Botswana: How to Dig an Economy Out of a Hole

By Ruaraidh Maciver
Middle East/Africa Editor, History Undergraduate Student

In the aftermath of the 2008 recession, Botswana’s economy suffered perhaps more than any other African nation, with its industrial sector alone shrinking by a staggering 30%. However, a long time has passed since this critical moment in Botswana’s past, and the economic doldrums of almost a decade ago seem all but a memory, with the country coming into 2016 with a budget surplus for the fourth consecutive year.

This new found stability is due to the economic plan of President Ian Khama and the Botswana Democratic Party (BDP). President Khama came to power just as the recession hit in 2008, and since then has focused upon ensuring the continued growth of Botswana’s GDP. This has been ensured through legislative measures designed to encourage the expansion of the mining industry throughout the country. With mining accounting for 24.5% of the country’s economy in 2013, and unmounted diamonds making up well over half of their exports for the same year, it seems like it was a sensible solution.

2015 also happened to be an incredibly lucrative year for the diamond industry within Botswana. Lucara Diamond managed to sell a total of two-hundred and sixteen gems for more than $250,000 each, with five of these precious stones alone fetching $5 million each.

Russian owned company ALROSA is also seeing extensive expansion, as they are set to change their open-pit flagship mine, Udachnaya, to underground mining. This transition alone is predicted to set a yield of 5 million carats by 2019, which, if correct, would make it one of largest diamond producing mines in the world. This forms a part of ALROSA’s wider production plan to reach an annual output goal of 40 million carats a year. The wider mining area, of which Udachnaya is a part of, is also registering a 30% production increase to 2.8 million carats during the first 6 months of 2015 alone.

For a while, it seemed as though this strategy was working. However, we can already begin to see cracks in the mining industry’s façade.

Despite the governmental reduction in taxation and state ownership requirements for diamond mines in order to incentivise growth, Debswana (the world’s largest diamond producer by sales revenue) has also reduced its target from 23 million carats to 20 million. Their total growth forecast for the company has also shrunk from 4.9% to 2.6%.

This experience is not unique to Debswana. De Beers is expecting to produce as little as 26 million carats this year, down from the 29 million target for 2015, which itself had to be reduced twice throughout last year, initially starting at 34 million carats. Okavango Diamond Company also reported a drop of more than 20% in the first half of 2015 alone.

Much of this decline is directly due to the stagnation of the Chinese economy, and a lack of demand for diamond imports. Total trade between Africa and China in 2014 stood at over $200bn, overshadowing that between European continent and the USA ($137bn and $85bn respectively). The level of decline can be seen by the fact that in the first half of 2015 alone, total Chinese investment in Africa has plunged by 84%. In 2015 Botswana’s own rough diamond exports dropped by over 16%, and export of polished stones by 32.2%, with the total export of diamonds dropping to $2.4bn from $3.9bn in 2014. With China being the second largest importers of diamonds in the world, this has had a serious impact upon Botswana.

These trade figures present a bleak reality to Ian Khama’s government, the lowest they have been since the President came to power. Despite their ominous appearance however, this has not been unexpected, with the BDP preparing for this eventuality for some time. This focus on the maximisation of diamond output has been a tool to allow President Khama to diversify his government’s revenue stream.

In most instances this has been done by trying to expand already existing markets which the country already has the infrastructure to support. This can be seen by the attempt by the government to increase beef exports to Europe. This particular market was crippled when the European Union banned beef from Botswana in 2014, as the EU used to consume 75% of the country’s beef production. However, this ban has been lifted recently, allowing beef exports to now account for over 3% of the country’s GDP. Recently however this particular market has come under threat again from the same problems which caused the ban initially, as Botswana’s cattle has come under another measles outbreak. This particular outbreak is so severe that the Botswana Meat Commission has said that this may result in the total collapse of the beef industry. This particular case highlights rather appropriately the vulnerability of some of Botswana’s existing industries. However, this disaster has the potential to be avoided if the situation is reacted to quickly enough and sufficient funding is targeted to deal with the problem.

An example of one of Botswana’s less risky ventures into a new commercial enterprise can be seen in the proposed opening of the nations’ first uranium mine. The Australian based company A-Cap has applied for a mining licence for uranium, with the total proposed project aimed to cost $351m. Although a seemingly large initial payment, the plan is expected to produce huge returns. The company’s flagship mine, Letlhakane, is believed to sit atop one of the largest uranium deposits in Africa with an estimated 261 million pounds of uranium under its foundations. The entire country of Botswana is estimated to hold over 1 billion tonnes of uranium, which has the very real possibility to open up a wholly new industry. If these estimates prove to be even remotely accurate, then this has the potential to open up an exceptionally lucrative export resource for the nation.

The question remains, has this diversification come quickly enough? Ultimately, it is something which will only be answered to us definitively with time.

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Feature image courtesy of Ollivier Girard for Center for International Forestry Research (CIFOR) via Flickr.

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