Southern African economies heavily dependent on diamond exports, particularly Botswana, are facing economic challenges due to declining demand for natural diamonds and the rise of cheaper lab-grown alternatives.

Botswana, which relies on diamonds for about 30% of its GDP and 80% of exports, has responded by establishing a sovereign wealth fund and exploring industries like wildlife tourism, medicinal cannabis, and solar energy to diversify its economy.

The global demand for diamonds has decreased significantly, especially in the US and China, leading to a drastic reduction in revenue, with diamonds previously accounting for 80% of Botswana's exports and a third of government income.

This decline has resulted in severe financial strain, including a rising fiscal deficit projected at 11% of GDP in 2025, increasing government debt, and dwindling foreign reserves, which threaten economic stability.

President Duma Boko has acknowledged the need for economic diversification but faces a bleak fiscal outlook and limited revenue to fund such initiatives.

High unemployment, especially among youth with over 40% under 24 unemployed, complicates efforts to fund job creation and infrastructure projects amid economic contraction.

The IMF predicts Botswana's economy will contract by 0.4% in 2025, prompting the government to turn to international borrowing to sustain its operations.

President Boko has proposed taking a majority stake in De Beers and selling Botswana’s diamonds independently to increase national control and revenue.

Botswana faces risks of economic and social instability, including depleting foreign reserves, a downgrade of its credit rating to 'BBB' with a negative outlook by S&P, and a health system crisis.

The industry is exploring the coexistence of natural and synthetic diamonds, with companies like De Beers investing in high-tech applications for lab-grown diamonds and marketing both types as offering unique value propositions.

African nations, including Botswana, Angola, Namibia, South Africa, and the Democratic Republic of Congo, have pledged to allocate 1% of diamond revenues to marketing natural diamonds as luxury products to reframe their value.

The global price of natural diamonds has fallen from $6,819 per carat in May 2022 to $4,997 in December 2024, as synthetic diamonds capture about 20% of the market value and up to 50% of volume in the US engagement ring segment.