The government decided to step up spending in the light of the global financial crisis that has affected the real economy as revenue from the mineral sector, especially diamonds, are expected to fall by 50 percent in the fiscal year 2009/10.
Delivering the national budget on Monday, Finance and development minister, Baledzi Gaolathe, called for belt tightening in a bid to see through the economy beyond the current financial crisis.
“The current global financial crisis has evolved into a widespread economic crisis, which has resulted in a sharp decline of private demand, especially in major industrial economies.
“This crisis continues to affect Botswana, mainly through lower mineral exports and hence reduction in government revenues. It is going to be crucial to find innovative ways of addressing our development needs within limited expected revenue. It is for this reason that a number of belt tightenings will be adopted for the 2009/10 financial year and beyond,” he said. Gaolathe said the government will pump in P 10.56 billion into the economy for the fiscal year 2009/10 that begins in April. The figure is an increase of P 2 billion from the 2008/9 fiscal year that was P 8.5 billion. The budget will be funded by drawing from the foreign exchange reserve and borrowing.
The money will go into government projects that are aimed at stimulating economic growth, reducing poverty and diversifying the economic base in a bid to create more job opportunities. That will include the building of dams, schools and expansion of power stations to ensure that the country is self-sufficient in terms of energy.
Botswana, whose economy relies heavily on diamonds, has accrued huge foreign exchange reserves to the tune of P 65 billion that represent 28 months’ import cover.
The diamond industry, which accounts for 33 percent of the Gross Domestic Products ÔÇô through mining only ÔÇô has been under severe stress since the global financial crisis sparked by sub prime mortgage lending started in the Unites States of AmericaÔÇöa country that consumes 50 percent of the world’s diamond jewelry.
“Diamond production for 2008 was 32.6 million carats compared with 33.8 million carats in 2007. However, total sales volume for 2008 is estimated at 28.9 million carats, which is 17 percent lower than in 2007.
“Diamond sales revenue is expected to decline by about 50 percent as prices are estimated to decrease by 15 percent while production is expected to reduce by 35 percent,” Gaolathe said.
The collapse in commodity prices has forced some of the junior miners, such as DiamonEx, to rush to the court clamouring for voluntary judicial administration while African Copper decided to mothball its operation at Mowana MineÔÇönear Dukwi.
Further, Debswana, which is a 50/50 joint venture between De Beers and Botswana government, has suspended operations at Damtshaa Mine and at the Number 2 Plant at Orapa Mine.
Orapa Mine is the world’s largest diamond mine. The move challenges Botswana’s ambitious plan of being one of the world’s diamond centers as it is aggressively rolling out plans for downstream activities that include cutting and polishing and aggregation of all De Beers production.
Under the plan, DTC Botswana, a new company that started operating last year, was scheduled to sell diamonds worth US 370 million during its first year of operation and moving to US 550 million in the second year. But last week, Minerals, Energy and Water Affairs Minister, Ponatshego Kedikilwe, said meeting the target would be a ‘big challenge”.
That will mean the aggregation, which was traditionally done in London, will relocate to Botswana in what De Beers called the largest “commercial migration from the developed world into Africa”.
