Botswana’s future beyond diamonds looks bleak
The 2008/2009 economic meltdown was an international crisis that resulted in the total collapse of some economies and massive job losses. Botswana was no exception as diamond sales plummeted while many development projects were shelved. Some job losses were inevitable as mining companies closed shop while others reduced their staff complement to cut costs. However, government prevailed and worked hard to avoid further job losses. The situation was worse for Botswana because the national economy is heavily dependent on diamond revenue. The economic downturn was a wake up call for Botswana as it highlighted the need to diversify the economy and reduce over-dependence on diamond mining. It also inspired the Botswana Confederation of Commerce Industry and Manpower (BOCCIM) to engage the Botswana Institute of Development Policy Analysis (BIDPA) to compile a current state of affairs report on the national economy, which would enable the Confederation to better advise government going forward. The study was undertaken through financial assistance from the African Development Bank (AfDB) which provided a grant of $400 000 in 2010. The culmination of this endeavor came at the post diamond study stakeholder workshop on Thursday last week, when BOCCIM chief executive officer Maria Machailo-Ellis officially launched three reports compiled by BIDPA, which largely focused on the future of Botswana’s economic landscape after diamonds. Dr. Taufila Nyamadzabo, secretary of economic and financial policy in the Ministry of Finance and Development Planning, said recommendations of the studies will inform government policy post 2016 and influence how future National Development Plans (NDP) will be compiled. The first report, which was on minerals and energy exports, cautioned that while government mineral revenues are projected to rise over the next 10 to 15 years there will be a significant crunch when open pit mining operations cease around 2027. The report also recommended that government should seek joint venture partnerships to provide rail and port infrastructure to complement future coal, silver and copper exports. In recognition of the complexity of tax administration in the mining industry, the report advised government to publicize negotiated tax agreements with mining houses so as to provide comfort to junior mining companies that are currently exploring for diamonds. The second report on life after diamonds was presented by Dr. Rob Davies who said it will be costly to mine diamonds around 2025-2027. Davies also warned that Botswana’s GDP per capita, estimated at $7 300 by World Bank, will take a huge plunge of around 48 percent when the permanent decline in diamond production occurs. A rise in GDP per capita normally signals growth in the economy while a decline depicts the reverse. He cautioned that the size of the shock is enormous and its consequences for the welfare and political economy of Botswana are immense. Davies urged Botswana to institute mitigation measures that will reduce the impact, which he said will require an open debate on the management of expectations. “Its best to undertake measures now to put Botswana in a better position to cope with diamond depletion when it occurs. We do not suggest what these might be,” he said. The last report was compiled by Professor Roman Grynberg, a senior research fellow at Botswana’s Institute for Development Policy Analysis (BIDPA) and it focused on export diversification. Grynberg said Botswana has only recorded two significant diversification efforts over the last 30 years, which include the development of an automobile assembly industry in the mid 1990’s and recently the domestication of diamond cutting and polishing. However, the automobile assembly project later ceased operations due to poor management and pressure from South Africa. One of the major findings of his report is that Botswana’s minimum wages have fallen by 29 percent between 1993 and 2013 which simply means that low income earners get close to nothing, even lower than in India. On the contrary, skilled workers and managers who are at the top end of the labor market are paid too much. Such a scenario, he said, will discourage investors from setting up shop in Botswana. Grynberg advised that Botswana needs to address the underlying causes of lack of competitiveness which include among others high skilled labor costs and transport expenses. He said that Botswana’s failure to compete on the basis of cost of doing business will not enable it to attract investment and therefore diversity its export base.