BCL closure a lesson for Botswana

By Mpho Tebele

GABORONE-AS Botswana reels from the liquidation of its oldest copper and nickel mine, economists and political commentators have observed that the lesson that can be learnt is that there is need to speed up economic diversification efforts.

Reports indicate that despite a series of supportive policies over the years, economic diversification drive remains sluggish for Botswana. The economy remains heavily dependent on diamonds, while the private sector, considered pivotal in the strategy for diversification, continues to be shallow and narrow.

Garry Juma and Moemedi Mosele, economists at one of the local brokers Motswedi Securities, have said there are many lessons to be derived from the placing of BCL mine under provisional liquidation.

“Once again this has shown the need to speed up the diversification of the country’s economy away from the mining sector,” they stated in a joint statement.

They added that: “Although there has been some movements in this regard, as shown by the growth of the non-mining sector over the years and the decline of the mining sector contribution to the economy from levels around 31 percent of GDP in 2004 to levels around 13 percent of GDP as at December 31, 2015.

“What we can agree is that the speed of the diversification process is not moving at a pace that we want. The pace has been slow.”

Andrew Motsamai, of the Botswana Public Service Employees Union (BOPEU), agreed that the closure of mines and loss of jobs has exposed Botswana’s failure to diversify the economy away from minerals.

“What we should bear in mind, and is worrying at the same time, is that a mineral-dependent economy is an economy headed for a dead end,” said Motsamai.

He said the nation knew that the copper and nickel deposits at BCL mine would get depleted but the leadership of the country did nothing. Motsamai said the problems at BCL are only the tip of the iceberg because mineral deposits across the country’s mines will one day get depleted.

“As some observers have noted before, the fact of the matter is that mineral deposits are not here forever. As a country, we must prepare for the depletion of mineral resources and if this happens, we will have ourselves to blame because we are failing to diversify the economy,” he said.

According to Motsamai, even the Jwaneng diamond mine in southern Botswana, which is one of the largest diamond mines in the world by value, is headed for what he called “a dead end”.

“Currently, the Jwaneng diamond mine is pumping billions of Pula into the government coffers but there are already fears that the mine is likely to be no more in 20 years,” said Motsamai.

Former Bank of Botswana Governor and economist at Econsult Keith Jeffries said the closure of BCL is one of the most significant economic events to have taken place in Botswana in recent years.

He noted that this has some parallels with the diamond market collapse at the time of the global financial crisis in 2008-10, but its impact may be longer lasting, in that BCL may never recover, at least not in its present form.

On how the closure of BCL is likely to affect the economy, Jeffries revealed that in the first half of 2016, copper-nickel mining accounted for 2.4 percent of Botswana’s total economic output (GDP).

“The BCL closure will reduce GDP by this amount. If the mine remains closed, over a full year it would reduce GDP growth from an estimated 3.5-4 percent to 1.0-1.5 percent in terms of the direct impact, and perhaps to zero once indirect impacts are taken into account. This would be a one-off impact and would not necessarily reduce future growth,” said Jeffries.

In the first half of 2016, exports of copper-nickel amounted to P2.03 billion, or 4.5 percent of total goods exports.

Jeffries said while copper-nickel used to be Botswana’s second largest export, after diamonds, this is no longer the case as it has been substantially overtaken by tourism.

He said although the loss of copper-nickel export earnings would harm the balance of payments, the impact can be accommodated given that in the first half of 2016 there was a total balance of trade surplus of P11.7 billion.

Jeffries said reduced copper–nickel exports would also be offset to some extend by reduced imports, particularly of electricity.

Recently, the Finance Minister Kenneth Matambo told Parliament that “Without doubt, the liquidation of the BCL Group of companies will have economic and social implications, especially on employment.”

He acknowledged that Botswana needs alternative means of generating income for the government as the current main national is faced with challenges.

“The domestic economy is still highly dependent on minerals and customs and excise revenues, while the overall economy remains relatively undiversified. We need to intense government revenues. We need to do that with the private sector based economic activities, totally independent from mineral revenue,” said Matambo.

Reports indicate that for the past two years, Botswana‘s mining industry has been going through a rough patch as more than 10,000 jobs were lost following the closure of African Copper mine and BOSETU mine.

Following the closure of BCL recently fresh reports have also emerged that Australian gem miner Kimberley Diamonds has halted work and flagged retrenchments at Lerala diamond mine in Central Botswana as it looks to cut costs while it processes excess ore stockpiles.

November 2016
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