Botswana recently made headlines with the discovery of a massive 2,492-carat diamond at Lucara Diamond Corp’s Karowe mine. This extraordinary gem is believed to be the world’s second-largest gem-quality diamond ever unearthed, second only to the famed Cullinan diamond. The gigantic stone was uncovered at the Karowe mine, which is fully owned by the Canadian company Lucara Diamond Corp. While Lucara has yet to disclose details about the diamond’s quality or estimated value, sources close to the company told the Financial Times that it could be worth upwards of $40 million.
This is not the first time the Karowe mine has made headlines; it has previously yielded other massive diamonds, such as the 1,758-carat Sewelô and the 1,109-carat Lesedi La Rona. Botswana, the world’s top diamond producer by value, continues to find some of the largest and most valuable diamonds ever unearthed. However, this abundance of natural wealth brings with it a paradox that challenges the country’s long-term economic sustainability.
Despite Botswana’s significant diamond wealth, the country faces an uphill battle in translating this resource into broader economic development. Botswana is the world’s top diamond producer by value. Diamonds account for about 80% of Botswana’s export earnings, one third of fiscal revenues, and one quarter of its GDP. However, much like many African countries, the economy’s over-reliance on this single commodity leaves it vulnerable to fluctuations in global diamond demand and prices. For instance, in the first half of 2024, Botswana’s diamond sales dropped by 49.2%, reflecting the volatility of the market. This dependency makes economic diversification not just a goal but a necessity for the country’s future stability.
Moreover, while diamonds have propelled Botswana from one of the world’s poorest nations at independence in 1966 to an upper-middle-income country, the benefits of this growth have not been evenly distributed. The unemployment rate remains stubbornly high, particularly among the youth. According to the recent Quarterly Multi-Topic Survey, the unemployment rate among youth aged 15-35 years, rose from 33.5% to 34.4% in the third quarter of 2023, compared to the national average of 25.9%. Poverty, too, remains a persistent issue, with nearly 17% of the population living below the poverty line. These figures highlight the troubling reality that the wealth generated from diamonds isn’t sufficiently reaching the broader population.
To address these disparities, the Botswana government has proposed legislation requiring foreign mining companies to sell a 24% stake in their operations to local investors or the government itself. The aim is to ensure that more of the profits from diamond mining remain within the country, potentially fostering local economic growth. Hence, day after the discovery, Lucara presented the diamond to Botswana’s President Mokgweetsi Masisi. However, this policy poses significant risks. It could discourage foreign investment in the sector, which is already seeing a decline in growth rates. According to the World Bank, Botswana’s GDP growth slowed to 3.3% in 2023, down from 5.8% in 2022, majorly due to a decline in diamond production and prices due to weaker global demand. There have been signals that Botswana’s economy may fall short of the government’s 4.2% growth target for this year too.
Compounding these issues are challenges within the diamond industry itself. The global market for diamonds is evolving, with growing concerns over the environmental and ethical implications of diamond mining. The rise of lab-grown diamonds, which are more sustainable and often cheaper, is also shaking up the traditional market. A 2023 report by Bain & Company highlighted that the lab-grown diamond market is expanding at an annual rate of 15-20%, far outpacing natural diamond production.
The discovery of the 2,492-carat diamond, also serves as a stark reminder of the challenges Botswana faces in ensuring that its mineral wealth translates into sustainable and inclusive economic growth. This paradox, where a nation rich in natural resources struggles with economic diversification and inequality, is a recurring theme in many developing countries. Recently, the central bank of Botswana lowered its key lending rate for the second meeting in a row saying there was scope to ease monetary policy as the economy continued to operate below capacity signaling that the country is losing its economic momentum. Can Botswana achieve long-term viability with its current development model?