From Diamonds to Debt: Botswana’s urgent call for economic diversification

Botswana’s heavy reliance on diamonds is exposing significant economic vulnerabilities, with the African Development Bank (AfDB) highlighting a US$6.2 billion development financing gap and rising public debt. The AfDB calls for urgent economic diversification supported by better public spending, stronger domestic revenue strategies, and increased private investment.

The AfDB’s 2026 Country Focus Report on Botswana warns that the traditional diamond-driven growth model is weakening. Diamonds still contribute about 30% of GDP and nearly 80% of export earnings, but falling global demand, competition from lab-grown stones, and declining production have slowed the economy. In 2025, Botswana’s GDP contracted by 0.7%, with mining output dropping 10.7% and diamond production falling 11.4%. Meanwhile, non-mining sectors grew by 2.6%, indicating potential for economic diversification.

The diamond downturn has put significant pressure on public finances. Mineral revenues declined 23.4% in 2025, widening the fiscal deficit to 9.5% of GDP, while public debt rose from 33.1% to 40.7% of GDP. International reserves also shrank from US$3.5 billion in 2024 to US$3.1 billion in 2025, reducing buffers against external shocks. The AfDB projects a gradual economic recovery with GDP growth of 0.8% in 2026 and 3.5% in 2027, alongside inflation rising to 6.7% in 2026 before easing.

Policymakers are urged not to rely solely on a diamond rebound to fix fiscal challenges. Strengthening the tax base through improved digital collection, reducing exemptions, and enhancing property and extractive-sector taxation are critical. Public investment efficiency stands at 76.3%, with room for improvement in project planning and execution to maximize infrastructure outcomes without increasing borrowing.

Botswana faces an estimated US$6.4 billion development financing need, but average financing flows have been only about US$217 million annually over the past five years, creating a US$6.2 billion gap. Government borrowing alone cannot cover this; public-private partnerships (PPPs), institutional investors, development finance, and deeper domestic capital markets must play larger roles. Botswana has identified 184 projects under its Economic Transformation Programme and drafted a PPP bill in 2025, but needs stronger capacity to prepare projects and manage financial risks.

The country’s substantial pension savings – equivalent to 68.6% of GDP in 2025 – represent a major opportunity. Currently, much of these savings are invested offshore or in conservative assets. Redirecting pension and insurance funds into infrastructure bonds, green bonds, and other domestic investments could boost infrastructure, renewable energy, and productive industries. Private investment opportunities also exist in renewable energy, transport, tourism, agro-processing, manufacturing, and digital infrastructure.

Foreign direct investment remains modest at 2.4% of GDP in 2024, down from 3.8% in 2023, emphasizing the need for investments that generate jobs, support local suppliers, and increase exports beyond mining. Access to finance for local businesses is limited, with private-sector credit at around 30% of GDP and high collateral demands for SMEs. Enhancing credit information, collateral registries, and guarantee programs could improve lending.

Economic diversification must focus on job creation and resilience. Botswana’s unemployment stands at 21%, with youth unemployment at 28.9% in 2024. Sectors such as manufacturing, tourism, agribusiness, renewable energy, and digital services are prioritized for growth. The country’s natural capital, valued at approximately US$116 billion in 2020, offers further potential through carbon markets, biodiversity credits, and conservation finance.

Additionally, diaspora financing presents opportunities. Remittances reached US$128.3 million in 2024, and diaspora bonds or investment funds could channel these resources into infrastructure and business development.

The AfDB report underscores the urgent need for Botswana to connect its existing financial strengths – including pension funds, sovereign assets, and natural resources – with productive investments that foster jobs and economic resilience. With improved public investment, deeper capital markets, and increased private-sector involvement, Botswana can transform its current diamond slowdown into a catalyst for a diversified and sustainable economy.