Mining diamonds in Botswana Botswana is the world's largest producer of diamonds. Indeed, in 2015 diamonds accounted for a third of the country's Gross Domestic Product (GDP) of US18 billion and for 80% of the country's exports. The country currently gets most of its income from mining and selling rough (uncut) diamonds. It receives only US700 for a 1.5 carat rough diamond. The diamond is then cut, polished and finished, usually in other countries. India is the market leader in cutting and polishing diamonds. The cost of cutting and polishing diamonds in India is only a quarter of the cost in Botswana. The global average cost of finishing a 1.5 carat diamond is US$8000. The diamond is sold to the customer with a 25% profit margin. Botswana is trying to develop industries connected with diamond mining, such as cutting, polishing and jewellery making including diamond rings. [Figure 1] shows how the global market for diamond rings changed in 2015. [Figure 1] The Botswanan Government has also encouraged the world's largest diamond company to set up in Gaborone, the capital of Botswana. Some government ministers, however, are concerned that Botswana is too dependent on diamonds. They warn that there is a finite supply of diamonds and urge the government to encourage diversification. As well as diamonds, the country has a number of other strengths. It has good infrastructure, a developed education system and free hospital treatment.

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [1] (a) supply of diamonds / largest producer of diamonds
2. [1] (a) cheap diamonds
3. [1] (a) educated labour force / developed education system
4. [1] (a) free healthcare
5. [1] (a) good infrastructure e.g. transport system
6. [1] (a) government encouragement
7. [1] (a) supporting (ancillary) industries e.g. diamond cutting
8. [1] (b) higher output / economic growth
9. [1] (b) higher employment
10. [1] (b) contribution to current account position
11. [1] (b) higher tax revenue
12. [1] (b) new technology introduced
13. [1] (b) encourage other MNCs to invest
14. [1] (b) increase competition
15. [1] (b) increase variety of products produced
16. [1] (b) train workers in new skills
17. [1] (b) MNCs' output will count in the country's GDP / raise living standards
18. [1] (b) MNCs may employ workers from the country
19. [1] (b) MNCs may export products from the country
20. [1] (b) MNCs profits will be taxed / tax revenue can be spent on e.g. education
21. [1] (b) MNCs may use more advanced capital equipment
22. [1] (b) more MNCs can increase employment
23. [1] (b) increased competition may make domestic firms more efficient/more productive / lower prices
24. [1] (b) a greater variety of products will increase consumer satisfaction
25. [1] (b) more skilled workers will be more productive
26. [2] (c)(i) $6 billion.
27. [1] (c)(i) Correct method i.e. 33% of US$18 billion.
28. [2] (c)(ii) $10 000.
29. [1] (c)(ii) Correct method: $8000 + 25%.
30. [2] (c)(ii) $10 875.
31. [1] (c)(ii) Correct method: $8700 + 25%.
32. [2] (c)(ii) $10667 ($10 666.66).
33. [1] (c)(ii) Correct method: $8000 × 100/75.
34. [1] (d) It may have a more educated/skilled labour force
35. [1] (d) higher productivity/greater efficiency
36. [1] (d) lower wastage
37. [1] (d) It may have more capital goods
38. [1] (d) may use more advanced technology
39. [1] (d) lower capital costs
40. [1] (d) Its firms may be producing on a larger scale
41. [1] (d) taking greater advantages of economies of scale
42. [1] (d) example
43. [1] (d) The government may subsidise the product
44. [1] (d) or tax the product less
45. [1] (d) It may specialise in the product
46. [1] (d) It may have easier access to raw materials / natural resources
47. [1] (d) and so raw materials/natural resources may be cheaper
48. [1] (d) It may have a large supply of labour
49. [1] (d) with low wage rates
50. [1] (d) It may have low transport costs
51. [1] (d) due to good infrastructure
52. [1] (d) It may have a more favourable climate
53. [1] (d) It may have a lower inflation rate than other countries
54. [1] (d) It may have lower minimum wage
55. [1] (d) lowering wages cost
56. [1] (d) It may have weaker trade unions
57. [1] (d) reducing bargaining power
58. [1] (d) It may have a stronger currency
59. [1] (d) causing lower cost of importing raw materials
60. [1] (e) Increase income
61. [1] (e) and employment
62. [1] (e) and living standards now
63. [1] (e) Increase government tax revenue
64. [1] (e) enabling government to spend more on e.g. infrastructure
65. [1] (e) Increase export revenue
66. [1] (e) improving the current account position
67. [1] (e) Demand may be high now
68. [1] (e) causing price to be high
69. [1] (e) causing greater incentive to supply now
70. [1] (e) Demand may fall in the future
71. [1] (e) lowering prices
72. [1] (e) so income earned in the future may be lower in the future
73. [1] (e) Higher output now may result in improved economies of scale
74. [1] (e) lowering costs
75. [1] (e) Higher output may enable greater advantage to be taken of economies of scale
76. [1] (e) lowering average cost
77. [1] (e) Will deplete stocks of diamonds
78. [1] (e) preventing diamond production in the future
79. [1] (e) there is a finite supply of diamonds
80. [1] (e) Global demand may be low now
81. [1] (e) demand may be higher in the future
82. [1] (e) Increase in supply may lower prices
83. [1] (e) which may reduce revenue
84. [1] (e) Risk of relying on one product / one export / being too dependent on diamonds
85. [1] (e) Advances in technology
86. [1] (e) may reduce costs of mining in the future
87. [1] (e) May increase the risk of pollution
88. [1] (e) causing environmental damage
89. [1] (e) In the long run employment
90. [1] (e) and GDP may be higher
91. [1] (f) Demand increasing
92. [1] (f) price rising
93. [1] (f) Supply extending/rising/higher quantity/more diamond rings
94. [1] (f) due to higher income or other valid reasons
95. [1] (f) Demand is inelastic
96. [1] (f) Supply is inelastic
97. [1] (g) It may increase health
98. [1] (g) increase life expectancy/reduce death rate
99. [1] (g) improve living standards/economic development
100. [1] (g) It would provide access to the poor
101. [1] (g) reduce poverty/provide a necessity
102. [1] (g) The social benefit of hospital treatment is greater than the private benefit
103. [1] (g) provides external benefits
104. [1] (g) e.g. better quality/higher output/economic growth
105. [1] (g) higher labour productivity
106. [1] (g) may be under-consumed/under-produced
107. [1] (g) if left to market forces
108. [1] (g) people may not appreciate private benefits/benefits to themselves of hospital treatment
109. [1] (g) People will have more money to spend on other items
110. [1] (g) May increase government spending
111. [1] (g) opportunity cost
112. [1] (g) government spending on e.g. education could be higher
113. [1] (g) taxes may be higher
114. [1] (g) leading to demand-pull inflation
115. [1] (g) Some of those treated could afford to pay
116. [1] (g) in this case not a good use of government funds
117. [1] (g) May result in over-consumption
118. [1] (g) people seeking treatment who do not need it
119. [1] (g) May reduce the work incentive of potential consumers
120. [1] (g) as people will need less income to pay for healthcare
121. [1] (g) The quality of healthcare may fall
122. [1] (g) loss of profit motive
123. [1] (g) may reduce e.g. innovation
124. [1] (g) May encourage people to take greater risks
125. [1] (g) e.g. eat less healthily
126. [1] (g) Government could charge for healthcare/allow private sector to charge for healthcare
127. [1] (g) to get more tax revenue
128. [1] (g) to spend on e.g. education
129. [1] (g) taxes could be lower