Sunday, October 25, 2020

Expert caution about risk of economic downturn

The global economic slowdown in the last year and the beginning of this year has sparked fears that the world could be headed for another downturn, as indicated by Currency Economist at Rand Merchant Bank, John Cairns’s opinion that “the risk of a renewed downturn is not insignificant”. 

Cairns was speaking at a budget review session hosted by First National Bank Botswana (FNBB), which sought to seek views from industry captains with regards to the 2016/17 budget speech. Cairns said the sharp decline in commodity prices resulted in Botswana missing out on an opportunity in the coal to power project. Through the project, Botswana would use its massive coal reserves to generate electricity, as domestic coal was identified as the least cost option in electricity generation in comparison to solar power and diesel units. 

Given the relatively short construction periods for small and standard sized projects, there is potential for investment in coal-to-power projects to replace electricity imports from Eskom and ensure domestic energy power security. This project was identified as an opportunity to use the vast coal resources to generate power as a way of abating the power supply shortage Botswana is currently grappling with. Cairns said the project was at first “ambitious” but is now not feasible because it will fail to generate significant revenue. Based on Cairns’ opinion, Botswana’s vast coal resources will remain unused for now.

However, it was not all doom and gloom as Cairns said diamonds held up far better than other commodities, which gives Botswana a glimmer of hope in terms of economic recovery.

The mining sector, largely dominated by production, contributes about 30 percent to Botswana’s revenue base. The economic review based on the last quarter of 2015 compiled by local economic think tank E-consult also says there are signs that the global diamond market is beginning to stabilize, and the measures undertaken by De Beers and others to reduce supply and prices of rough diamonds are beginning to take effect. According to Cairns, the events that clouded 2015 resulted in slower rates of growth in Africa as a whole, which as a result challenges the ‘Africa Rising’ narration. 

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