Local GDP takes hit

Baitshepi Sekgweng

As Economic Challenges Persist Due To Diamond Downturn

Botswana’s economy is weathering a turbulent storm, marked by a significant contraction in the first quarter of 2024.

Known globally as the largest producer of rough diamonds by value, the country is reeling from a steep decline in diamond production, which is sending shockwaves through its key industries and economic indicators.

Recent data from Statistics Botswana reveals a grim economic landscape.

Gross domestic product (GDP) shrank by a substantial 5.3 percent annually in the first quarter, a stark reversal from the modest growth of 1.9 percent in the previous quarter.

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This downturn was primarily driven by a sharp decline in the real value added in diamond trading and the mining and quarrying industries, which fell by 46.8 percent and 24.8 percent respectively.

The mining sector, the backbone of Botswana’s economy, experienced significant setbacks.

The real value added in mining and quarrying contracted by 24.8 percent, with substantial decreases in the real value added of gold, diamonds, and coal by 71.0 percent, 26.2 percent, and 19.5 percent respectively.

Diamond production suffered particularly hard, plummeting by 27.3 percent in carats during the first quarter of 2024.

Production decreased by 1,912 carats, from 6,989 carats in the first quarter of 2023 to 5,076 carats during the period under review.

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A quarter-on-quarter analysis shows a decrease of 18.7 percent, with production dropping by 1,164 thousand carats from 6,241 thousand carats in the fourth quarter of 2023.

This decline in diamond production can be attributed to changes in production configurations in response to excess market inventory.

The repercussions of the diamond downturn extend beyond the mining sector, casting a shadow over Botswana’s fiscal outlook.

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Diamond revenues traditionally make up a substantial portion of the country’s budget receipts, and the recent decline is expected to challenge the government’s ability to meet its fiscal targets for the year.

The central bank has already cautioned that the economic growth forecast of 4.2 percent is at risk due to weaker mining output.

The global diamond industry faced a major slowdown in the latter half of the previous year, with leading miners such as De Beers and Russia’s Alrosa PJSC drastically reducing supplies to counter a downturn in diamond prices.

This strategic move significantly impacted earnings at De Beers, a major player that mines a significant portion of its diamonds in Botswana.

De Beers, foreseeing a slow and gradual recovery in the diamond market, expressed concerns about continued weakness in key markets like China and the US, further complicating the industry’s path to recovery.

Meanwhile, challenges persist in Botswana’s other resource sectors.

The Mupane Gold mine is grappling with disruptions to its mining schedule following the termination of a contract service with an extraction company.

Gold production took a substantial hit, decreasing by 71.3 percent in the first quarter of 2024 compared to the same period in 2023.

The quarter-on-quarter comparison reveals a sharp decline of 72.3 percent, indicating ongoing challenges in gold mining operations.

Additionally, the Botswana Power Corporation’s (BPC) reduced demand for coal, coupled with maintenance issues at the Morupule B power plant, led to a decrease in coal production by 19.5 percent in the first quarter of 2024.

Despite a slight increase in coal production compared to the previous quarter, ongoing operational challenges continue to impact the coal mining sector in Botswana.

These developments underscore the broader economic challenges facing Botswana.

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As disruptions in key resource sectors like diamonds, gold, and coal contribute to a complex economic landscape, policymakers and industry stakeholders are faced with the urgent task of devising strategies to mitigate the impact of declining diamond production and stimulate economic recovery.

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