Saturday, September 26, 2020

Can Coal save Botswana’s beleaguered mining industry?

While Botswana’s past coal export ambitions have been a subject to major uncertainties which also rendered the effort difficult to justify, the door is not yet totally shut for the country’s ‘black diamond’ – as coal is sometimes referred to as. 

The country possesses substantial coal deposits of 212 billion tonnes, the majority of which are low grade. However, under favourable conditions, and until solar power becomes a feasible option for supplying baseload electricity, Botswana’s coal could be either exported or used for local regional electricity production and consumption. 

Already a local economic Think-tank – Econsult Botswana says the time has come for the diamond rich nation to diversify into Coal —away from the sparkling stones. 

‘The black diamonds, Econsult says, can be used to produce the Coal Bed Methane (CBM) electricity which is much more environmentally cleaner than the traditional coal fired electricity. CBM is a form of natural gas found in coal deposits.

According to the economic experts Sethunya Sejoe and Kitso Mokhurutshe, “Coal- If tapped into sooner, Botswana has an opportunity to produce electricity to meet the national demand, as well as export excess electricity to other regional countries. This would, in turn, diversify mineral exports and increase foreign currency earnings.”

Although the share of the mining sector in GDP has been gradually declining over the past 30 years, the sector remains important in the economy, says the duo.

 Mining particularly diamonds is the single most important sector for foreign currency earnings in Botswana and exports of diamonds accounted for about 90 percent of the country’s total exports in 2019. Mining is important for providing government revenues, which are used to finance fiscal expenditures for the provision of public services, development infrastructure and employment.

Ever since the Covid-19 attack, total international trade activity slowed down during the first quarter of 2020. Total imports were valued at P16.8 billion in Q1 2020, down from P19.2 billion in Q4 2019, representing a 12.5 percent fall in the value of imports. This was mainly driven by a 38.9 percent decline in the value of imported diamonds during the period. The value of total exports also declined, be it marginally, by 0.3 percent, down from P13.3 billion in Q4 2019, to P13.2 billion in Q1 2020. Non-mineral exports performed strongly in Q1 2020 when compared to Q4 2019, rising by 40.8 percent, whereas, mineral exports performed poorly, declining by 0.8 percent. The larger decline in the value of imports when compared to exports resulted in the trade deficit decreasing from P5.9 billion in Q4 2019 to P3.6 billion in Q1 2020.

Sejoe and Mokhurutshe suggest that, “The main impact of COVID-19 on the economy will be felt in the second quarter (April-June). GDP growth forecasts for this period will only be available at the end of September 2020.”

While imports also fell sharply in April – the main month of the lockdown – they rose in May. As a result, the country experienced a large trade deficit of over P4 billion in May 2020. The impact of this can be seen on the country’s foreign exchange reserves, which according to BoB fell from P68.9 billion at the end of April 2020 to P66.1 billion at the end of May. This has also affected government revenues, as little is being earned from the mining sector; as a result, the balance of the Government Investment Account at the BoB fell from P18.8 billion in April to P15.1 billion in May. Both of these developments illustrate the continued high level of dependence on diamonds and the extreme urgency of developing new sources of export earnings; hence the need to focus on competitiveness as per the advisory from the consultancy firm.

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