It's even worse than you think for Botswana. The president of Botswana right now, Duma Boko is trying to get more ownership of the diamonds from de beers right when natural diamond market is weakening. Natural diamonds getting replaced by synthetic diamonds is like when Chile's finances were annihilated in the early 1900s when Chilean nitrate got replaced by German scientists figuring out the Haber-Bosch process which mass produced nitrate fertilizer.
Just some things to add, botswana struggled in manufacturing in part due to South Africa's post apartheid nationalism. I'll give one example, in Botswana, a zimbabwe businessman named Billy Rautenbach made the Motor Company of Botswana (MCB) which entered a joint venture with the Botswana government's Botswana Development Co. which made Hyundai & Volvos in a lego kit fashion in Gaborone in 1990s and thanks to the Southern African Customs Union (SACU) free trade agreement, MCB could sell volvos and Hyundai cars tariff free in the South African market.
Nelson Mandela had the nationalist industrial policy of the Motor Industry Development Programme (MIDP 1995). These were tax credits and incentive schemes that rewarded assemblers located in South Africa. So now, multinationals in South Africa were more competitive, hurting Botswanan firms competing in South Africa.
In addition in the SACU, South Africa lowered the import quota of cars so there would be less competition.
MCB needed to sell at least 2K cars per month to break even, but Mandela's government limited the quota to 1K at lower tariffs, then after 1K, every foreign car was sold at 100% tariffs. This quota scheme made it uneconomical to sell cars from Botswana since the whole point of a multinational to sell in Botswana was to use Botswana's cheaper labor at the time to sell to the South African market tariff free. Also, since, none of the other Southern African neighbors had a big enough market (Namibia didnt even have 2M people in the 1990s) or was lucrative enough (think Zambia or Zimbabwe) to justify the fixed costs of making a factory there. The MCB operator also had some fraud charges. By 2000, the Hyundai plant in Botswana closed.
Secondly, the only reason why Botswana succeeded is because it didnt nationalize from de Beers while my country Ghana, Sierra Leone, and Zaire (Congo) did and ran their industries to the ground. Or to be "charitable" they treated their nationalized diamond company as a public sector job welfare slush fund and completely ignored the enterprise part of it, making them unprofitable black boxes until the country went bankrupt and IMF recommended privatization. I think it also helped that in all those other African countries, their diamonds were alluvial which are easily smuggable, while botswana diamonds need top end diamonding mining equipment. As a result, Botswana diamonds were unsmugglable. So botswana also had a geology advantage there.
Also, Botswana kept De Beers running the operation only getting more ownership over time.
I wrote more about how screwed Botswana is with more detail here. You did an awesome job, but i added some extra detail in my Q&A here:
My immediate reaction to Cremieux's post was "I now want to learn more about why this didn't work". This post and article answered some of that -- and helped me learn a lot of new things I didn't know. Thank you!
The era of dominance of natural diamonds is over. Not only is there now competition from excellent lab diamonds, but there is lab Moissanite (Silicon Carbide) which is no mere costume jewelry but in my opinion forms superior gems with better radiant appearance than even diamond, and is only inferior in very marginal difference in absolute hardness, which, unless you are going to use your pretty stone for cutting or grinding something, makes no difference.
I actually work in Botswana as an American Peace Corps teacher, so it was great to see this post cross my timeline. Education here is tricky, and development is very, very jagged, with rural areas lagging far behind Gaborone. Not covered here but worth looking into would be the distribution of diamond rents through the government's welfare system and how that has impacted economic incentives and political participation. Great post.
I think this is a little harsh on Botswana. The literacy rate greatly improved over the time period (some 65% in the 80s to basically every young person today). That's not nothing! There is zero standardized testing data from the 90s or earlier, because no one even took standardized tests, but I'm confident teaching a big chunk of the population to read and write improved SACMEQ scores over that time--we just have no data from before the education reforms.
Re standardized test scores more recently: there is an absolute mountain of evidence that expenditure per student does not correlate test scores, and probably Botswana's pedagogy (teaching in a bunch of different languages, every student advances in grade level no matter what, an emphasis on tertiary education) sucked. It doesn't help that the official metrics they were gauging success with focused on access to education in general.
Huge state ownership of the economy will never not be silly. The issue with african nations is whenever they try something even remotely market-oriented they half-ass it and do something weird between socialism and social democracy.
the rise in the quantity and quality of very competitively priced PRC artificial diamonds has blown up the natural diamond business and hit the countries that rely on that revenue. PRC absolutely dominant in lab grown diamonds, and not just for love and showing off, also for industrial uses, and esp for cooling in AI chips
Is this a helpful post? Botswana have done everything according the success textbook - and yet have failed. Can we have something more constructive in a works dominated by negativity and contrarianism? Just spelling out the failure without suggesting feasible positive policy alternatives is not exactly a learning experience and just feeds the trolls.
