Saturday, October 31, 2020

‘Time for Botswana to prepare for life after diamonds’ – economists

Economic experts have reiterated the need for government to brace itself for tough times ahead, with diamond resources expected to be depleted by 2026, inducing a sharp fall in fiscal revenue.

So far, no other resource has been recognized that can match diamond revenue contribution.

The diamond industry has been a major contributor to Botswana’s growth, with diamonds constituting nearly 80 percent of the sector’s total exports.

Speaking at a resource sector conference on Tuesday, economist Keith Jefferis said this is the time for Botswana to prepare for life after diamonds.

“We should be entering a fairly rosy period between 2017-2026 assuming that Debswana increases production levels to 21-22 million carats a year; after Cut 8, there is nothing; there will be a sharp drop,” said Jefferis.

From 2016, diamond production is expected to decrease as diamond reserves are drawn down and surface mines are closed. Higher extraction costs and decreased output are expected to result in lower profits; in fact, it is not clear that underground mining in Botswana will be economically feasible or profitable.

He said mineral exports are projected to grow steadily till they plateau at around P65 billion in 2021 while diamonds are expected to drag down minerals from 2026. Jefferis said coal will become increasingly important as diamond exports decline but coal is unlikely to replace diamond exports, especially with uncertainties, like the export rail line and resources, like water, surrounding it.
“Diamonds are far more lucrative from a fiscal perspective than other minerals,” he said.

Botswana’s exports are not diversified. 80 percent of the country’s exports are diamonds hence there is a huge fiscal dependency on diamond revenue.

He said there is need for huge capital investments and supporting infrastructure like rail and water if the industry is to take off at a large scale.

“Even if the life span of diamonds is extended, the revenue margins will be smaller, government fiscal take will shrink and mining contribution will never be a major contributor,” said Jefferis.
He added that coal, along with other activities, can make a significant contribution to economic diversification.

“There is need to nurture labour intensive sectors,” said Jefferis.

In the same vein, Professor Roman Grynberg, a research fellow with Botswana Institute for Development Policy Analysis (BIDPA), said government has to make up its mind on the different propositions of the railway line. Grynberg said Botswana coal has great potential in the next 30-40 years but after that it won’t be viable.

“There is an emergence of other cheaper forms of energy than coal, hence action has to be taken now to realize benefits of coal resource,” said Grynberg.

He added that the situation is such that no rail road, no coal exploration, no coal exploration no railroad.

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