Botswana: A diamond in the dark

Botswana’s neighbors cast cold dark shadows over Africa’s brightest hope

Botswana is Africa’s overachiever. It has the strongest currency on the continent, and up until now, the healthiest economy. Per capita the people of Botswana are Africa’s richest residents. Having said that, Botswana is a diamond rich but very sparsely populated country; in fact Botswana and its western neighbor Namibia are two of the world’s emptiest countries.

Botswana’s longest border is shared with South Africa, the powerhouse of the African continent. Botswana gets by far the majority of its power from this neighboring powerhouse, but South Africa has recently become a victim of its own success. Rapid growth and the failure to anticipate spiraling electricity demand has meant South Africa’s power utility (Eskom) must significantly reduce supply to Botswana in order to try to keep the lights on at home.

Botswana has only one power station, which produces a fraction of its own energy (around 110-120 MW). While South Africa has undertaken a contractually agreed staggered ‘stepping down of power supplied’, from about 400MW in 2008 to approximately a quarter of that value by 2010, Botswana and South Africa will together build a new coal-fired plant in eastern Botswana that will eventually address both countries power needs.

Blackouts in the interim

But if the impact of blackouts have damaged growth prospects in South Africa, and in particular curtailed South Africa’s mining industry (a major user), Botswana (the world’s largest producer of gem diamonds) will find itself entirely paralyzed at times.

I experienced this firsthand during a trip to South Western Botswana earlier this year when we entered the country at McCarthy’s Rest. Being one of the world’s emptiest countries (Botswana’s population ratio to South Africa is 1:20) we tried to fill up our fuel tanks immediately after crossing the border. We discovered the power was out, so fuel pumps didn’t work. We waited for hours, with the locals having no clue when power was likely to resume. The blackouts we experienced in January in Botswana appeared to be random, and lasted for a large proportion of the day.

Meanwhile, Botswana shares its eastern border with a country struggling through an altogether different power struggle. Zimbabwe’s woes by now are well known. While Botswana’s dry and empty deserts provide a buffer against Zimbabwe’s million-strong refugees (channeling them towards South Africa instead), Zimbabwe’s problems certainly do not promote trade; thus regional development is negligible between the two countries. And since South Africa also exports energy to Botswana’s other regional neighbors (Mozambique and Namibia) all Botswana’s other energy bets are off.

It is estimated that 80% of Botswana’s foreign exchange earnings are based on the sale of diamonds. Right now the reduced supply of gold and platinum due to electricity shortages at South African mines – and South Africa is the world’s leading supplier of both these vital minerals – in the same way we can expect an impact on Botswana’s mining industry.

Given the forced shut downs of mining activities in Botswana over the long term, it is likely that we will begin to see the price of diamonds begin to skyrocket. So if you’re intending to buy that engagement ring, do it now.