International specialisation — practice question

Botswana stands as the world’s biggest diamond producer. In 2015, diamonds made up one third of the nation’s Gross Domestic Product (GDP) of US$18 billion and 80% of its exports. At present, most of the country’s earnings come from mining and selling rough (uncut) diamonds. From a 1.5 carat rough diamond, it earns only US$700. After that, the diamond is cut, polished and finished, usually in another country. India leads the market for cutting and polishing diamonds. In India, the cost of cutting and polishing diamonds is only a quarter of the cost in Botswana. The worldwide average cost of finishing a 1.5 carat diamond is US$8000. The diamond is then sold to the customer with a 25% profit margin. Botswana is seeking to build industries linked to diamond mining, including cutting, polishing and jewellery production such as diamond rings. Fig. 1 illustrates how the global market for diamond rings changed in 2015. The Botswanan Government has also urged the world’s largest diamond company to establish itself in Gaborone, the capital of Botswana. Some government ministers, though, worry that Botswana relies too heavily on diamonds. They point out that diamonds exist in limited supply and encourage the government to promote diversification. Alongside diamonds, the country also has several other advantages. These include good infrastructure, a developed education system and free hospital treatment.