Botswana’s economy plunged into its worst recessionary period in more than 40 years Friday, as the diamond sector announced indefinite closure of mines, massive retrenchment in the cutting and polishing industry and the yet to be announced indefinite shut-down of DTC Botswana due to the global credit crunch ahead of the 2008/ 2009 fiscal spending to be tabled in parliament on Monday.
The announcement of the further cost containing measurers were preceded by divergent views from analysts and captains of industry who were calling for stimulus packages to save the economy of massive retrenchments that will also coincide with an electioneering year.
“The latest market outlook for 2009 points to a more challenging year than had previously been anticipated. Market indications are that the situation could get worse before it gets better.
Consequently, Debswana has to take action and find innovative ways of conserving cash in view of the reduced sales values,” a statement released by the company following a board meeting held on Thursday said.
“The board also directed management to submit an application to the Minister of Minerals, Energy and Water Affairs for the suspension of production at Damtshaa mine and Orapa number 2 plant for 2009,” the statement added.
The recession, which has taken an L ÔÇôshape —- meaning that it will be deeper and far reaching with a slow recovery of at least five yearsÔÇö– will have a big dent on the economy of Botswana. Apart from the massive lay offs and shut-downs, the country is also grappling with the financing of anti- retroviral drugs (ARV) as it is burning more cash than it is generating. That alone will put close to 250, 000 lives at risk out of a population of 1.7 millionÔÇödiscounting the Zimbabweans living in the country either legally or illegally.
The problem is that United States of America, which accounts for 50 percent of the world’s diamond jewelry, and Japan that accounts 19 percent of consumable jewelry diamonds poses a bigger problem to the whole industry.
Analysts warned that the Monday budget speech will be more of a formality while others were urging for President Ian Khama to make a second national address before the budget in an attempt to give direction on how government intends to handle the situation.
The mineral sector contributes close to 39 percent of the Gross Domestic Products (GDP) and over 70 percent of exports while standing pretty at over 55 percent of government revenue.
So far, African Copper, BCL, Debswana, Tati Nickel and Diamonex have been hit hard by the global economic crisis leaving behind a trail of retrenched employees.
In one of its most critical statements to date, the Botswana Confederation of Commerce and Industry (BOCCIM) urged government to put contingency measures and make adjustments that will see the country through the current crisis.
“Government is expected to maintain its focus on continued growth for Vision 2016 and we expect the tone of the budget to reflect this. The current difficult economic situation should not be considered as a hindrance, rather an opportunity for innovative solutions, constructive and achievable short, medium and long term goals.
“Government is expected to continue to strengthen institutions through best practices, discourage corruption and focus on capacity building,” BICCIM said in its statement released Friday.
Although BOCCIM stated that government spending needs to be contained under the current crisis, it urged for stimulus packages for ailing companies while at the same time is clamouring for the shelving of some of the National Development Plan projectsÔÇöthat do not create a concrete foundation for the economy in the future. It also called on government to roll up its sleeves and ensure that the much exulted diversification does take place but the challenge in the capacity at both political leadership and management or implementation.
“We are a nation heavily dependent on commodities, from sparkling diamonds to copper and nickel; they represent 69 percent of our exports, 40 percent of government revenue.
“Mining and allied industries account to 39 percent of GDP in 2008. Thus the minister must recognize the special importance of the mining sector. We anticipate saving jobs, not just in the mining sector, as a high priority in the current budget,” Standard Chartered Bank said in its report.
As comments come through from different sources, by Friday afternoon during the evening the economic picture of the country going forward had totally changed leaving most of economists wondering about the future.
Although Standard Chartered Bank of Botswana assumes that government will scale-down its expenditure it envisages that the uncompleted projects will have to be accommodated such as the Morupule project Power Station expansion and the second university.
“The question that arises to ones mind is how these will be financed. The government has P 20 billion of borrowing it is currently paying for, but has never utilized, in the name pf Bank of Botswana Certificates. Borrowing pulas for local consumption is easier, faster and cleaner and eases pressure off the reserve, Standard Chartered Bank of Botswana said.