Botswana has relied heavily on one facet of its economy for 50 years: diamond mining.

In fact, Botswana gets roughly a third of its GDP from diamonds, according to Chatham House, a think-tank. The gems have helped the country to become one of Africa’s wealthiest, with a stable democratic government and one of the best education systems on the continent. But then came the global financial crisis of 2008. This caused fluctuation in commodity prices, and the value of diamonds fell, causing mines to close and workers to lose their jobs. A few years later, in 2014, Russia overtook Botswana as the world’s largest diamond producer. “Falling prices for diamonds caused havoc,” says Pyoka Mfuni, manager of advisory services at Grant Thornton in Botswana. “Unemployment has been increasing. Income has reduced and the cost of living… has risen… There’s a lot of job insecurity. Companies are trying to be prudent. They’re setting aside cash in case something goes belly up.” Even if the value of diamonds were never to fall again, Botswana’s diamond reserves may run out in about 20 years, according to some estimates. So it’s clear that Botswana’s economy cannot rely on diamonds alone, which means encouraging more enterprise. This in turn means boosting the country’s financial sector and increasing access to seed money and accounting expertise.

The entrepreneurial age?

Although Botswana has made some progress in reducing its dependence on diamonds over the past 20 years, the level of economic diversification needed to offset diminishing mineral revenues remains a challenge, according to a report by the World Bank. Botswana has started to diversify its economy by encouraging industries such as agriculture and tourism. The government has pledged to improve education and workforce training, and to create a more entrepreneurial spirit in an economy dominated by the public sector. According to the Global Entrepreneurship Monitor report, Botswana’s rate of early-stage entrepreneurial activity is above the regional average. This creates opportunities for accountants, both to serve these new businesses, and to take advantage of the schemes to start their own practices. The government has set up several initiatives and agencies for small and medium-sized businesses. One, the Citizen Entrepreneurial Development Agency, provides low-interest loans and mentoring to small-business owners. It has created 13,000 jobs since its formation in 2000, but the cost of creating those jobs is “substantial”, according to the Council on Foreign Relations. On the plus side for business, the tax system in Botswana is fairly simple, says Mfuni. Tax rates are generally pretty low, with corporate income tax at 22%. “It’s getting easier to set up a business because the government has reduced bureaucracy,” he says.

Diversity plan

Confusingly perhaps, diamonds still feature heavily in the diversification plan. The government already provides “value added” services for diamonds, such as cutting and polishing. This domestic industry could be expanded to imported diamonds from countries such as Angola and the Democratic Republic of the Congo. “Botswana can import diamonds from other countries, cut and polish them, and create them into an end product. That’s where the value is added and where the big margin is,” says Chris Vandome, Africa programme research assistant at Chatham House. The government also wants to encourage small and medium-sized businesses but this is “largely off the back of the diamond industry”, notes Vandome.

Training required

Botswana has made big advances since gaining independence from the UK in 1966. For example, it has nearly universal and free primary education. But it still faces some big problems: a lack of skilled workers; an unemployment rate of about 18%, according to the World Bank; income inequality among the highest in the world; and a high rate of HIV/AIDS in adults. Improving education and workforce training may help to raise productivity and provide the skills for a wider range of industries. The accounting sector is taking an active role in encouraging further training – AAT works closely with the Botswana Institute of Chartered Accountants to promote accountancy as a viable career choice. The country boasts the largest number of AAT accountants and students outside of the UK, attracting over 4,000 new students each year. Keeping graduates and other skilled workers in the country will also help the economy. Many graduates leave for South Africa because of limited job opportunities, according to Vandome. “There needs to be stronger focus on this from policy-makers,” he says. “There has been complacency on diversification of the economy. When diamond prices were low, politicians started to try to diversify the economy. But, when the money from diamonds came in again, diversification fell down the agenda.”

Botswana’s economy in short

1.  Botswana gets about one-third of its GDP from diamond mining, but the country’s diamond reserves may run out in a generation.
2. Since the financial crisis, commodity prices have fluctuated. The fall in commodity prices in the past few years has partly been due to China’s slow growth.
3. The government wants to encourage growth in agriculture, tourism and entrepreneurialism, although the economy still depends heavily on the public sector.
4. Botswana’s government is trying to diversify its diamond industry by providing services to foreign diamond producers, such as polishing and cutting diamonds.

Nick Huber is a freelance journalist and has written for Accounting Technician magazine, The Guardian and BBC.