Economics · May / June 2017 · Paper 22 · Question 1

Mining diamonds in Botswana Botswana is the world’s largest producer of diamonds. Indeed, in 2015 diamonds accounted for a third of the country’s Gross Domestic Product (GDP) of US$18 billion and for 80% of the country’s exports. The country currently gets most of its income from mining and selling rough (uncut) diamonds. It receives only US$700 for a 1.5 carat rough diamond. The diamond is then cut, polished and finished, usually in other countries. India is the market leader in cutting and polishing diamonds. The cost of cutting and polishing diamonds in India is only a quarter of the cost in Botswana. The global average cost of finishing a 1.5 carat diamond is US$8000. The diamond is sold to the customer with a 25% profit margin. Botswana is trying to develop industries connected with diamond mining, such as cutting, polishing and jewellery making including diamond rings. Fig. 1 shows how the global market for diamond rings changed in 2015. price of S diamond rings P2 P1 D1 D2 O Q1 Q2 quantity of diamond rings Fig. 1 The global market for diamond rings in 2015 The Botswanan Government has also encouraged the world’s largest diamond company to set up in Gaborone, the capital of Botswana. Some government ministers, however, are concerned that Botswana is too dependent on diamonds. They warn that there is a finite supply of diamonds and urge the government to encourage diversification. As well as diamonds, the country has a number of other strengths. It has good infrastructure, a developed education system and free hospital treatment.

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