November 17, 2017

Diamond slump impedes Botswana

Tough times call for tough measures, says an old saying. And the Botswana Government has to adopt tough measures to manage the impact of low diamond revenue on its economy.

The Botswana government was not expecting the country’s double digit economic growth trail, which was riding on the back of the 1990s diamond export boom, to come to a halt at some point, but not in the manner in which it has. Now, with the diamonds export revenue at US$ 173.4 million (a 63% drop from September last year, according to the country’s Central Bank) and prospect of a deficit fiscal year, the country’s leader, Ian Khama, has had to intervene.

On 13 October, in a speech aired on Botswana national television, Khama announced that the government would utilise funds from the country’s financial reserves of P88.1bn (about US$8bn) to stimulate a sluggish economy. “We have to be bold and take bold decisions. We will be prudent in using our funds,” he declared.

The funds would be diverted towards fast-tracking the provision of services to 37,000 plots of land and build new houses, classrooms and roads, Khama said.

Botswana might be partly responsible for her predicament. For years the country has had put all  figurative eggs in one basket by solely depending on the fortunes of its diamond exports, whose demand has been affected by an economic recession in recent years. Low demand of jewelry from China, which has caused prices to plummet to record low levels, has worsened matters.

As ore-bearing material can only be found deeper, it is becoming costly to sustain diamond mining and alternative revenue streams have to be sought.

The country’s efforts to diversify revenue from diamonds have not been as successful as initially anticipated. Investors have expressed concern about legislation barriers, which stifle growth of their businesses.  One of them, the CEO of Choppies Group, Ram Ottapathu, a fast growing Botswana domiciled, JSE listed company, which runs chain grocery stores, lamented about the impact of the country’s government policies on investment growth in an interview with The Sunday Times, few weeks ago. He said this was the reason why the company had embarked on regional expansion.

The current situation may have seemed farfetched in the 1990s, when the country’s economy registered double digit growth, at some point earning the moniker of one of the “world’s fastest’ growing economy.

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