Growth is expected to slow sharply in 2024 due to a decline in export performance, according to the latest data from Business Monitor International (BMI). The organisation attributes the downturn to what it describes as a “torrid export performance,” which will be the primary drag on growth next year.
Despite Botswana’s efforts to diversify its economy away from the diamond trade (in 2007, exports accounted for 69.2 percent of GDP), progress has been slow. In 2023, exports represented just 37.3 percent of GDP. “In Q1 2024, the collapse in real exports was driven by a sharp fall in mining production, with diamond output contracting by 27.4 percent year-on-year,” BMI reported, adding that this was largely due to a plunge in rough diamond prices. This price drop has forced wholesalers to pause sales, leading miners to scale back production.
BMI analysts predict that Botswana’s real GDP growth will slow to 1.0 percent in 2024, down from 2.7 percent in 2023, following a steep contraction in the first quarter of 2024. The weak performance of the global diamond market, a key component of Botswana’s economy, is expected to be a major factor in this slowdown. BMI highlights that depressed demand for rough diamonds will weigh on the country’s economic performance, causing it to underperform against the 2024 Sub-Saharan Africa (SSA) growth forecast of 3.5 percent.
Falling rough diamond prices, according to BMI, reflect deeper structural issues in the global diamond market. Retailers overstocked during the pandemic, anticipating sustained price increases. However, high inflation in the United States and a housing market collapse in China during 2023 slowed demand, creating a surplus and pushing prices to historic lows.
In addition, the rise in demand for lab-grown diamonds, which are materially identical to natural stones but cheaper, has introduced significant competition in a market traditionally dominated by natural diamonds. Although lab-grown diamonds currently cannot meet global demand, they have contributed to a seismic shift in market pricing, which is detrimental to Botswana’s traditional mining industry. BMI warns that while demand for natural diamonds may recover in the second half of 2024, the growth of lab-grown diamonds will likely cap future production levels.
As a result, BMI expects weak export growth to continue, subtracting 1.0 percentage points from GDP growth in 2024, compared to a 1.3 percentage point contribution in 2023.
Despite the bleak outlook for 2024, BMI is optimistic about Botswana’s economic prospects in 2025. The organisation forecasts a recovery in real GDP growth, predicting an acceleration of 3.5 percent. This rebound will be driven by a normalisation in the global diamond market, supported by stronger global economic growth, which BMI forecasts at 4.4 percent. Additionally, renewed sanctions on Russian diamonds—De Beers’ primary competitor—should help control supply growth, benefitting Botswana’s diamond exports.
BMI also expects that inflation, forecast to average 4.6 percent in 2025, will remain within target, supporting robust private consumption. Furthermore, Botswana’s ongoing efforts to diversify its economy, bolstered by the 2023 De Beers deal, will keep fixed investment growth strong.
However, BMI cautions that there are still risks to its forecast. Should competitive pressure from lab-grown diamonds persist and keep natural diamond prices near current lows, miners may continue to halt production in order to protect profit margins. On the flip side, stronger-than-expected performance in private consumption and investment, driven by sensitivity to low inflation, could push growth above BMI’s current projections.
Lastly, BMI points to the recent announcement of De Beers’ separation from Anglo-American, raising questions about the future ownership of the diamond giant. This uncertainty could weigh on near-term investment in Botswana, adding another layer of risk to the country’s economic outlook.
