The Bank of Botswana (BoB) has warned that efforts to broaden the country’s export base and ultimately diversify Botswana’s diamond dependent economy are yet to produce the desired results.
Since the discovery of local diamonds in 1967, shortly after Independence, Botswana has relied heavily on revenue raised from the precious stone. Indeed, minerals have long overtaken agriculture in terms of GDP contribution.
While the diamond-created revenue has sustained the country over the last 50 years, propelling it to higher-middle income status, economists have repeatedly cautioned against over-reliance on minerals as they are exposed to shocks.
Briefing the media on the latest economic developments on Tuesday this week, BoB’s Director of Research and Financial Stability, Dr. Tshokologo Kganetsano admitted there has been a limited success when it comes to economic diversification.
Due to the volatile performance of the mining sector, Kganetsano said one would expect other sectors to have grown significantly.
However, Kganestano grimly noted this has not been the case.
“Because of poor productivity, the economic structure remains pretty much unchanged or the change is highly insignificant. We also have a high dependence on imports across a wide range of consumer and capital goods,” he revealed.
The money-man went on to label Botswana as ‘practically’ an extension of South Africa.
“What I mean is, if you look at the companies that are operating, in Botswana, many of them are from South Africa, so it is just an extension of the South African industry,” he clarified.
In terms of exports, Kganetsane said nothing much has changed, with diamonds still accounting for 90.6 percent of total exports.
Despite this, the BoB boss stressed that the diamond industry was increasingly coming under threat.
“For example, diamond mining is affected by the potential contraction of deposits, increasing costs of production, and as we know some mines are planning to go underground which is more expensive,” said Kganetsane, who also mentioned reduced demand and added competition from synthetic diamonds as further threats to Botswana’s main revenue earner.
Kganetsano also indicated Botswana could find itself in a ‘tight financial position’ as the country’s foreign exchange reserves are fast declining.
As at end of May this year, the country’s foreign reserves stood at P66 billion, representing 11 months of import cover. But Kganetsano said the months covered by the reserves would have gone down this week as Botswana Public Officers Pension Fund (BPOPF) looks to externalize about P1.6 billion.
Botswana‘s second revenue earner after diamonds is the Southern African Customs Union (SACU) receipts which are considered volatile as well.
According to Kganetsano, the country receives roughly P3.5 billion every three months in SACU receipts, while the country’s import bill stands at P5.5 billion monthly.
“What we are receiving every three months is lower than what we need every month,” pointed out Kganetsano, adding that with no revenue from diamonds, the country is faced with an increasingly worrying situation.
In light of these developments, Kganetsano stressed that economic diversification is more urgent than ever before.