Botswana – a tiny nation in southern African as some western media would label, will once again have to look to diamonds – its all-time gold boy to keep a balance to surplus trade.
Latest data from the national statistics agency – Statistics Botswana (SB) shows that the country recorded its first monthly trade surplus since January, a sign that that the improvement in the diamond industry remains the only solution in lifting the country’s waning fortunes.
According to the SB’s Trade and Merchandise report for July released recently, exports increased by 6.1 percent to P7.6 billion compared to June’s revised value of P7.1 billion.
As usual, the increase was on the back of improved trade in rough diamonds, with the country selling P6.9 billion in July, up by 6 percent from the previous month. Diamonds account for over 91 percent of Botswana’s total exports.
Imports in July declined slightly by 6.6 percent to P7.2 billion, down from June’s P7.7 billion. The decrease was attributed to a 26.1 percent reduction in importation of vehicles and transport equipment . Botswana imports diamonds from De Beers mines outside Botswana, where they are aggregated, valued and sold in sold in Gaborone to external markets.
The majority of goods bought outside Botswana in Botswana were led by diamonds which contributed 29.1 percent (P2.1 billion) to total imports. Fuel and Food, Beverages & Tobacco followed with contributions of 21.8 percent (P1.5 billion) and 11.6 percent (P838.4 million) respectively. Machinery and Electrical Equipment contributed 10.7 percent (P776.7 million).
With exports higher than imports, the monthly trade for July was a surplus of P373.2 million, better than the P568.7 deficit in June. The last time Botswana recorded a trade surplus was in January. The latest data from Statistics Botswana shows that Botswana has recorded a P5.4 billion trade deficit in the second quarter, a major reversal from the P863 million surplus in the first quarter.
Last year, Botswana registered a P25.9 billion trade deficit, the largest trade imbalance on record. The historic deficit extended the P14.2 billion shortfall recoded in 2019, the third highest since 2012’s trade shortfall of P16.3 billion.
The country’s continued growing deficits have reversed gains made in the five-year period of consecutive trade balance surpluses that started in 2014, though the surpluses were growing smaller in size.
Given the numerous trade deficits, the Balance of Payments (BoP) – made up of the current, capital, and financial accounts – have deteriorated at the fastest pace in the last five years, mostly due to the underperformance of the diamond sector. A surplus overall BoP generally increases a nation’s net foreign assets, and vice versa for a deficit. Since 2015, the overall BoP has recorded consecutive deficits from P4.1 billion in 2015 to P20.1 billion in 2020.
The steep decline in diamond trade resulted in a larger current account deficit of P18.3 billion last year, from a deficit of P12.6 billion in 2019. This was a reversal of surpluses in current account, which on average, recorded overflow of P1.9 billion from 2005 to 2019.
“The performance of the current account over the years, largely reflects the performance of the merchandise trade account, which is in turn influenced largely by diamond trade; therefore, lack of traction, with respect to diversification of exports and substitution of imports,” the central bank previously said.