Beyond Diamonds: How Structural Bottlenecks Are Holding Back Botswana’s Economic Future

Botswana’s diamond-led growth model is losing strength as weak diversification, limited access to finance, rising governance concerns, rigid labor markets, and infrastructure gaps hold back private sector development and job creation. The IMF finds that targeted reforms, especially in finance, labor markets, governance, and energy could significantly lift growth and employment and help the country transition to a more resilient, diversified economy

Prepared by the International Monetary Fund and drawing on evidence from the World Bank, Harvard University’s Growth Lab, Transparency International, and the Fraser Institute, a study explains why Botswana’s long-successful economic model is under pressure. After gaining independence, Botswana stood out in Africa for transforming its diamond wealth into stability, good governance, and rising incomes. Strong institutions, careful fiscal management, and low corruption helped the country become one of the region’s top performers. However, this success has slowed over the past two decades. Economic growth has weakened, unemployment, especially among young people, has remained high, and government savings buffers have declined. The sharp decline in global diamond demand in 2024 highlighted the risk associated with Botswana’s heavy dependence on a single commodity.

An Economy That Failed to Diversify

Botswana’s economy remains highly concentrated in diamonds, which still account for around 80 percent of exports. Manufacturing contributes only a small share of GDP, far less than in neighboring countries. This lack of diversification is reflected in Botswana’s declining Economic Complexity Index, which measures how varied and sophisticated a country’s exports are. A falling score means the economy is producing fewer complex, higher-value goods and relying more on basic resource exports. This weakens long-term growth, limits job creation, and increases vulnerability to global shocks. The paper argues that without building new productive capabilities, Botswana risks stagnation in a world where diamonds will no longer guarantee prosperity.

What Businesses Say Is Holding Them Back

To understand why diversification has stalled, the IMF relies heavily on the 2023 World Bank Enterprise Survey, which collected views from firms across the country. Businesses overwhelmingly point to access to finance as their biggest obstacle. Despite a stable banking system, few small and medium-sized firms can obtain loans, largely because banks are conservative and demand high collateral. As a result, many firms cannot invest, expand, or innovate. Corruption has also become a growing concern. Although Botswana remains relatively clean by regional standards, businesses increasingly report that corruption and weak transparency interfere with fair competition and efficient public services. Firms also struggle to access land due to complicated land tenure systems and slow administrative processes, which make it hard to secure property rights or use land as collateral.

Infrastructure and Labor Market Constraints

Infrastructure problems further limit private sector growth. Electricity supply is often unreliable and costly, raising production expenses and discouraging investment in manufacturing and other energy-intensive activities. Dependence on imported power adds to these risks, while slow reform of the electricity sector has delayed improvements. Labor market rules are another major barrier. Rigid hiring and firing regulations and centralized wage bargaining make it difficult for firms to adjust their workforce or create new jobs. These rigidities contribute to high unemployment and reduce incentives for businesses to expand, even when opportunities exist.

Reforms That Could Revive Growth

The report combines firm-level evidence with cross-country analysis to estimate the benefits of reform. It finds that Botswana lags behind peer countries in labor market flexibility, governance, external trade openness, and some aspects of business regulation. Closing even half of these gaps could raise economic growth by about two percentage points over the medium term, while labor market reforms could significantly boost employment. The message is clear: Botswana needs to move from a state-driven, diamond-dependent model toward a private-sector-led economy. This means improving access to finance for smaller firms, strengthening transparency and governance, modernizing land administration, investing in reliable electricity, and making labor markets more flexible. Botswana still has strong institutions and political stability, but turning diagnosis into action is now urgent if the country is to build a more resilient, diversified, and inclusive economy in a post-diamond future