Challenges weigh down Bots economy – Khama

> Mpho Tebele

Gaborone – President Ian Khama has warned current economic challenges facing Botswana would be greater than what the nation experienced in 2008/09.

In his state of the nation address, President Khama said latest indicators suggested a decline in the demand for diamonds during the second half of the current financial year.

Referring to information at hand, Khama noted that economic growth slowed in 2014 when compared with 2013 due to decreased growth in both mining and non-mining sectors.

Information from Statistics Botswana showed that the economy expanded by 4.4 percent in 2014, down from 9.3 percent recorded the previous year.

The mining sector registered a growth of 4.5 percent in 2014, down from the exceptional 23.9 percent registered in 2013, as a result of a general decline of commodity prices including weakened demand for diamonds.

The non-mining sector also registered a lower growth, at 4.4 percent in 2014 as compared to 6.8 percent in 2013, with the water and electricity shortages being the main difficulties.

And the latest International Monetary Fund (IMF) World Economic Outlook report projected a modest global growth rate of 3.1 per cent for this year.

“Due to the steeper than originally projected slowdown in mineral revenue, our expanded domestic growth has also been adjusted downwards to 2.6 percent this year,” Khama said.

But the President was pleased to note that this year, the country’s domestic inflation rate continued to fall within the Bank of Botswana’s target of 3–6 percent, with monthly inflation ranging from 2.8 percent and 3.6 percent during the first half of the year.

“This trend is expected to continue in the coming months, due in part to lower fuel prices. For its part, the Bank of Botswana has pursued an accommodative monetary policy, lowering its bank rate to 6 percent thus reducing the cost of borrowing.

“In January 2015, the weights of the currencies in the Pula basket were revised to 50 percent of South African Rand Special Drawing Rights (SDR) currencies based on inflation differentials, while a zero annual rate of crawl of the Pula exchange rate was implemented for the year,” said Khama.

He said the exchange rate between the Pula and the SDR currencies has had a positive impact on the country’s foreign exchange reserves, which as of August 2015 were estimated at P87.8 billion, a 16.3 percent increase from P75.5 billion in August 2014.

While the minerals sector remains a principal source of revenue and primary sector for economic growth and diversification, the President said, it is currently challenged by depressed markets.

“As of the end of August 2015 the benchmark global price of 1-carat and 0.30-carat diamonds had declined by 12.9 percent and 29 percent respectively over the past 12 months, due largely to weakened Asian demand,” he said.

While demand is projected to recover, Khama noted that the latest downturn underscores the fact that the era when “we could almost always rely on steady demand and rising prices for our gems has given way to greater uncertainty”.

He said due to low prices of diamond, the anticipated reopening of Lerala and BK11 mines that have been under care and maintenance since 2012, has thus been delayed.

Ghaghoo Mine, however, started operations during the last quarter of 2014, while Karowe Mine continues to enjoy success.

According to Khama, the recent closures of two factories in Botswana, albeit offset by the opening of two others, as well as bankruptcies in some major diamond trading centres, further point to the fragile and fluid nature of the industry.

“Despite the challenges, the sale of rough diamonds through regular sights, tenders and auctions have been taking place in Botswana as scheduled up to the end of September 2015,” he said.

In addition to Diamond Trading Company (DTC) and Okavango Diamonds, Gem Diamond has also started local sales.

“The Diamond Cutting and Precious and Semi-Precious Stones Amendment Bills, aimed at adapting to current downstream industry developments for improving business conditions and enabling growth, is being finalised,” said Khama.

He said the amendment is expected to facilitate the policy on further beneficiation and citizen empowerment among other key issues.

The drafting of the legislation, which is intended to reinforce beneficiation efforts, is also in the process, he said.

“We have further decided to establish Minerals Development Company Botswana to manage government investments in mining and diamond valuation services,” Khama said.

He said the government introduced the Economic Stimulus Programme (ESP) as a holistic action plan for achieving goals of stimulating economic growth, accelerated job creation and promotion of economic diversification.

President Khama said the money for the programme would be drawn from the country’s foreign reserves.

On other topical issues, President Khama said as the Chairperson of Southern African Development Community (SADC) his focus was to give meaning to the region’s  commitments to industrialization and regional integration with a view to achieve sustainable development.

“In this respect I will be guided by the Revised Regional Indicative Strategic Plan (2015 – 2020), which was approved at the SADC Extra-ordinary Summit held in Harare on 29th April 2015.”

Khama said it may be noted that notwithstanding some challenges in three countries, the political climate in the SADC region is stable.

“We shall also continue to monitor developments in other parts of our continent, and make our modest contribution where we can. This is informed by our strongly held belief that for Africa to achieve economic development, it needs peace and security, as well as the consolidation of good governance,” said Khama.

November 2015
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