Diamond Slump Puts Botswana at Crossroads as AfDB Calls for New Investment and Growth Model

Botswana’s diamond slowdown has exposed a US$6.2 billion development financing gap, rising public debt and an urgent need to diversify the economy through better public spending and stronger domestic revenue mobilisation. The AfDB sees major opportunities in pension savings, PPPs, private investment, natural capital and diaspora finance to fund infrastructure, create jobs and build a more resilient economy beyond diamonds.

Botswana's weakening diamond economy is exposing a much bigger development challenge: the country has significant financial resources, strong institutions and large pension savings, but too little of this wealth is reaching infrastructure, businesses and industries that could reduce its dependence on mining.

According to the African Development Bank Group's Country Focus Report 2026 – Botswana, the slowdown in the diamond sector should be seen as a warning that the country's traditional growth model is becoming increasingly vulnerable. Diamonds still account for about 30 per cent of GDP and nearly 80 per cent of export earnings. Weak global demand for natural diamonds, competition from laboratory-grown stones and lower production are now affecting economic growth, exports and government revenue.

Botswana's economy contracted by 0.7 per cent in 2025. Mining output fell 10.7 per cent, while diamond production declined 11.4 per cent in the year to September. Non-mining sectors, however, grew by 2.6 per cent, showing that other parts of the economy could become stronger sources of growth.

Falling Diamond Revenue Is Putting Public Finances Under Pressure

The diamond downturn has quickly reached government finances. Mineral revenues dropped by 23.4 per cent in 2025, while the fiscal deficit widened to 9.5 per cent of GDP. Public debt increased from 33.1 per cent of GDP to 40.7 per cent.

Botswana's international reserves also fell from around US$3.5 billion in 2024 to US$3.1 billion in 2025, reducing the country's protection against external shocks.

The AfDB expects only a gradual recovery, forecasting GDP growth of 0.8 per cent in 2026 and 3.5 per cent in 2027. Inflation, which averaged 2.7 per cent in 2025, is projected to rise to 6.7 per cent in 2026, then decline to 5.1 per cent in 2027.

For policymakers, the message is that Botswana cannot rely on a strong diamond recovery to solve its fiscal problems. The government needs to broaden its tax base, improve digital tax collection, reduce unnecessary exemptions and strengthen property and extractive-sector taxation.

Better spending is equally important. Botswana's public-investment efficiency is estimated at 76.3 per cent, leaving an efficiency gap of 23.7 per cent. Improving project planning, procurement and implementation could therefore produce substantially better infrastructure outcomes without requiring the same increase in public borrowing.

A US$6.2 Billion Financing Gap Requires Private Capital

Botswana faces an estimated US$6.4 billion in development financing needs, compared with average financing flows of only about US$217 million during 2021–2025. This leaves a financing gap of approximately US$6.2 billion.

The scale of the gap means government borrowing alone cannot provide the answer. Public-private partnerships, institutional investors, development finance and stronger domestic capital markets will have to play a greater role.

Botswana has already developed a pipeline of 184 projects under its Economic Transformation Programme and completed a draft PPP bill in 2025. However, stronger capacity is needed to prepare projects, calculate financial risks and manage contracts.

This creates an important role for international development partners. Multilateral development banks and development finance institutions can provide project-preparation support, guarantees, blended finance and technical assistance to make infrastructure projects attractive to private investors.

But PPPs also carry risks. Government guarantees and long-term payment commitments can eventually become public liabilities. Transparent contracts, proper risk-sharing and clear limits on guarantees will therefore be essential.

Pension Savings and Private Investment Offer Major Opportunities

One of Botswana's strongest advantages is its pension industry. Pension fund assets were equivalent to about 68.6 per cent of GDP in 2025, yet a significant share of these savings is invested offshore or in conservative financial assets.

Infrastructure bonds, green bonds and professionally managed investment vehicles could help direct more pension and insurance capital towards domestic infrastructure, renewable energy and productive industries. The challenge is not simply convincing pension funds to invest locally, but creating enough financially sound projects for them to invest in.

Private investors could find opportunities in renewable energy, transport, logistics, water, tourism, agro-processing, manufacturing and digital infrastructure.

Foreign direct investment remains relatively modest and concentrated. FDI stood at 2.4 per cent of GDP in 2024, down from 3.8 per cent in 2023. Botswana therefore needs investment that creates jobs, strengthens domestic suppliers and increases exports rather than concentrating mainly on large mining projects.

Access to finance for local businesses also needs improvement. Private-sector credit is only around 30 per cent of GDP, while SMEs face high collateral requirements. Better credit information, collateral registries and guarantee programmes could help banks lend to more businesses.

Diversification Must Deliver Jobs and Long-Term Resilience

The economic transition ultimately needs to improve living standards. Unemployment remains around 21 per cent, while youth unemployment reached 28.9 per cent in 2024. Diversification must therefore create employment in sectors such as manufacturing, tourism, agribusiness, renewable energy and digital services.

Botswana can also make greater use of its natural wealth. Its natural capital was valued at approximately US$116 billion in 2020. Carbon markets, biodiversity credits and conservation finance could generate additional investment while protecting wildlife and ecosystems.

Diaspora financing offers another opportunity. Remittances reached about US$128.3 million in 2024, and diaspora bonds and investment funds could direct part of these resources towards infrastructure and businesses.

For government, development partners and private investors, the report points towards the same priority: Botswana needs to connect the financial resources it already possesses with productive investment.

The country has pension savings, sovereign assets, natural resources, stable institutions and private-sector opportunities. Its challenge is to turn those strengths into projects, businesses and jobs. If Botswana can improve public investment, deepen capital markets and attract private capital into new industries, the current diamond downturn could become an opportunity to build a more diversified and resilient economy.