Abstract
Exploitation of rich mineral reserves, especially diamonds, has been a
significant driver of Botswana’s
rapid economic growth. Notably, the
mining sector of Botswana contributes in double digits to the
country’s GDP. Diamonds, along with copper and nickel, are the major
focus areas in metal and mineral
exploration, and earn more than
three-quarters of the country’s export revenues.
The authorities of
Botswana have an impressive track record in garnering the maximum benefit
from
the production of diamonds, and we expect this trend to continue over
the coming decade. Diamonds
currently dominate the economy –
contributing approximately 36% of GDP, 75% of merchandise
exports and 45%
of government revenue – but with output set to decline, the government
has enacted a
number of measures to ensure that revenues are used to aid
diversification. For example, a fiscal rule
has been adopted which states
that mineral revenues must be used to expand the economy’s
productive
base, rather than fund consumption expenditure. Thanks to this
rule, and other initiatives enshrined in
successive six-year National
Development Plans and the long-term policy Vision 2016, growth in the
non-mining sectors is burgeoning.
The worldwide financial crisis has had a
severe impact on Botswana’s mining sector. A slump in the
global
jewellery market and the cutting and polishing industries is forcing diamond
producers such as
Debswana – a 50:50 joint venture between
Botswana’s government and De Beers – to cut output and
layoff
workers. In Q408, global demand for diamonds fell and Botswana’s exports
fell to virtually zero.
Although the situation is likely to be temporary,
lower consumer demand and reduced credit will mean
that sales are unlikely
to return to pre-crash levels for some time. As a result, the performance of
the
diamond sector in 2009 is expected to be weak. In June it was
announced that Botswana is to receive a
US$1.5bn loan from the African
Development Bank in order to make up a budget deficit estimated at
13.5%
of GDP for the current year. The budget gap has increased as a result of
lower-than-budgeted
commodity prices, particularly for diamonds.
Also
in June, figures from Botswana’s Central Statistics Office showed that
first-quarter mineral
production was down slightly. Copper-nickel matte
production (from the BCL mine in Selebi-Phikwe)
stood at 10,199 tonnes
(down from 14,331 tonnes in Q108). Coal output stood at 219,559 tonnes for
Jan-Mar 2009, with soda ash output standing at 49,389 tonnes. Most strikingly
of all, the figures from
the CSO showed that there was no diamond
production within Botswana over Q109 as demand for the
gemstone fell
sharply.
Global Overview
On page 9 of this report, BMI examines the
phenomenon of increased Chinese activity in the global
mining sector and
what this means for the industry moving forward.
Industry Forecast
The
diamond sector has served the country well in recent years, having delivered
healthy current
account and fiscal surpluses. However, falling diamond
prices are expected to retard the mining sector
in the short term, with
exports slumping in Q408. Sales are expected to remain weak in 2009. Indeed,
in
2008, BMI estimates that the mining industry shrunk by almost 6% in
real terms, with a further
contraction forecast for 2009. By the end of
the forecast period, however, the sector should be returning
to growth. By
2013 we expect the industry to reach a value of US$6.32bn, up from US$3.39bn
in 2009.
Meanwhile, a fall in output in 2009-2010 will extend the lifetime
of discovered deposits, as will a
decline in the rate of investment over
the same period. Diamond output is predicted to decline sharply
after 2021
as deposits are exhausted, forcing the government to concentrate on the
development of other
sectors in order to maintain a robust growth
trajectory.
| 
View Cart
