Here is a country that has bucked the trend of dismal economic performance witnessed by most resource-rich countries in Africa.

The reason? The first diamonds were discovered in Botswana back in 1966. Yet it now produces 22% of the world’s sparklers. Revenue from those diamonds contributes 33% of GDP. But that is not all. Instead of simply squandering its resource wealth (as many African countries do) it has ploughed it back into health care, education and transport.

So Botswana looks after its people and it also invests in infrastructure! There is good governance too and, better still, no exchange controls. The list of positives goes on. What was one of the poorest economies on the continent is now one of the wealthiest. In 2006 and 2007 growth rates sat at around 4.7%. Result!

Botswana and economic freedom go hand in hand

Not surprising then that the Index of Economic Freedom (developed by the Heritage Foundation and the Wall Street Journal) gives Botswana a rating of 68.6%. Better still, Botswana has the lowest tax burdens in Southern Africa. It scores 76.4% in fiscal freedom.

That is not bad going if you consider that the UK’s overall score was just 79.5%! To come to this conclusion, ten factors are considered – business freedom, trade freedom, fiscal freedom, property rights, freedom from corruption and so on…

DeBeers is one that has been there for the long haul! The diamond giant has clearly no intention of leaving. It has recently funded the development of a technology-driven diamond sorting facility to the tune of US$83m. Phew! This will be known as the Diamond Trading Co (DTC) Botswana. The line will make De Beers the biggest sorter and valuer of diamonds in the world. And it is even willing to share in the success too – this is a 50/50 joint venture between Botswana’s government and the world’s most famous diamond miner.

The venture is expected to increase value for this southern African country by spinning out new industries. The project is expected to create 3,000 jobs in diamond cutting, polishing, sales and marketing and jewellery manufacture. That translates to 30% increase in diamond jobs and a 10% rise in manufacturing jobs. Furthermore by 2009, De Beers’ global production of diamonds is expected to be aggregated in Botswana.

So a big vote of a confidence from the biggest diamond company in the world! In fact Nicky Oppenheimer, De Beers’ chairman, can’t sing Botswana’s praises loudly enough. He reckons that Botswana is a glittering example in Africa and others could learn from its success. And that is expected encourage other businesses to invest here too!

ETFs – a golden glow on Botswana’s horizon

But it also rouses the interest of private investors like us! According to global index provider Standard & Poors, the strong performance in many African markets is making the region increasingly attractive for investors. Though we are fully aware of the risks in Africa, Botswana, it seems, is one of few exceptions. It has the resources and it has good government too.

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In 2007 the number of ETF launches rose 64% to 457. And in December last year assets under the management of listed ETFs came in at around US$796bn. But we are interested in commodities, and gold ETFs have done particularly well.

But they are not yet widespread in Africa – there are said to be about 11 ETFs on the continent. In fact only South Africa and Egypt (which we sometimes forget is in Africa) offer ETFs. But it now seems that the BSE really does mean business. It recently held an ETF conference in the capital Gaborone. That proved to be very popular – it was booked out! The BSE only expected 60 participants but 102 fund managers, stock brokers and finance managers turned out in force.

Setting up for more investors

The BSE seems to mean business. It has done several detailed studies on the mechanism and feels confident that it has the capacity to handle ETFs. It has already helped to fund the central depository system (CSD) necessary for ETFs.

Now it says it will stump up the cash for an automated trade system (ATS) – to be installed by this summer. BSE CEO Hiran Mendis says that would help provide trustee services and have the capacity to act as administrator of the fund. Last but not least it is awaiting a central securities depository (CSD) licence from the Central Bank.

The BSE, which lacks liquidity, will probably first list international funds. And that could happen as early as the summer. That will transform capital markets and bring much needed liquidity to the Botswana exchange. And it could attract banks like Deutsche!

So keep polishing,

Erin and Isabel

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