing inflation, and ensuring that it is low, stable and predictable is
unending. Discernible progress is being made on all these fronts, and this should secure good prospects for Botswana’s
Adapted: Linah K. Mohohlo, Governor, Bank of Botswana, Gaborone; Botswana’s economic policy and development

Botswana is counted among the top economic performers in the world for the record it has achieved in the last forty
years. By 1990s, Botswana had attained middle income status with a GDP per capita of about USD6000 and many
thousands of kilometres of bituminised roads.
1.1 In that regard, research on the main macroeconomic policies that have led Botswana to be ranked among
the top economic performers in the World. (15)
1.2 During the 1990s Botswana’s per capita (in USD dollars) was more than 10 times larger than the per capita
GDP in Mozambique. Does this mean that everyone in Botswana was at least 10 times better off than
everyone in Mozambique during the 1990s? Research and substantiate your answer with relevant statistics.

Botswana recorded close to four decades of rapid economic growth and it is extremely well endowed with minerals
(diamonds) and other natural resources.
2.1 Using the given article research on whether natural resources are a necessary or sufficient condition for
economic growth? Substantiate your solution with facts in the article and any other examples in the World.
2.2 Botswana is a good case of how good economic management policies can make Africa a better place to be.
In that regard, discuss possible economic lessons that can be drawn from the article. (10)

Answer ALL the questions.
One of the main macroeconomic objectives of any country in the World is economic growth as measured by the
gross domestic product (GDP) per capita from one year to the other.

3.1 Research on the various sources of economic growth in your country and highlight the key drivers of
economic growth in your country. (10)
3.2 Critically evaluate the effectiveness of the current economic policies ultilised by your country to improve
economic growth and make recommendations on how to improve these policies.

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