April 8 (Bloomberg) -- Since the Jwaneng diamond mine in Botswana closed in February, Emmanuel Garetshele has done little except cash his mine-operator paycheck and watch his country go from being the success story of Africa to an economic laggard.

Botswana, where diamonds made up 65 percent of exports in 2008, has sold few gems since November, according to the government. From boasting one of Africa’s largest fiscal surpluses, the government now is racking up debt at a record pace as revenue plummets.

Debswana Diamond Co., a joint venture between Botswana’s government and South Africa’s De Beers, has closed four mines whose production equaled almost a third of the country’s gross domestic product. While three are set to reopen next week, they won’t earn much: the government expects diamond sales to fall by half and prices to drop by 20 percent this year. Garetshele, 42, who was paid in the interim, worries his job won’t last.

“This crisis is for everyone here,” said Garetshele, drinking a sorghum beer in the shade of a tree in the town of Jwaneng. “I’m not educated, all I know is how to be an operator. What will I do if I lose my job?”

Botswana isn’t without resources to fight the global financial crisis. The country has record foreign currency reserves of about $10 billion, while years of fiscal surplus mean local banks and foreign lenders will be able to finance deficit spending this year and next.

Richest in the World

The open-pit Jwaneng mine in south-central Botswana is the richest in the world, producing 15.6 million carats in 2005. Debswana says it will reopen it and two others on April 15. A fourth mine, Damtshaa, and the Orapa No.2 processing plant will remain closed.

The reopening won’t prevent Botswana’s economy from contracting 5.2 percent in the year through June and 6.2 percent in the 12 months after that, according to Moody’s Investors Service. That follows five years with average growth of 4.4 percent.

Hundreds of contractors at the mines are worse off than Garetshele and about 5,000 other miners who continue to be paid: they haven’t received any money since February. Many have gone back to their rural homes, while others are living with less.

Koko Kabelo, 35, a contract worker who helped machine operators at the mine, has built a makeshift room out of black refuse bags adjoining his cousin’s home across the road from a local drinking spot.

“I have to live in a shack now,” Kabelo said, as he shared beer with Garetshele and other men under the tree. “I couldn’t afford to pay the 600 pula rent ($78.78) any more.”

Empty Stores

The crisis is evident at the Score supermarket in the main shopping precinct of Jwaneng, where three cashiers sat idle while a packer swept the aisles. Store manager Paki Serunya says sales have plunged as much as 90 percent since December and that he will have to dismiss staff.

“We always thought that diamonds are forever,” said Sebataladi Ramoitoi, head of the Jwaneng branch of the Botswana Mining Workers Union. “But now, there’s so much uncertainty. Debswana is bread and butter for most of us here.”

Finance Minister Baledzi Gaolathe says the economy is facing its biggest test since the country gained independence from the U.K. in 1966. Diamonds helped transform Botswana from one of the poorest countries in the world, with per-capita income of $70 at independence, to middle-income status. Per- capita income was $5,680 in 2007, the highest among non-oil exporting countries in Africa.

“This is a major setback for our economy,” Gaolathe said in an interview in his office in downtown Gaborone, the capital. “We are a major exporting country, and those international markets are not buying our products.”

Rising Debt

Botswana had a fiscal surplus of 5.4 percent of gross domestic product in the fiscal year through March 2007. Now the government estimates a shortfall of 10 percent, the biggest on record, in the year that began April 1, Gaolathe said.

The country’s Aa3 credit rating, the highest in Africa, is under threat if the government fails to rein in expenditures, Moody’s said on March 19. Standard & Poor’s on Feb. 19 cut its credit rating outlook on Botswana’s A foreign currency rating to ‘negative’ from ‘stable’.

The government has no plans to cut social spending in a country where 30 percent of people survive on less than a $1 a day, even though Central Bank Governor Linah Mohohlo said in a March 11 interview that some reductions may be needed.

With the global recession slashing demand for most commodities, Botswana’s tentative steps to diversify away from diamonds by encouraging production of coal, copper and nickel have also come to a halt. OAO GMK Norilsk Nickel, the Russian mining giant that owns Tati Nickel in Botswana, said on Feb. 19 that it may review its African units because of “virtually zero profitability.”

New Funds

The government will turn to multilateral lenders such as the African Development Bank for low-interest loans, accelerate its 5 billion-pula bond program and seek funds from China to help finance the 13.5-billion pula deficit this year, Gaolathe said.

Diamond prices dropped 16 percent in the five months through March, according to an index published by Polished Prices.com. Debswana doesn’t report diamond sales, only production.

“All our eggs are in the basket of hope,” Ramoitoi said. “We are hoping that the banks in America will start giving money again, that American wives and ladies will buy jewelry.”

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net

Last Updated: April 8, 2009 05:50 EDT