Botswana squeezes more money from diamonds than any other country. Why are its citizens among the poorest in the world?
GABORONE, Botswana — A large billboard on the side of the road urges residents of this dusty capital city to restrict their showers to under three minutes. Even now, during the rainy season, Gaborone is experiencing a severe water shortage. At the luxury casino resort hotel where I stayed on a recent trip, water flowed from the taps only a few hours each day.
The current water shortage offers a stark reminder that Botswana — an arid, land-locked country just north of South Africa — has always been at the mercy of the elements. For its entire post-independence history, the most important element for Botswana has been carbon — the fanciest grade.
The discovery of diamonds in the late 1960s propelled the country from a GDP per capita of $70 to its current upper-middle-income status of roughly $16,000, close to the highest in Africa.
Botswana is one of a very few countries in the world to have largely avoided the so-called “resource curse,” a term economists use to describe the often debilitating economic and governance outcomes associated with large natural-resource endowments.
Throughout Africa, in places like Sierra Leone and Equatorial Guinea, underground riches have fueled civil conflict and corruption. Botswana’s cut of diamond sales, by contrast, has translated over the years into modern infrastructure, high rates of literacy, and a stable democracy.
But the country remains dangerously dependent on its mining sector. And the diamond market, like the weather in Botswana, is unpredictable. In 2015, consumer demand for the expensive gems slackened, and suppliers cut prices for rough and polished diamonds by 15 percent and 8 percent, respectively, in an effort to boost demand.
Meanwhile, tighter banking regulations worldwide, aimed at reducing risk and preventing money laundering, have reduced the amount of credit flowing into the diamond sector. Even the slowdown of the Chinese economy and policy changes there have depressed the market: A recent push by the Chinese Communist Party to eliminate the appearance of corruption has cut into global diamond sales.
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