Flaws in Botswana’s Diamond Industry

JUDY VAN DER VELDEN

Since its independence from Britain in 1966, Botswana has been hailed as Africa’s model nation, a “political diamond.” The country, which is the size of France but has only 2 million residents, is stable; its democratic elections so peaceful and predictable they’ve garnered an enviable epithet, “boring.” Fifty years ago, Botswana was one of the world’s 10 poorest nations; now it’s considered a middle-income country. It’s true that diamonds were discovered just a year after its founding, but that could have just as easily been a “resource curse,” not the economic bonanza it has proven to be.

Far from the usual tales of corporate looting, Botswana’s primary business partner, De Beers, has been involved with the government in what is one of the longest running public-private partnerships of its kind. To operate in the country, De Beers founded the De Beers Botswana Mining Company in 1968, which became Debswana. Initially, Botswana held a 15 percent share, but several years later, when especially exceptional diamonds were unearthed, Botswana’s share was increased to 50 percent. De Beers wanted to ensure it could keep its monopoly and control production so this find would not disrupt market prices. Then, in 2004, Botswana acquired a 15 percent share in De Beers itself, an unprecedented entangling of a sovereign country with a private company.

At the same time, Botswana also has some of the largest incomes disparities in the world, with a Gini coefficient—a common measure of inequality—that suggests it’s one of the top 10 most unequal countries on earth. It’s a place where the job market outside of mining and government is so small that economists daylight as taxi drivers and teachers take second jobs selling mobile phone airtime.

For a country often ranked by Transparency International as Africa’s least corrupt, where does this wealth gap come from? The answer lies partly in the relationship between De Beers, the government of Botswana, and its ruling party, the Botswana Democratic Party (BDP). While these ties provide some stability, the blurring of corporation, state, and party may be costing the nation hundreds of millions of dollars in lost tax revenue every year and has created an opaque system that involves the country’s most critical resource—diamonds.

De Beers and the BDP have knit the political and corporate structures together in such a way that they undermine accountability and regulatory systems with a culture of secrecy (framed by De Beers as “confidentiality”). As a private entity, De Beers’ dealings are largely protected from scrutiny. Unlike the EU and U.S., where governments once banned or prosecuted De Beers for price-fixing and other anti-competitive activities, Botswana’s government and its ruling party have been direct collaborators.

During the course of this investigation, Debswana declined to answer any queries, referring questions to the government of Botswana. For its part, Botswana’s Ministry of Minerals acknowledged receipt of questions but failed to respond. De Beers did reply but said, “We are not able to answer all your questions as most of them concern confidential information, which we are not in a position to disclose.” And when a local journalist in Botswana contacted the BDP, the party declined to answer any questions.

MULTI-FACETED, DEEPLY SET

Botswana and De Beers are mutually dependent. Diamonds generate over 80 percent of Botswana’s foreign exchange earnings and almost half of its government revenue. According to De Beers, the diamond industry directly accounts for one in 20 jobs in the country.

But the connections between De Beers and Botswana’s economy run even deeper. In 2013, the relocation of a De Beers aggregation center from London to Gaborone, Botswana’s capital, increased the liquidity of the Bank of Botswana since a great deal more money started to flow through it. The bank’s annual report discloses that while the revenue generated from the diamond sorting process is not substantive and “largely offsetting,” the net re-export of diamonds from the aggregation center “is important for...