How Botswana Leverages Growth

(page 2 of 2)

Engaging With the Private Sector

Revenue from diamonds represents one-third of Botswana's gross domestic product. For the past 25 years, the country has had one of the fastest-growing economies in the world, logging 4.7% GDP growth last year, and it enjoys the highest sovereign credit ratings in Africa from Moody's (MCO) and Standard & Poors (MHP). It's also a well-governed democracy with strong rule of law, and it's among the least corrupt countries in the world, according to an annual ranking published by consultancy Maplecroft, of which I am the founding director.

A key part of Botswana's success has been its willingness to engage with the private sector. The national government and South African jewel giant De Beers Group operate a 50/50 joint venture called Debswana that is the world's largest diamond producer, accounting for 22% of global output. In exchange for its share of Botswana's output, De Beers provides technology transfer and training through an organization called the Diamond Academy.

Creating 3,000 Jobs by 2009

Now the partnership is deepening. De Beers is opening an $83 million diamond sorting and valuing center in Botswana's capital, Gaborone, called the Diamond Trading Company Botswana (DTCB); an enterprise that, as the country's former president, Festus Mogae, said at the opening ceremony will "…raise [Botswana's] global profile by becoming a benchmark brand."

The center won't only process rough diamonds mined in Botswana. With the capacity to handle 45 million carats annually, De Beers also plans to send most of its global rough diamond supply there—helping to create potentially 3,000 new local diamond-sorting and -valuing jobs by 2009.

What's more, Botswana is now moving further along the diamond value chain into more highly-skilled activities. A dozen new diamond cutting and polishing centers have recently opened there, adding to the four that already existed, and De Beers intends to ship a chunk of its global supply to them for processing. All told, by 2010 Botswana's nascent cutting and polishing businesses are expected to be handling more than $550 million worth of rough diamonds annually.

The essential message is that the government of Botswana is finding a way to create more value for the economy through diamonds. By vertically integrating diamond processing and creating a new pool of skilled local labor, the country's leadership aims to move Botswana from a miner to a global diamond center—and keep more of the profit generated at every step along the way. At the same time, it hopes the diamond trade will be a catalyst for foreign investment as well as for the emergence of other industries tied to jewels, such as financial services and information technology.

Looking Outside Botswana

To be sure, there are challenges ahead. Botswana still has to make its experiment fly. And the project is getting off the ground at a tough time for the global economy, when recession in the U.S. and weakness in Western Europe could suppress retail diamond sales. Growing demand from Asia and the Middle East may not be enough to make up the difference.

Could Debswana follow CNOOC's lead and start to invest outside Botswana? That would probably be premature, but the government has a powerful hedge thanks to its 15% equity stake in De Beers. Botswana thus stands to benefit from De Beers' new mines in Africa, as well as its existing holdings in Namibia, Tanzania, and South Africa. The government also will profit from the new joint venture between De Beers and luxury giant LVMH Moët Hennessey Louis Vuitton (LVMH.PA). Known as De Beers Diamond Jewellers, it has opened stores in the U.S., Japan, and the Mideast and is quickly earning a reputation for high-quality, ethically-sourced jewelry.

The lessons from CNOOC and Debswana are clear. Both China and Botswana have used their negotiating power and strong, state-owned businesses to transform their natural resources into national wealth through innovation. And they're doing it via strategic partnerships with the business leaders of their industries. The stories of both companies—and countries—hold out the promise of a sustainable route to development, as long as revenues are reinvested in development, and human rights are respected along the way. The next step is to draw lessons from the shining example of Botswana for the rest of Africa.

Alyson Warhurst is chair of Strategy and International Development at Britain's Warwick Business School, a fellow of the World Economic Forum, and a founding director of social enterprise and advisory firm Maplecroft. She has advised De Beers and international humanitarian and human rights organizations, among others, on corporate social responsibility.