If you have policy alternatives, suggest them! Frankly, I think if I were in charge of Botswana and encouraging immigration wasn't an option, I would invest in gimmicky sorts of activities that are locked out of other areas, like energy generation (to sell to neighbors) and data centers (to sell to AI companies, bitcoin miners, etc.). Then, keep considering other reforms.
There are other developing countries trying to dodge the resource curse and doing a reasonable job, although with a resource that’s still delivering - for example, the Gulf States and Saudi. I think contrarianism is a necessary check on boosterism and lack of evidence-based thinking in public policy (both of which are dogging liberal democracy as populist slogans overtake considered commentary), but we need a bit of hope too!
There's fewer positive spillovers from diamond extraction than for, e.g. oil extraction and a few other mitigating factors which explain why the Dutch Disease materialized this way in Botswana but not for oil in Norway for e.g.
Not to shill my own slop but to shill my own slop, I wrote about this comparison + cocoa beans in West Africa a few years ago https://www.adcv.xyz/p/resource-curse
Great post about a sad reality—Botswana’s diamond based economy is slowing down as lab diamonds out-compete.
Implicitly, the “doing everything right” is not completely true. Japan & Switzerland, with few exportable resources, are doing some things more rightly than the many good things Botswana has been doing.
An X comment about low IQ makes me question the education spending— likely more focus on small scale manufacturing & tourism would increase GDP more than PhD research by avg IQ students.
-+
I usually think your graphs are great, but in the GDP per capita graph, red South Africa doesn’t have a red line from the left side to the right, instead it come from red Sub-Saharan Africa on the left. SSA on the right is also non-connected.
Using a log scale to show the drop from 30% to 10% seems a poor choice.
Compared to South Africa, which comes slightly ahead, they simply have much fewer whites. Even though in SAR the percentage of whites, in particular Jewish whites, is steadily declining. C - one other problem - I am a paid subscriber and for some reason, Norton Private Browser which I am using is blocking your site. Can you check?
Do you think it's maybe the case that the GDP decline is limited specifically due to the attempted diversification? it could have been steeper otherwise?
The lack of success for education investment is also somewhat perplexing - maybe low infrastructure investment is harming education access?
Great read Cremiux.
It's even worse than you think for Botswana. The president of Botswana right now, Duma Boko is trying to get more ownership of the diamonds from de beers right when natural diamond market is weakening. Natural diamonds getting replaced by synthetic diamonds is like when Chile's finances were annihilated in the early 1900s when Chilean nitrate got replaced by German scientists figuring out the Haber-Bosch process which mass produced nitrate fertilizer.
Just some things to add, botswana struggled in manufacturing in part due to South Africa's post apartheid nationalism. I'll give one example, in Botswana, a zimbabwe businessman named Billy Rautenbach made the Motor Company of Botswana (MCB) which entered a joint venture with the Botswana government's Botswana Development Co. which made Hyundai & Volvos in a lego kit fashion in Gaborone in 1990s and thanks to the Southern African Customs Union (SACU) free trade agreement, MCB could sell volvos and Hyundai cars tariff free in the South African market.
Nelson Mandela had the nationalist industrial policy of the Motor Industry Development Programme (MIDP 1995). These were tax credits and incentive schemes that rewarded assemblers located in South Africa. So now, multinationals in South Africa were more competitive, hurting Botswanan firms competing in South Africa.
In addition in the SACU, South Africa lowered the import quota of cars so there would be less competition.
MCB needed to sell at least 2K cars per month to break even, but Mandela's government limited the quota to 1K at lower tariffs, then after 1K, every foreign car was sold at 100% tariffs. This quota scheme made it uneconomical to sell cars from Botswana since the whole point of a multinational to sell in Botswana was to use Botswana's cheaper labor at the time to sell to the South African market tariff free. Also, since, none of the other Southern African neighbors had a big enough market (Namibia didnt even have 2M people in the 1990s) or was lucrative enough (think Zambia or Zimbabwe) to justify the fixed costs of making a factory there. The MCB operator also had some fraud charges. By 2000, the Hyundai plant in Botswana closed.
https://iol.co.za/business-report/international/1999-03-11-sa-botswana-may-collide-over-hyundai-sales/ (link for quota scheme)
https://www.thenewhumanitarian.org/report/11782/south-africa-job-losses-follow-hyundai-liquidation (link for hyundai plant going bankrupt in botswana)
Secondly, the only reason why Botswana succeeded is because it didnt nationalize from de Beers while my country Ghana, Sierra Leone, and Zaire (Congo) did and ran their industries to the ground. Or to be "charitable" they treated their nationalized diamond company as a public sector job welfare slush fund and completely ignored the enterprise part of it, making them unprofitable black boxes until the country went bankrupt and IMF recommended privatization. I think it also helped that in all those other African countries, their diamonds were alluvial which are easily smuggable, while botswana diamonds need top end diamonding mining equipment. As a result, Botswana diamonds were unsmugglable. So botswana also had a geology advantage there.
Also, Botswana kept De Beers running the operation only getting more ownership over time.
