Botswana has been - for a long time - too reliant on diamonds as its major source of government revenue.
Diamonds account for 80 percent of Botswana’s exports and 30 percent of the country’s gross domestic product (GDP).
A lesson was learnt in 2008 when the world’s economy made a complete volte-face resulting in a slump of global diamond prices by about 60 percent.
Some of Botswana's diamond mines were closed for the first time, resulting in lower export receipts and revenues for the government.
The country’s budget deficit blew up to 15 percent of GDP, a move that forced the government to seek an emergency $1.5 billion loan from the African Development Bank to sustain its operations.
Quagmire
Gaborone was aware that diamonds would deplete one day leaving the country in a deep financial quagmire if no alternative source of revenue were found.
“Botswana’s dependency is on a single commodity, diamonds. This puts the country at risk because eventually the diamond deposits will be depleted…,” said Minerals, Energy and Water Resources minister, Onkokame Mokaila in a speech read on his behalf at the recent Botswana Resource Sector Conference in Gaborone by the geology director Tiyapo Ngwisanyi
He told the conference that Botswana should therefore urgently diversify its revenue base.
Mokaila said his country viewed coal as a strategic mineral as it offered the best option to diversify the economy if timely actions are taken by the government and the private sector.
Botswana’s coal reserves were estimated at 212 billion tonnes.
Much of Botswana’s coal was close to the surface and suitable for open pit mining.
The country had the capacity and potential to produce up to 90 million tonnes of seaborne thermal coal per annum for export markets and its main export markets would be Asia, particularly India and China.
However, direct export of coal had not been considered economically feasible until recently due to Botswana’s infrastructure, being land locked and with insufficient rail network.
The conference heard that Botswana had already started exporting its coal via South Africa.
Coal, yes but…
E Consult Botswana’s Keith Jefferies said while coal would certainly be the country’s leading source of government revenue after the decline of diamond revenue, he doubts that it would surpass the levels reached by gems.
He told the conference that coal was less profitable to mine than diamonds.
Jefferies also said that tax rates were lower on coal compared to diamonds, which shrinks government’s revenue.
Meanwhile, there are industry analysts who are questioning the accuracy of Botswana’s coal reserves.
They think that the 212 billion tonnes often cited by government officials was an exaggeration but this attracted the anger of Gaborone.
“I am aware of the disturbing reports made at one of the conferences that Botswana may not have the coal [reserves] that we report about. I would like to assure you that based on publicly available data Botswana has an estimated coal resource of 212 billion tonnes,” said Mokaila.
Jefferies told the same conference last year that apart from coal new mining projects that can be considered when thinking of diversification included base metals (copper, nickel, cobalt, lead, zinc and silver) and uranium.
However, none of these minerals and metals can bring revenue to the levels of diamonds.
Diamond migration
Botswana was also of the idea that it can still expand its revenue base by adding value to its rough diamonds as well as become an international diamond centre.
The country’s vice president Ponatshego Kedikilwe who previously served as the Minerals, Energy and Water Resources minister admitted in an interview with Rough & Polished last year that reliance on diamonds as source of government revenue was not a good idea.
“This is why we are doing migration, I appreciate it is still part of a diamond base but we are also going into manufacturing, jewellery, cutting and polishing,” he said then.
“We want Botswana to be an international diamond centre so that we can use other deposits from elsewhere to be done here that is what beneficiation is all about. We cannot immediately abandon the diamond base but we can insulate the possible dangers of over reliance by going downstream.”
Forecasts show that Botswana still has 13 years to figure out what can substitute diamonds as the country’s top foreign currency earner.
Jefferis said Botswana mineral exports were projected to grow steadily till they plateau at around BWP65 billion ($8 billion) in 2021.
Diamonds, he said, would however drag down minerals from 2026.
This projection, however, bars any new findings of major diamond deposits in the country.
With suggestions made by Botswana Diamonds executive chairperson John Teeling for Gaborone to make use of Alrosa’s technology, which finds diamonds as below as 100 metres, there are prospects that the country can find new reserves that would open new financial vistas.
However, that should not make the Botswana government lose focus for posterity’s sake.
Diamonds would surely get depleted, whether in three or four decades to come.
What was needed now was for Botswana to avoid the dilemma that coal would likely bring as the country’s most trusted source of funding after diamonds bid adieu!
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
