Hbs Case Study: Botswana, a Diamond in the Rough

Case Study 1: HBS Case: Botswana: A Diamond in the Rough

   Botswana is a rags-to-riches success story. When it gained independence in 1966, the country was in debt, there were few college graduates, and there were major droughts. With the help of an economically liberal government and their discovery of diamond mines Botswana managed to improve its standards of living. By the turn of the century the GDP per capita of Botswana increased from US dollars 80 to 3,600. The country managed to use its resources effectively and gain foreign investors such as De Beers, diamond tycoon. Botswana has an incredible reserve of 25% of the world’s high quality diamonds. These diamonds contribute to 30% of the nation’s GDP in 2002 and 70% to 80% and 50% of government revenues. The discovery of these reserves diamonds attracted De Beers into investing in Botswana. Their resources have increased the GDP per capita of Botswana and many more citizens could afford to be educated and the standards of living improved vastly.

However this performance is not sustainable. Diamonds are not rare in Africa and the value of diamonds is determined by supply and demand. There is a high demand for diamonds and because there are limited diamonds available to the public, the price of a diamond is very high. De Beers, in an effort to make sure Botswana does not release its vast supply of diamonds to the public and driving down the price, paid an unreleased amount of money to the country in exchange for the diamonds they have in the reserve. There are benefits and costs to this transaction. On one hand Botswana now has gained funds they can use to improve their education and build their economy, but after Botswana has traded its diamond reserves for money from De Beers they no longer have a nest egg to use later on. The funds they received will eventually run out.

Globalization will allow Botswana to branch out from the diamond trade to other trades....