The honeymoon is over in Botswana, where the diamond industry that led the world has fallen on hard times.
The discovery of the gems nearly half a century ago transformed the southern African nation from a dusty farming backwater into one of the continent’s wealthiest societies.
Thousands of miles of dirt roads were paved and schools and clinics built in every town. The capital, Gaborone, once a rural village, is now dotted with office blocks and malls occupied by South African chains like Shoprite Holdings Ltd. The country’s finances were in such good shape that Botswana earned the highest credit rating in Africa.
Now the diamond mining industry is floundering as jewelry sales stagnate amid a slowdown in China. An index of rough diamond prices hit a five-year low last month. With most diamonds near the surface having been extracted from Botswana’s mines, the gems are also becoming increasingly inaccessible.
Last year Botswana was overtaken by Russia as the world’s top producer. To come: possible shaft closures, job losses and, according to top producer De Beers, stagnating demand. The government says it must dip into its reserve fund to maintain spending and protect jobs.
“They have just had so much easy money for such a long time,” Charles Wyndham, a former sales director at De Beers and founder of WWW International Diamond Consultants Ltd., said by phone on Wednesday from Robertsbridge, southeast of London. “They are perhaps a victim of having all their eggs in one basket.”
The Finance Ministry has cut its 2015 economic growth forecast by almost half to 2.6 percent and is predicting the nation’s first budget deficit in four years, while the central bank has lowered interest rates twice this year to stoke spending. Diamond exports plunged 63 percent to $173.4 million in September from a year ago, the Bank of Botswana said on Nov. 2.
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