GABORONE, Oct 14 (AFP) - Botswana is one of Africa's economic success stories, but economists warn of the consequences of over-dependence on its vast diamond wealth and urge a diversification of its industrial base.

A third of the landlocked country's GDP (Gross Domestic Product) comes from minerals, 95 percent of which are diamonds. Diamonds comprise 50 percent of government revenue, and make up 80 percent of Botswana's exports.

That largely accounts for Botswana's 6 billion dollars of foreign reserves. However, economists say diamonds are not forever, even in Botswana, the world's biggest producer by value.

Botswana's 1.9 billion dollar diamond production in 1998 was 29 percent of the 6.5 billion dollars' worth produced worldwide. That figure is set to grow with the massive expansion of the Orapa mine which will see its annual output double to 12 million carats next year.

But economists forecast that mining production, though it will continue to generate enormous revenues, will plateau after next year, with no new discoveries of diamond bearing deposits being announced.

While lauded internationally as a low-corruption stable democracy which has spent its money wisely since discovering diamonds in 1969, the government of President Festus Mogae has been slow to attract industry to enable it to diversify and tackle unemployment of 20 percent.

"Botswana has never really felt the need to systematically sell itself," Marcel Beranger, a Canadian advisor to the minister of commerce and industry, told AFP.

Beranger and other economists agree that the structures are in place to enable the country to reduce its dependence on diamonds, pointing to the abolition of exchange controls in February, and the lowest personal and corporate tax -- 25 percent for non manufacturing, 15 percent in manufacturing -- in the sub-Saharan region.

But investors have been slow to take up the offer.

"Botswana's got to start streamlining its requirements like the handling of work permits and licences. Investors don't like to wait three months for a licence," said Beranger.

According to economist Keith Jefferis, the "three new engines of growth" identified by the government -- manufacturing, tourism and financial services -- between them account for just 10 percent of GDP currently.

"Even if they grow fast they won't actually add much to overall economic growth," said Jefferis, of the independent Botswana Institute for Development Policy Analysis (BIDPA).

"Government spending is over 40 percent of GDP. Government has been used to driving the economy along through its spending. Diamonds will be flat, tourism will be small.

"There will be big pressure on the government to keep up the level of spending to keep growth around 5 percent, but that's not sustainable if other revenue sources aren't growing."

Manufacturing is still only 5 percent of GDP but is growing steadily.

Botswana's shocking HIV/AIDS statistics -- one in four people are infected -- mean the economy will grow more slowly over the next 25 years.

"AIDS will reduce economic growth by an average 1.0 percent a year," Jefferis forecasts.

Botswana, where inflation is currently hovering around 7.5 percent, is setting up a financial services centre which could generate 1,000 jobs within three to five years.

"The objective is to become the offshore centre of the southern African region," says project manager John Curtin, of Irish consultants Industrial Credit Corporation Bank.

Louis Nchindo, managing director of mining giant Debswana, blames complacency for the failure of Botswana to diversify.

"Because you have diamonds and you are rich, there isn't the kind of pressure you need to make people more innovative and aggressive. It's like being the son of a rich man, you don't try hard enough."

Martinus Sabone, deputy head of the Botswana Stock Exchange said the sector was performing well, having shot to prominence as the world's best performing market in 1997, with a 97 percent increase in US dollar terms.

Privatisations are a government priority, with companies like the national airline Air Botswana up for flotation.

"Botswana is probably unique in that privatisation is happening not because the government needs the money, but to make these corporations reach their maximum efficiency."

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