- Diamond market downturn illustrates the importance of urgently supporting the development of other exports
Newly elected President Duma Boko will face fiscal challenges that could threaten the country’s recovery as the diamond market struggles to return to normal.
Botswana is one of the wealthiest countries per capita in sub-Saharan Africa. However, a decline in the global diamond market saw its economic growth forecast for 2024 slashed to 1 percent. A local economist, Keith Jefferis forecasts a further decline into the first half of 2025.
“The biggest challenge facing the new administration taking office in November 2024 will be to build a more resilient economy that does not take the revenues previously earned from diamond mining for granted,” he said.
Jeffries said the persistent downturn in the diamond market makes it more difficult to treat the current situation as a temporary, cyclical development that can be managed by spending past savings and reinforces the need for structural policy reforms.
He notes that the country’s economy is currently segmented performing starkly differently. Real GDP growth for the 12 months to June 2024 stands at – 0.9 percent, masking a severe contraction in the diamond sector by 15.5 percent compared to a respectable 3.4 percent growth in the non-diamond private sector.
“In addition, the government (public administration) sector grew at a rapid rate of 5.4 percent – providing a stimulus injection to the economy, albeit not a sustainable one given its dependence on mineral revenues,” he said.
Growth for the full year is anticipated to be between -1 percent and -2 percent, with deep recession in the diamond sector contrasting with positive growth of about three percent in the remainder of the economy.
“In due course, the diamond market malaise will impact on other sectors (e.g. through reduced local purchases by Debswana and slowing government spending) but this will be felt more in 2025,” Jefferis highlighted.
The global diamond market faces enduring challenges, which have been apparent over the last year and show no signs of letting up, at least not during the remaining months of this year or the early part of 2025.
“The government’s Okavango Diamond Company (ODC) has cancelled its planned two remaining diamond auction sales for 2024, due to weak demand and fear that diamonds would only be saleable at low prices. De Beers combined two of its planned sights (August and October) into a single sale in September. Although De Beers no longer (since July) publishes the results of individual sales cycles, indications are that the sale outcome was disappointing. The two remaining De Beers sights of 2024 will no doubt be challenging,” Jefferis elaborated.
Several factors according to Jefferis are weighing down the diamond market: rising lab-grown diamond sales in the US, muted demand from China, and a surplus of unsold diamond stocks. Furthermore, “diamond recycling” by U.S. baby boomers releasing jewellery for repurposing is diluting demand for newly mined diamonds, weakening rough diamond sales and slowing down market recovery.
“All of this suggests that any diamond recovery in the first half of 2025 is likely to be weak. The fact that Debswana has announced spending cuts and is seeking voluntary redundancies suggests that they see the slowdown as being prolonged,” he said.
Jefferis indicated that 2025 production guidance figures expected to be released by De Beers will indicate anticipated market conditions and output levels, but will certainly be less bullish than the previous commentary accompanying Anglo-American’s mid-year results.
“Industry commentators are increasingly talking about market recovery in 2026 rather than 2025,” he noted in the report.
The impact of the diamond downturn extends directly into the country’s fiscal landscape. With reduced mineral revenues, the government faces a significant budget deficit.
The International Monetary Fund (IMF)’s 2024 Botswana Article IV report emphasises the urgency of revising fiscal policy, recommending substantial spending cuts to maintain budget balance and stressing investments in high-return projects to boost growth. While the outgoing government has implemented some spending cuts, he pointed out that these fall short of what is needed to keep the budget deficit down.
“It is likely that the new administration that takes office after the October elections will have to quickly implement further spending cuts to bring the deficit down,” he indicated.
The government’s dependence on borrowing to finance its spending has grown due to the drawing down of balances in the Government Investment Account (GIA) at the Bank of Botswana to finance last year’s budget deficit. This is done mainly through bond issuance and P6.3 billion has been raised in bond sales from April to September this year, edging closer to the projected P9 billion net target.
However, Jefferis pointed out that investor appetite appears to be waning, with bonds raising less than anticipated in recent auctions. The planned introduction of inflation-linked bonds (ILBs) offers a potential remedy, aligning with the unmet demand from pension funds and potentially easing funding pressures.
Yet, the broader concern remains; an unsustainable fiscal position, which has now been worsened by the drop in mineral revenues. Jefferis cautioned that without a reduction in spending to avoid the rapid accumulation of public debt, the country may be headed toward debt distress.
With uncertain long-term prospects for the diamond market, Jefferis pointed out that it is no longer feasible to offset the downturn with ever-higher levels of government spending.
Going forward he said there is a need to chart a clear path toward economic and fiscal resilience through policy interventions. These should be aimed at improving the economy’s ability to respond to shocks, boosting the private sector, including through foreign investment, as well as improving productivity and competitiveness.
“The diamond market downturn illustrates the importance of urgently supporting the development of other exports,” he said.
