Why diamond-rich Botswana must diversify its economy

As a duck is to water, the word “diamond” is synonymous with this southern African nation.

Since the beginning of the 20th century, Botswana’s diamonds have topped the world’s ornament market bringing huge revenues to the government and transforming the country into an upper middle income economy.

But as with any reliance lies the risk of catastrophe should even a minor disturbance ripple the industry. This time round, President Mokgweetsi Masisi seems to have seen the writing on the wall as he called on the country to diversify into other commodities such as gold and base metals.

The remarks came after an abysmal year for the diamond market hurt government revenues.

Botswana’s economy dropped by 24% in the second quarter of 2020, as coronavirus enforced lockdowns at home and across the world slowed down domestic economic activity and limited diamond sales.

In October, Diamond mining giant Debswana closed a diamond mine in Botswana as the firm struggled to make profit from mining lower value diamonds due to weak demand and trading disruptions caused by the coronavirus pandemic.

Debswana Mining Company is equally owned by De Beers and the Botswana government, and is among the largest diamond miners in the world. The Damtshaa mine is among four mines operated by the firm, and has an average annual output of 500,000 carats, 2.5% of Debswana’s total production.

The southern African country relies on diamond mining – the biggest revenue earner, and the sector accounts for 20% of total gross domestic product (GDP).

The drop in revenues forced the government to approach the World Bank in October for budgetary support. Finance Minister Thapelo Matsheka said, “We have set up a team and the World Bank has also set up a team to assist us.”

“No quantum is in place yet but ideally if we can get about 50% of the expected 13.6 billion pula ($1.19 billion) deficit for the remainder of the development plan which ends in 2023, that should give us a smoother landing into the next development plan.”

Guido Rurangwa, who serves as the World Bank’s Botswana representative said talks on the request for the budgetary support were ongoing.

“The government and the World Bank are currently discussing details of the support, including the amount.”

While pandemics occur once in a lifetime, shocks and disturbances are a common occurrence to any economy that is as mineral reliant as Botswana’s. Just like how Nigeria boomed in the 1970s and suffered in the 1980s due to the rise and fall in global crude oil prices respectively, experts forecast the same in the diamond industry.

“2020 showed us what can happen if we go down this path relying on one export commodity alone,” Theba Masela, an economist in Gaborone said.

The COVID-19 pandemic upended the global diamond industry, and Botswana must curb its overdependence on the precious stones, President Masisi told the Investing in African Mining Indaba.

Botswana aims to develop other minerals, including coal, which the country has an estimated 212 billion tonnes of. Masisi said the government is working with neighbouring countries to develop infrastructure to export coal.

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