Weak rough diamond demand stunts economic growth
Domestic economy projected to slow down by 4 percent
Following a promising growth and recovery post the Covid-19 pandemic challenges which dampened trade, Botswana’s economic growth is set to suffer another set back with a decline of 4 percent expected in the year 2023.
This is the result of weak demand for rough diamonds which has been the key pillar of Botswana’s economy for the longest time.
As a result, with the mining sector, more especially diamond mining weakened, the non mining sector is expected to continue to play a pivotal role in driving the domestic economy in 2023 with growth anticipated to be spearheaded by the wholesale and retail services, food services and accommodation.
Further, the financial sector is also expected to play a meaningful role as a result of the strong performance of the banking industry as new expansion comes in, in the form of new financial products and services. As a result, the financial sector is expected to grow by 4.0 percent in 2023 as compared to a mere 2.3 percent recorded in 2022.
As western buyers shunned Russian diamonds due to sanctions imposed on Moscow for the invasion of Ukraine, Botswana enjoyed great benefits of global demand of diamond jewellery in 2022. This resulted in Debswana’s diamond sales hiking to $4.588 billion in 2022 compared to $3.466 billion in 2021, according to data from Bank of Botswana.
However, that has since come to a rough end, with the gem stones hit by concerns of dwindling international demand. While the period of the year is always termed as traditionally a quieter period of trading, the current weaker demand is also influenced by ongoing macroeconomic uncertainty and a slower pace of recovery in consumer demand from China and United States of America than it was widely anticipated.
The weakened demand even impacted De Beers sales of Cycle 4 which stood at $480 million, which is lower than the previous cycle 3 sales of $542 million. This has forced the giant mining company to even postpone the cycle 5 and 6 rough diamonds auctions which were slated for the 5th-9th of June and 10th-14th of July to be incorporated into one single event .
Speaking at the official launch of the 2023/24 government borrowing strategy and issuance calendar in Gaborone, Minister of Finance Peggy Serame said the global economy is currently facing a combination of shocks which continue to have adverse implications on various economic jurisdictions.
“These include scarring lagging effects of the Covid-19 pandemic, the current war in Ukraine and the other emerging challenges such as climate change risks. These developments have among others, led to disrupted global supply chains, increased commodity prices and in the process elevated inflation beyond historical trends,” said Serame.
In 2021, the local economy grew by 11.9 percent while in 2022 it did improve by 5.8 percent driven largely by non mining sectors such as water and electricity, diamond traders and manufacturing respectively. While the local economy is set to decline, the same is said for the South African Customs Union(SACU) which is set to decelerate to 0.4 percent in 2023 from 2.3 percent in 2022.
“Much of this slowdown is due to weak economic growth outlook in the South African economy as a result of factors such as ongoing power supply challenges and the grey listing by the Financial Action Task Force in February 2023. Though this poses a challenge to the domestic economy, government stands ready to take corrective measures including ensuring a more reliable power supply domestically in order to guard against potential limited supply from external sources. Further we intend to ensure a more entrenched diversification towards industries with lucrative value chains in order to grow the country’s export base,” added Serame.
Meanwhile, the global growth is estimated to slow down to 2.8 percent in 2023 from 3.4 percent realised in 2022, therefore causing a downward spiral to emerging markets, developing economies and sub-Saharan Africa.
