Diamond slump tests Botswana’s five economic pillars

JOHANNESBURG — Botswana’s diamond output fell 54.6 per cent in the final quarter of 2025, pushing the economy into a 5.4 per cent year-on-year contraction and deepening the crisis that helped end almost six decades of rule by the Botswana Democratic party.

Real gross domestic product declined 2.8 per cent in 2024 and a further 0.7 per cent in 2025. Unemployment reached 27.6 per cent, rising to 38.2 per cent among young people. What began as a mining downturn is now weighing on public revenue, reserves, investment and jobs.

Botswana has five strategic sectors, diamonds and mining; tourism; agriculture; government, trade and finance; and industry, logistics and energy. It does not yet have five engines of comparable strength.

Diamonds accounted for 67.5 per cent of merchandise exports in 2024. The goods trade deficit widened from P6.3bn in 2023 to P32.8bn a year later, according to the Bank of Botswana. Debswana, owned equally by the government and De Beers, cut its 2025 production target to 15mn carats as demand weakened.

A new agreement allows the state-owned Okavango Diamond Company to sell 30 per cent of Debswana’s output during the first five years and 40 per cent during the next five, with a possible rise to 50 per cent under an extension. Mining licences run to 2054.

The deal gives Botswana a larger share of sales. It does not address weak demand, excess inventories or competition from laboratory-grown diamonds. It is a more favourable division of the same risk, not diversification.

Tourism offers the clearest alternative source of foreign exchange. The Okavango Delta, Chobe National Park and Makgadikgadi underpin a high-value, low-volume model. Accommodation and food services grew 3.8 per cent in the fourth quarter of 2025 even as the wider economy contracted.

Yet distance, travel costs and environmental limits restrict the sector’s scale. Botswana can retain more visitor spending through local suppliers and destinations beyond Maun and Kasane, but tourism is unlikely to replace diamond revenues soon.

Agriculture is more important socially than economically. The sector grew 4.2 per cent in the final quarter, helped by a 5.7 per cent rise in livestock production. Drought, water scarcity and low productivity constrain expansion. Meat processing, leather and horticulture could raise rural incomes and reduce imports; they are unlikely to become a macroeconomic substitute for mining.

Services appear more resilient. Public administration and defence represented 18.2 per cent of GDP, while wholesale and retail trade accounted for 13.2 per cent. Finance grew 4.6 per cent and information technology 3.7 per cent. Non-mining GDP expanded 2.6 per cent, according to Statistics Botswana.

But much of this activity rests on public wages, contracts and transfers historically funded by mineral revenue. Supporting it through borrowing would merely transfer the diamond shock to the state’s balance sheet.

Unlike Mauritius, which used sugar earnings to develop textiles, tourism and international financial services, Botswana’s services remain driven largely by domestic demand and government spending.

Manufacturing expanded 6.5 per cent in the final quarter, led by a 54.9 per cent increase in diamond sorting, cutting and polishing. The result was encouraging but underlined industry’s continuing dependence on the same commodity.

Logistics add another constraint. Botswana is landlocked, has a domestic market of about 2.5mn people and recorded a 36.8 per cent fall in rail freight. Regional trade agreements provide access to much larger markets, but exploiting them requires cheaper transport, efficient borders and reliable power.

Solar projects in Mmadinare, Jwaneng, Bobonong and Shakawe form part of a plan to lift renewables to 50 per cent of generating capacity by 2030. Lower-cost electricity could support factories and data centres. For now, it represents potential capacity rather than established export earnings.

The fiscal position leaves little room for error. Net assets in the Government Investment Account fell from 26.8 per cent of GDP in 2014 to less than 1 per cent on average in 2025. Public debt rose from about 22 per cent of GDP in 2023 to almost 40 per cent in 2025, prompting parliament to raise the statutory ceiling to 60 per cent.

Yields on short-term government bills climbed from 2.5 per cent in mid-2024 to nearly 11 per cent in March 2026. Interest costs more than doubled to 1.5 per cent of GDP, reducing funds available for health, education and infrastructure, according to the World Bank.

President Duma Boko, whose election in 2024 ended 58 years of BDP rule, has called diversification the anchor of foreign policy. S&P has nevertheless cut Botswana’s sovereign rating to BBB with a negative outlook, citing lower mineral revenue and fiscal deterioration.

No single sector will replace diamonds. Diversification will require tourism with greater local content, agro-processing, exportable services, renewable energy and manufacturing connected to regional markets.

The test for Boko’s government is not whether it can announce more economic pillars. It is whether some can generate productivity, employment and foreign exchange before debt replaces mineral wealth as the economy’s principal support.