- The stagnant nature of non-mining exports does not bode well and is likely to lead to a balance of payments crisis
With mining exports, especially diamonds, still accounting for the bulk of exports over time, Botswana’s external sector has hardly diversified, a report by the United Nations report on Botswana shows.
The external sector is the portion of a country`s economy that interacts with the economies of other countries. In the goods market, the external sector involves exports and imports. In the financial market, it involves capital flows.
According to the UN Botswana report named “Botswana: Common Country Analysis (CCA) 2020,” the country’s non-mining exports (with the exception of tourism) have shown little promise of diversification.
“The composition of exports has remained stubbornly similar over the longer term with diamonds taking the lion’s share,” reads the report. “As some other researchers have noted, the stagnant nature of non-mining exports does not bode well and is likely to lead to a balance of payments crisis, especially under the likely scenario in which diamond revenues begin to decline.
“Infact, the COVID-19 pandemic’s impact on the diamond market has clearly demonstrated this scenario, as dwindling diamond demand has led to a sizeable trade deficit for Botswana.”
The findings of the report come echo a recent special bulletin on external demand published by the Bank of Botswana (BoB) that also noted that minerals have accounted for an average of 90.8 percent of Botswana’s total exports over the past 10 years.
The BoB bulletin stated that while minerals accounted for 90.8 percent of exports in the past decade, diamond exports constituted 92.8 percent of the mineral exports. “This is indicative of slow progress in the diversification of exports,” read the report BoB bulletin.
“Revenue from mineral exports also accounted for the largest proportion of total government revenue averaging 31.6 percent from 2011 to 2020 which, however, declined to 15.8 percent in 2020.”
Even so, the UN Botswana CCA report states that Botswana is one of few countries in sub-Saharan Africa that has truly benefited from its mineral wealth. It notes that revenues from diamond mines, combined with sound economic policies, have helped build infrastructure and kept the economy stable.
“But with high unemployment and limited export diversification, the mineral-dependent and public sector-led development model is showing its limits,” the report warns.