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Mining Outlook Weighing on Botswana Growth

Aug 16, 2016 8:04 AM   By Rapaport News
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RAPAPORT... Botswana cannot rely on diamonds for economic growth even if production remains stable because mining is getting more expensive and the population is increasing, economists warned.

“It would be a mistake to assume that ‘business as usual’ is a viable approach to the future growth of the Botswana economy,” wrote Keith Jefferis, managing director, and Sethunya Sejoe, an economist at Gaborone-based consultancy firm Econsult.

“Even if diamond production continues at current levels for many years, this represents an output plateau, which by definition entails zero growth,” the authors added in the report.

Botswana’s diamond output slumped 18 percent last year, with De Beers deciding to scale back its operations in the country, reducing production at two of its mines and putting a third on care and maintenance. About 79 percent of De Beers output in the first half came from Debswana, its joint venture in the country.

Mines are also getting deeper and more difficult to exploit, increasing the cost of production and cutting profits, the report said. In addition, “the population is growing, so constant diamond production actually entails declining production and income per capita.”

“Eating diamonds” will not provide a basis for Botswana to move to high-income status and may not even enable the country to maintain current income levels, the authors conclude.

The decline in diamond production has already weighed on the nation’s economic growth, according to data from the Bank of Botswana. Real gross domestic product is estimated to have contracted 0.2 percent in the 12 months to March 2016, compared with 3.2 percent growth a year ago. This downward trend reflected a drop of 21.4 percent in mining production, the Monetary Policy Committee said in a statement following a meeting August 12.

However, the value of rough diamond exports jumped 16 percent to $979.7 million in the second quarter, reflecting stronger sales at De Beers than a year ago. Outbound shipments slipped 1.8 percent to $1.8 billion in the first half though, despite the mining company’s increased revenue.
Tags: Bank of Botswana, Botswana, De Beers, eConsult, gaborone, gdp, gross domestic product, Keith Jefferis, Monetary Policy Committee, Rapaport News
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