From Diamonds to Diversification
- Investment Desk
- Dec 16, 2024
- 3 min read
Botswana elected a new leader who was a surprise winner of the parliamentary elections. Voters punished the Botswana Democratic Party, which had held power since independence due to the economic downturn driven by the collapse of the diamond market. The new president has pledged to diversify the economy away from diamond mining and transform it through infrastructure projects and strategic partnerships. One of these partnerships could be with ultra-high-net worth individuals and families.
Botswana is the world’s largest producer of rough diamonds by value. The industry generates the majority of government revenue and export earnings however, the collapse in the diamond market has driven an economic downturn in the country. Poor demand from the vital Chinese market, oversupply and pressures from lab-grown diamonds have affected global diamond sales. The country of 2.5 million which has a 28% unemployment rate and 38% poverty rate has experienced rising levels of crime and corruption. In public anger, the population responded by stripping the Botswana Democratic Party (BDP) – the party which has led the country since independence for almost six decades - of power in the October 30 elections. The party which was widely expected to remain in power, came in fourth, only retaining four parliamentary seats as opposed to the 38 five years ago.
Source: Bank of Botswana
The winner of the Parliamentary elections was the Umbrella for Democratic Change (UDC), an opposition coalition led by Duma Boko, a Harvard-educated, human rights lawyer. Born in the country’s Central District, in the small town of Mahalapye, his campaign pledges indicated that he identifies and stands with the lower economic strata of society. He promised to raise the minimum wage, students’ allowances and boost old-age pensions while cutting water and electricity tariffs. In regards to the economy, the UDC pledged to transform the economy and diversify it from its over-reliance on minerals, particularly diamonds. The party plans to focus on sectors including agriculture, agro-processing, solar energy and tourism to drive economic growth and create sustainable jobs. Through a diversified economy, transformative infrastructure projects and strategic collaborations, the coalition seeks to create 450,000 to 500,000 jobs within five years.
According to a 2024 Ocorion report on family offices across Africa, a number of Africa jurisdictions are working to establish themselves as International Finance Centers (IFCs) in an effort to attract foreign investment and stimulate economic growth. Among those leading the effort is Botswana. The country is actively seeking an opportunity to work with the region’s ultra-high-net worth (UNHW) individuals and families through expert service providers, auspicious tax and regulatory environments and meeting international transparency standards. The continent harbors approximately 6,700 multimillionaires (above $10 million), 305 centimillionaires (above $100 million) and 21 billionaires. With wealth growing across the continent, Botswana aims to capitalize on its unique strengths and bolster its weaknesses. By improving the ease of doing business, developing robust regulatory frameworks and nurturing international partnerships to boost their competitiveness in the global financial landscape, Botswana aims to diversify its economy from gems into financial services.
Despite the lack of necessary information required to effectively operate as an IFC, Botswana’s newly elected president has pledged to move away from diamond mining and diversify the economy. This represents an opportunity for growth in the financial sector. The country has already made strides in furthering financial inclusion with adults (18 years and older) who were financially excluded decreasing from 24% in 2014 to 16% in 2020, while those who are formally included increased from 68% to 82% over the same period.
Bezza, a mobile money platform which seeks to revolutionize mobile money transactions in Southern Africa, has an opportunity to thrive in Botswana. The platform could potentially achieve penetration rates as high as 90% of the GSM network (Global System for Mobile Communications) which similar mobile money platforms like M-Pesa, managed in their respective countries of operation. The platform hit 2.7 million subscribers in its 14th month of operation and is one of the largest deposit holders in Kenya, accounting for US$310 billion (KES40.2 trillion). Botswana’s goal to diversify its economy into the financial services sector and reduce the financial inclusion gap presents a gap that Bezza can fill as well as a growth opportunity for the platform.
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