I wrote more about how screwed Botswana is with more detail here. You did an awesome job, but i added some extra detail in my Q&A here:
https://yawboadu.substack.com/p/guns-germs-and-cobalt-q-and-a-9-insights?utm_source=share&utm_medium=android&r=garki
My immediate reaction to Cremieux's post was "I now want to learn more about why this didn't work". This post and article answered some of that -- and helped me learn a lot of new things I didn't know. Thank you!
The era of dominance of natural diamonds is over. Not only is there now competition from excellent lab diamonds, but there is lab Moissanite (Silicon Carbide) which is no mere costume jewelry but in my opinion forms superior gems with better radiant appearance than even diamond, and is only inferior in very marginal difference in absolute hardness, which, unless you are going to use your pretty stone for cutting or grinding something, makes no difference.
I actually work in Botswana as an American Peace Corps teacher, so it was great to see this post cross my timeline. Education here is tricky, and development is very, very jagged, with rural areas lagging far behind Gaborone. Not covered here but worth looking into would be the distribution of diamond rents through the government's welfare system and how that has impacted economic incentives and political participation. Great post.
I think this is a little harsh on Botswana. The literacy rate greatly improved over the time period (some 65% in the 80s to basically every young person today). That's not nothing! There is zero standardized testing data from the 90s or earlier, because no one even took standardized tests, but I'm confident teaching a big chunk of the population to read and write improved SACMEQ scores over that time--we just have no data from before the education reforms.
Re standardized test scores more recently: there is an absolute mountain of evidence that expenditure per student does not correlate test scores, and probably Botswana's pedagogy (teaching in a bunch of different languages, every student advances in grade level no matter what, an emphasis on tertiary education) sucked. It doesn't help that the official metrics they were gauging success with focused on access to education in general.
Good and thoughtful piece as always.
Huge state ownership of the economy will never not be silly. The issue with african nations is whenever they try something even remotely market-oriented they half-ass it and do something weird between socialism and social democracy.
the rise in the quantity and quality of very competitively priced PRC artificial diamonds has blown up the natural diamond business and hit the countries that rely on that revenue. PRC absolutely dominant in lab grown diamonds, and not just for love and showing off, also for industrial uses, and esp for cooling in AI chips
Is this a helpful post? Botswana have done everything according the success textbook - and yet have failed. Can we have something more constructive in a works dominated by negativity and contrarianism? Just spelling out the failure without suggesting feasible positive policy alternatives is not exactly a learning experience and just feeds the trolls.
If you have policy alternatives, suggest them! Frankly, I think if I were in charge of Botswana and encouraging immigration wasn't an option, I would invest in gimmicky sorts of activities that are locked out of other areas, like energy generation (to sell to neighbors) and data centers (to sell to AI companies, bitcoin miners, etc.). Then, keep considering other reforms.
There are other developing countries trying to dodge the resource curse and doing a reasonable job, although with a resource that’s still delivering - for example, the Gulf States and Saudi. I think contrarianism is a necessary check on boosterism and lack of evidence-based thinking in public policy (both of which are dogging liberal democracy as populist slogans overtake considered commentary), but we need a bit of hope too!
There's fewer positive spillovers from diamond extraction than for, e.g. oil extraction and a few other mitigating factors which explain why the Dutch Disease materialized this way in Botswana but not for oil in Norway for e.g.
Not to shill my own slop but to shill my own slop, I wrote about this comparison + cocoa beans in West Africa a few years ago https://www.adcv.xyz/p/resource-curse
I think everyone might've missed that the first link in my article body is about how the resource curse doesn't actually seem to be real!
Linking it here: https://x.com/cremieuxrecueil/status/1653478099437142062
Great post about a sad reality—Botswana’s diamond based economy is slowing down as lab diamonds out-compete.
Implicitly, the “doing everything right” is not completely true. Japan & Switzerland, with few exportable resources, are doing some things more rightly than the many good things Botswana has been doing.
An X comment about low IQ makes me question the education spending— likely more focus on small scale manufacturing & tourism would increase GDP more than PhD research by avg IQ students.
-+
I usually think your graphs are great, but in the GDP per capita graph, red South Africa doesn’t have a red line from the left side to the right, instead it come from red Sub-Saharan Africa on the left. SSA on the right is also non-connected.
Using a log scale to show the drop from 30% to 10% seems a poor choice.
Please keep up good work.
Compared to South Africa, which comes slightly ahead, they simply have much fewer whites. Even though in SAR the percentage of whites, in particular Jewish whites, is steadily declining. C - one other problem - I am a paid subscriber and for some reason, Norton Private Browser which I am using is blocking your site. Can you check?
I think Norton dislikes the xyz domain. Will check.
It wasn’t like that at the beginning. Suddenly, it simply blocked my access alleging malware.
Do you think it's maybe the case that the GDP decline is limited specifically due to the attempted diversification? it could have been steeper otherwise?
The lack of success for education investment is also somewhat perplexing - maybe low infrastructure investment is harming education access?