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Is 2023 a Good Time to Invest in Diamonds? In Botswana?

The global diamond market size is estimated at around US$ 90B and is expected to grow at a compound annual growth rate (CAGR) of 3% from 2020 to 2030. If demand is mainly driven by China and India, supply is mainly driven by Africa. Africa accounts for up to 50% of the world supply with major suppliers like Botswana, The Democratic Republic of Congo (DRC), and Angola. Botswana generates about 30% of its revenue and 70% of its foreign exchange earnings from diamonds. Rough diamond sales by Debswana Diamond Company (a joint venture between Anglo American unit De Beers and Botswana's government) reached record levels in 2022. Sales of diamonds from Debswana stood at US$4.588 billion in 2022 compared to US$3.466 billion in 2021, representing +20% sale growth amid the pandemic and the Ukrainian conflict. Debswana sells 75% of its output to De Beers with the balance taken up by the state-owned Okavango Diamond Company.

Source: Grandview Research

However, despite these good figures, Botswana, like many other diamond originators (African countries), does not adequately benefit from the economic potential of its diamond industry, at least from the authority's point of view. A few months from the expiring mining rights of De Beers in Botswana, President Mokgweetsi Masisi threatened to walk away from talks on the extension of De Beers' mining rights in the country unless it got a larger share of revenues.

This public position from the local authorities may be an opportunity for international or local investors with the means and financial appetite to position themselves in a very profitable sector. Of course, such a scenario might only happen if the negotiation between Botswana and De Beers reaches a dead-end. In any case, before deciding to invest in diamonds, one should have a strong motivation. And in my opinion, one valid investment argument should be to ask what do diamonds, golds, and real estate have in common?

They all appreciate over time and represent a solid investment to hedge your money against inflation. At the onset of the COVID-19 pandemic, many industries were severely hit thus affecting their commodity prices. And for investors, this was bad news, especially for those who invested in risk-prone commodities. For instance, diamond prices drop 15-20% in 2020 due to travel restrictions and lockdowns vs. the +20% price drop recorded in the hotel industry. In September 2008 and October 2009, in the midst of the financial crisis, their prices declined around 16% vs. the S&P 500 dropped by +50% and the Shangai Stock Exchange plummeted by +60%. Although not completely immune to a decline in prices, diamonds showed quite a resilience compared to other commodities.

And in the current economic context severely marked by COVID-19 and the Ukrainian conflict, the key drivers of your investment should not merely be profitability and high margins. But it is critical to consider making a stable investment in a stable commodity.


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