Botswana’s diamond revenue plummets

BOTSWANA, where diamonds made up 65 per cent of exports last year, has sold few gems since November, according to the government. From boasting one of Africa’s largest fiscal surpluses, Gaborone now is racking up record debt as revenue plummets.

Debswana Diamond, the joint venture between Botswana’s government and De Beers, has closed four mines whose production equalled almost a third of the country’s gross domestic product (GDP).
While three are set to reopen next week, they will not earn much – the government expects diamond sales to fall by half and prices to drop by 20 per cent this year.
Botswana is not without resources to fight the global financial crisis. The country has record foreign currency reserves of about US$10 billion (N$91,6 billion), while years of fiscal surplus mean local banks and foreign lenders will be able to finance deficit spending this year and next.
The open-pit Jwaneng mine in south central Botswana is the richest in the world, producing 15,6 million carats in 2005. Debswana says it will reopen it and two others on Wednesday.
A fourth mine, Damtshaa, and the Orapa number two processing plant will remain closed.
The reopening will not prevent Botswana’s economy from contracting 5,2 percent in the year to June and 6,2 percent in the 12 months after that, according to Moody’s Investors Service.
That follows five years with average growth of 4.4 percent.
Hundreds of contractors at the mines are worse off than Garetshele and about 5 000 other miners who continue to be paid – they have not received any money since February.
Many of them have gone back to their rural homes, while others are living with less.
Finance Minister Baledzi Gaolathe says the economy is facing its biggest test since the country gained independence from Britain in 1966.
Diamonds helped transform Botswana from one of the poorest countries in the world, with per capita income of US$70 at independence, to middle-income status.
Per capita income was US$5 680 in 2007, the highest among non-oil exporting countries in Africa.
Gaolathe added: ‘This is a major setback for our economy. We are a major exporting country, and those international markets are not buying our products.’
Botswana had a fiscal surplus of 5,4 per cent of GDP in the fiscal year to March 2007.
Now the government estimates a shortfall of 10 per cent, the biggest on record, in the year that began on April 1, according to Gaolathe.
The country’s Aa3 credit rating, the highest in Africa, was under threat if the government failed to rein in expenditures, Moody’s said on March 19.
Yet the government has no plans to cut social spending in a country where 30 per cent of people survive on less than a US$1 a day, even though the governor of the central bank, Linah Mohohlo, said last month that some reductions might be needed.
With the global recession slashing demand for most commodities, Botswana’s tentative steps to diversify away from diamonds by encouraging production of coal, copper and nickel have also come to a halt.
Norilsk Nickel, the Russian mining company that owns Tati Nickel in Botswana, said in February that it might review the company’s African units because of ‘virtually zero profitability’.
The government would turn to multilateral lenders such as the African Development Bank for low interest loans, accelerate its five billion pula bond programme and seek funds from China to help finance the 13,5 billion pula deficit this year, Gaolathe said.
Diamond prices dropped 16 per cent in the five months to March, according to an index published by Polished Prices.com.
Debswana does not report diamond sales, only production.
-Bloomberg