Artificial gemstones undermining Botswana's diamond wealth

In the heart of Southern Africa, Botswana—one of the continent's most stable economies—is facing a series of unprecedented challenges. The Botswanan Ministry of Finance has revised its growth forecast for this year, predicting a contraction of 0.4 percent instead of the initial 3.3 percent projection.

This economic downturn is attributed to a significant decline in revenue inflows, leading to massive liquidity challenges that threaten financial stability and sustainability of government business operations. As a result, foreign reserves have slumped 27 percent over the past year.

The construction industry has been hit hard, with thousands of workers losing their jobs. The Tshipidi Badiri Builders Association, the country's largest building contractors organisation, has had to retrench workers due to slower government spending. Many members of the association have suspended operations, and some have closed altogether.

Botswana's fiscal deficit this year is forecast to climb to 11 percent of GDP, the largest budget gap since the global financial crisis in 2009, and the biggest in sub-Saharan Africa this year. This worrying trend has led to a rapid increase in government debt, which is expected to rocket to 43 percent of GDP this year—more than doubling the ratio in just two years.

In an effort to address these financial challenges, Botswana has turned to debt. In May, the country secured US$304 million from the African Development Bank, and in July, it received US$200 million from the OPEC fund.

On a positive note, the Botswanan government has announced a US$12 billion investment package from Al Mansour Holdings, backed by Doha, as part of Qatar's $103 billion investment pledge across six African countries. This investment package focuses on sectors including infrastructure, diamond processing, tourism, cybersecurity, and defense in Botswana.

However, one of the country's mainstays, the diamond industry, is operating at about 60 percent of capacity. Debswana, the country's joint venture with De Beers, is feeling the pinch.

As Botswana navigates these challenging times, it remains to be seen how these developments will shape the country's economic future.