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Botswana Mining Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8312 Description Exploitation of rich mineral reserves, especially diamonds, has been a significant driver of Botswana’srapid economic growth. Notably, the mining sector of Botswana contributes in double digits to thecountry’s GDP. Diamonds, along with copper and nickel, are the major focus areas in metal and mineralexploration, and earn more than three-quarters of the country’s export revenues.The authorities of Botswana have an impressive track record in garnering the maximum benefit fromthe production of diamonds, and we expect this trend to continue over the coming decade. Diamondscurrently dominate the economy - contributing approximately 36% of GDP, 75% of merchandiseexports and 45% of government revenue - but with output set to decline, the government has enacted anumber of measures to ensure that revenues are used to aid diversification. For example, a fiscal rulehas been adopted which states that mineral revenues must be used to expand the economy’s productivebase, rather than fund consumption expenditure. Thanks to this rule, and other initiatives enshrined insuccessive six-year National Development Plans and the long-term policy Vision 2016, growth in thenon-mining sectors is burgeoning. Copper and nickel are both key export earners for Botswana. Copperand nickel exports totalled BWP4.5bn in 2008 - second only to diamonds according to figures from theCentral Statistics Office (CSO). The worldwide financial crisis has had a severe impact on Botswana’s mining sector. A slump in theglobal jewellery market and the cutting and polishing industries is forcing diamond producers such asDebswana - a 50:50 joint venture (JV) between Botswana’s government and De Beers - to cut outputand layoff workers. In Q408, global demand for diamonds fell and Botswana’s exports fell to virtuallyzero. Lower consumer demand and reduced credit will mean that sales are unlikely to return to precrashlevels for some time yet. As a result, the performance of the diamond sector in 2009 is expected tobe weak. In June it was announced that Botswana is to receive a US$1.5bn loan from the AfricanDevelopment Bank in order to make up a budget deficit estimated at 13.5% of GDP for the current year. The budget gap has increased as a result of lower-than-budgeted commodity prices, particularly fordiamonds. Also in June, figures from Botswana’s Central Statistics Office showed that first-quarter mineralproduction was down slightly. Copper-nickel matte production (from the BCL mine in Selebi-Phikwe)stood at 10,199 tonnes (down from 14,331 tonnes in Q108). Coal output stood at 219,559 tonnes forJan-Mar 2009, with soda ash output standing at 49,389 tonnes. Most strikingly of all, the figures fromthe CSO showed that there was no diamond production within Botswana over Q109 as demand for thegemstone fell sharply. Industry Forecast The diamond sector has served the country well in recent years, having delivered healthy currentaccount and fiscal surpluses. However, falling diamond prices are expected to retard the mining sectorin the short term, with exports slumping in Q408. Sales are expected to remain weak in 2009. Indeed, in2008, BMI estimates that the mining industry shrunk by almost 6% in real terms, with a furthercontraction forecast for 2009. By the end of the forecast period, however, the sector should be returningto growth. By 2013 we expect the industry to reach a value of US$6.32bn, up from US$3.39bn in 2009. Meanwhile, a fall in output in 2009-2010 will extend the lifetime of discovered deposits, as will adecline in the rate of investment over the same period. Diamond output is predicted to decline sharplyafter 2021 as deposits are exhausted, forcing the government to concentrate on the development of othersectors in order to maintain a robust growth trajectory. Table of Contents
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