Pragmatic leaders are what the country needs post-independence celebrations that will mark the country’s five decade of self-rule in the coming weeks.
This is because the country will be dealing with an economy that is faltering, operating minus diamonds, the main commodity that has single-handedly transformed Botswana from a poor country to a developed country since 1966. However, the glory days are over as leaders will have to come face to face with a number of challenges, from social to economic that will need men and women of steel to overcome. The main commodity, diamond, is facing challenges, from poor demand to deep underground mining; the challenges are just too many to bear. This is the clear message that is coming from a review paper authored by former Bank of Botswana deputy Governor, Dr Keith Jefferies and his assistant, Sethunya Sejoe. The expected fall in diamonds revenue and dominance in the semi-arid nation will test the market campaign ‘A diamond is for ever’, which was coined by a young copywriter, Frances Gerety in 1947.
For Botswana, business will no longer be as usual, soon after a highly-sought after independence celebration billed for 30th September, as reality will show that diamonds which transformed the economy from one of the poorest countries in the world to a developing state in the last five decades can no longer be trusted with growth. “It will be a mistake to assume that business as usual is a viable approach to the future growth of Botswana economy,” opined Jefferies and Sejoe in the report which was released recently. Currently, Botswana’s economy is at sixes and sevens, partly because of a slowdown in the economy and the commodity crash that has affected demand for metals, including diamonds, the country’s main export. Respected diamond market analysts such as Des Kilalea of RBC Capital Markets and Rapaport founder, Martin Rapaport have predicted a recovery for diamonds in the foreseeable future.
However, Botswana cannot raise Champaign glasses to celebrate, since the recovery will not translate into improved fortunes for the country from the diamond sector as it has been the case in the past five decades. There are problems on the ground which cannot be ignored. “First even if diamond production continues at current levels for many years, this represents an output plateau, which by definition entails zero growth. So diamond mining is unlikely to lead future growth (of the country’s economy),” said the report. In the past year, diamond exports stood at P53, 6 billion. Most of Botswana’s diamonds are mined in conjunction with mining major, De Beers. There are other independent mines such as Ghaghoo, owned by London listed Gem Diamonds which this Wednesday reported it has made $4,8 million in sales for the first six months of the year.
Lucara Diamonds is another company operating in Botswana, owning Karowe mine, which is famed for producing Lesedi La Botswana. Both companies have experienced mixed fortunes in sales this year. Econsult analysts are also wary that the President Ian Khama-ruled country will experience serious challenges in the next five decades as compared to the past period. The challenges will demand that the former army Commander employ tact to identify sectors that can lead the economy going forward. However, at this point in time, options are limited and the country’s economic diversification initiatives are faltering.
There are also more challenges coming from the mining sector itself, which depicts a sorry picture ahead. “Secondly, as mines get deeper and more difficult to exploit, costs of production go up and hence profits-and the sector’s contribution to GDP and government revenue will gradually decline,” said Jefferies and Sejoe. Jwaneng diamond mine is one of the country’s oldest mine and its cost of operation will go up in the coming years. It is the biggest revenue generator for Debswana, a diamond company owned by Botswana and De Beers. A few years ago, the two shareholders pumped P24 billion to expand its lifespan under Cut 8 project. BCL mine, although not a diamond mine, but owned by the state, is also experiencing high operational expenditure as a result of aging mining machines and the fact that miners have to dig deeper to extract copper underground.
It appears government has no choice but to continue investing in the mine to save jobs. Even though government has proposed to invest in new projects, the budgetary constraints have forced the country to defer others. According to the 2016/17-budget paper, total revenues and grants are estimated at P48, 40 billion, a drop of P3, 36 billion when compared to the year before. The reduction in proposed revenue is mainly because of fall in mining revenue. The country’s over two-million population is growing amid ills such as HIV/AIDS which has claimed, and continues to claim hundreds of lives annually.” The population is growing, so constant diamond production actually entails declining production (in income) per capita,” said the economists, who have painted a gloomy picture for the country in the face of declining diamond revenue.
Government is also mindful that minerals, especially diamonds are not forever. Delivering a policy key paper for National Development Plan (11), finance minister Matambo acknowledged that there is need to look at priority areas that can diversify the country’s revenue base. There are several strategies that have been devised to pick up the economy in the country’s NDP 11. For example, under infrastructure, government will continue to maintain and refurbish worn out facilities and assets. Infrastructure is considered the backbone of Botswana’s economy as it is essential for productive processes and trade facilitation. “NDP 11 will also provide for the construction of new facilities that have the potential to improve and stimulate economic growth,” said the minister. Information Communication Technology remains a critical part of the economy and will be so, even under the NDP 11.
Access to information through modern technology is critical. There is need to develop effective ICT platforms such as e-services, broadband and postal network. The ease of doing business is also part of government multi-pronged strategy of increasing growth rates away from mining. “Government will intensify the implementation of the reform roadmap and the action plan for doing business in Botswana during NDP 11,” stated Matambo. Botswana will also in the coming years contend with high unemployment rates and rising poverty levels. Last week, police officers were forced to use force to disperse a picket from Parliament buildings after unemployed youths staged a peaceful protest over lack of jobs. The next fifty years will also see the country being forced to come with initiatives of how to deal with rising levels of inequality. Some families cannot afford decent housing, said the Econsult report. “Too many people are dependent upon government for their monthly incomes, mostly through social safety net schemes,” said the two economists.