From diamonds to coal? Critical reflections on Botswana’s economic future

•Botswana is at a critical historical juncture, with diamond revenues likely to decline in the near future and options for economic diversification fairly limited.•More proficient broad-based investment in human and physical capital is crucial for the country’s future success. Diamond rents have not been efficiently invested in this respect.•Coal exports are an option for Botswana’s economic future, but too many questions remain currently unanswered for this to be the primary policy focus.•Tourism is Botswana’s ultimate renewable revenue stream, and its future depends on environmental sustainability. For these two reasons, Botswana should do everything within its power to stimulate increased tourism demand, and to preserve its pristine wilderness.

Botswana is at a critical historical juncture. It has enjoyed a stable democracy since gaining its independence in 1966 and strong economic growth in the last few decades. However, the diamond revenues on which the country depends are likely to decline in the near future. Economic diversification is therefore a pressing policy concern. This paper considers Botswana’s options in this respect. A significant difficulty that policymakers face is that Botswana’s comparative advantage for the foreseeable future is embedded in mineral and base metal endowment. As diamond production slows, coal production may increase alongside the possibility of iron ore being added to the resource extraction portfolio. The extraction of minerals entails negative externalities that often undermine alternative sources of revenue generation. Botswana should seek to avoid these negative trade-offs insofar as it is possible. The paper argues that coal is unlikely to become an economic anchor for Botswana’s future, given the shortage of available export markets, its relatively low quality, and the substantial transport costs associated with exporting it. Satisfying the demand for economic export diversification presents considerable challenges for policymakers. Existing diamond rents should be more proficiently invested in human and physical capital to secure a more sustainable economic future.