Pula Fund

Diamonds may be a girl’s best friend, but they can also be a country’s major source of income. Just ask Botswana, one of the biggest diamond producers on the globe. This landlocked South African nation has been mining those glittery little gems since 1972 (fun yet kind of icky fact: the country discovered they had diamonds when termites started bringing them up to the surface of the Kalahari desert), but then, in the early ‘90s, they began to think that maybe they should set some of their profits aside, just in case the diamond mines ever ran dry. Which they do. In fact, Botswana’s diamond mines are expected to be exhausted sometime between 2030 and 2040.

But anyway, back to setting those funds aside. In 1994, the forward-thinking Botswanan government established the “Pula Fund,” which is a SWF (sovereign wealth fund) that takes excess diamond profit money and invests it in foreign currency-denominated assets. (“Pula,” btw, is the name of Botswana’s currency.) The whole point of the fund is to make sure that the country has enough money saved to support its own economic growth in a post-diamond economy. And that sounds great, right? What an idea.

But there have been some criticisms over the past 10-20 years that maybe the Pula Fund isn’t being treated like a true SWF. Unlike other SWFs, the Pula Fund tends to keep its management team and transaction history secret. In a financial world that’s all about transparency, this tends to raise a couple eyebrows. In addition, there have been a few unexplained drawdowns over the years (“drawdown” = “really big withdrawal”) that critics say are going to have mad ill effects on Botswana’s economic stability once those mines dry up. As it is, those in the know say that the Pula Fund hasn’t been growing like it should, considering the healthy state of the global diamond market.

Will Botswana and its Pula Fund prove the critics wrong? Guess we’ll have to stay tuned to find out.