- Decline in Botswana’s GDP during April 2020 is estimated to be around 50%
The global diamond industry will take between 12 to 18 months to fully recover from COVID-19, economic experts have warned.
The diamond industry remains crucial to the country’s economic health even though its level contribution to GDP has been declining over the years.
According to former Bank of Botswana (BoB) Deputy Governor, Dr Keith Jefferis, after performing poorly in 2019, the diamond industry was showing signs of recovery in December 2019 and January 2020.
“Now, however, the global diamond industry has ground to almost a complete halt. Retail stores are currently closed in most countries, so few sales of diamond jewellery are taking place (there are some online sales),” revealed Dr Jefferis last week in his 1st quarter (q1) economic review. Dr. Jefferies is the Managing Director (MD) at an economic think tank, Econsult Botswana. Together with his team, Sethunya Sejoe and Kitso Mokhurutse, they hold the view that the diamond industry will take 12 to 18 months to recover.
Dr Jefferis and his team state that the travel restrictions which are meant to curb the spread of the COVID-19 are the bane of the diamond industry as it means that buyers cannot travel to physical sales events. “They include those held ten times a year in Botswana. There are excess levels of inventory at all levels of the diamond value chain – retailers, jewellery manufacturers, cutters and polish- ers, traders and mining companies.”
According to Econsult ,even if the retail sales of diamond were to start , it will take longer for the demand to ow through the value chain down to the level of diamond mining companies. There are also concerns that the impact of COVID-19 has been so traumatic that it will take time for spending on high-value luxuries to resume.
The think tanks are of the view that a resumption of mining operations by Debswana would help to limit the negative impact of COVID-19 on the country’s GDP which they estimate that it fell by 50 percent in April. “However, mining diamonds that cannot immediately be sold means that they have to be stockpiled,” Econsult noted. “ GDP is boosted by the ongoing production, but the lack of sales means that export earnings and government revenues are impacted until sales recover.”
The most recent comprehensive global estimates, released by the International Monetary Fund (IMF) last month predicted a contraction of 3.0 percent in global GDP in 2020, and a contraction of 6.1 percent in the GDP of advanced economies. hit. For Botswana, the IMF World Economic Outlook projects a GDP contraction of 5.4 percent in 2020.
Dr Jefferis and his team however, noted that estimates of GDP growth are updated on the basis of new developments and estimates and they are generally revised downwards. Earlier estimates that GDP would follow a“V-shaped” pattern, with a fairly strong recovery, are now being replaced by that projections of a “U-shaped” recovery, with a long base of contraction (recession) before an eventual recovery, or even an “L shaped” out turn,” they stated.
To Econsult, the longer the recession lasts, the fewer the businesses that will survive the downturn, and the slower the recovery will be and the greater the likelihood of a prolonged depression.
Meanwhile, Econsult is of the view that the impact of COVID-19 on the Botswana economy is almost certain to be substantially negative, with a large drop in GDP in 2020. They estimate is that the drop will be in the range of 10-15 percent but the impact is likely to be prolonged if restrictions on economic activity and population movement are maintained for a lengthy period,” they stated.
All in all,Dr Jefferis and his team expects the negative economic impact of COVID-19 on Botswana to be severe. “This arise from the international economic slowdown and lockdown measures implemented domestically,” they state. “ Total economic losses are likely to be in the region of P250 – P300 million a day in terms lost GDP, and therefore lost income for households, businesses and government.”