Wednesday, October 21, 2020

Coal cannot fully replace diamonds as source of revenue – Econsult

Botswana’s diamonds will continue dominating the foreseeable future, but will not provide the expected economic growth as they will make a diminishing fiscal contribution.

According to Econsult Botswana Managing Director Dr Keith Jefferis, government needs to focus on economically viable projects and good public infrastructure as coal alone cannot replace diamonds with respect to exports.

In his presentation at the recent annual resource sector conference, he said any failure by government to provide clear PPA terms would result in IPPs failing to materialise. He added that from an employment perspective, there is need to nurture labour intensive economic sectors.

Dr Jefferis stated that coal can’t fully replace diamonds as a source of govt revenues. He said coal is much less profitable than diamonds adding that the current “low price” environment for most minerals is a challenge as well as water constraints. He observed that groundwater abstraction rate is greater than replenishment rate as well as high costs of new supplies from Zambezi and Lesotho.

“Undiversified exports are a challenge as diamonds accounted for 69 percent of exports in 2015. Historically, mineral revenues have been more than a third of government revenues. There is high unemployment and insufficient new job creation,” he stated.

Dr Jefferis observed that GDP growth slowed down in 2015, recording negative growth (-0.3 percent) for the first time since the global financial crisis in 2008/09. He said swings in overall GDP growth tend to be driven by mining growth. He also spoke of mining declining from a high growth of 24.2 percent in 2013 to -19.7 percent in 2015 adding that mining growth is mainly driven by diamonds, followed by copper-nickel.

On the share of exports in 2015, he stated that minerals dominate exports by 75 percent adding that rough diamonds are the largest exports commodity by 63 percent. 

“Minerals are the largest contributor to government revenues, but share declining. It fell from 48 percent in 2006/07 to 35 percent in 2015/16. There is need to mobilise more revenues from domestic sources and the SACU revenue is expected to fall,” he stated.

Asked on how well Botswana spent its mineral revenues, he said the total mineral revenues were approximately P420 billion in 2012, adding that most of it has been invested in infrastructure and human capital.

“There is provision of largely free tertiary education but still there are problems with quality, productivity, work ethic,” he stated.  

He spoke of infrastructure such as roads, dams, hospitals and airports which he says have been badly managed due to over budgets and poor workmanship.

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