Sluggish mining retards economic growth
Brian Benza | Friday October 3, 2014 12:06
On a year-on-year basis, SB announced that Gross Domestic Product (GDP) growth was at 4.5 percent in the second quarter of 2014 from 7.3 percent in the same quarter of last year. The economy grew by 5.2 percent in the first quarter of this year.
According to SB, the largest contributor to a slower economic growth rate was a fall in mining output, predominantly diamond and copper.
“All other sectors recorded a positive growth of more than 1.5 percent over the period. The exception is mining which recorded a decrease of 3.8 percent.
“The decrease in the real value added of the mining sector was attributed to diamond and copper or nickel production which registered a negative growth of 1.5 and 21.3 percent respectively,” stated the Statistics agency.
De Beers’s figures show that Debswana output was two percent lower to 6.26 million carats in the three months to June 2014, largely due to a production decline at Jwaneng and Letlhakane mines.
As at June 2014, mining continued to be the largest contributor to GDP standing at 26.6 percent in second quarter followed by trade, hotels & restaurants and general government at 14.5 percent and 13.7 percent respectively. Debswana can largely attribute the mining slowdown to among other factors, curtail in diamond production.
From as high as 34 million carats in 2007, diamond production has been steady at around 21 million carats in the past few years as Debswana caps production to not only prolong mines’ lifespans but also to maintain price increases.
There has not been any significant production increase from other big mining players such as Tati, BCL or Botash.
Delivering the Independence Day speech this week, President Ian Khama confirmed the strategy of capping diamond output to avoid over production.
“With the anticipated opening of new diamond mines around the country, as well as the extension of the life spans of our Debswana mines through new methods of recovery, our country is poised to maintain its position as a leading diamond producer over the next three decades, that is up to at least 2050.
“As a result, where we until recently had anticipated a significant decline in our carat production in the coming decade, we are now faced with the more welcome likelihood of wanting to cap our annual output in order to avoid overproduction,” he said.
Despite the slowdown in mining in the second quarter, all other economic sectors recorded positive growth with the electricity and water sector registering the highest increases largely due to a generation spike at Morupule B and the subsequent cut in power imports.
At industry level, the increases were attributed to water and electricity; trade, hotels and restaurants; transport and communications, which increased by 31.6, 9.8 and 6.3 percent respectively.
“The improvement in real value added of the water and electricity sector was due to a 95.1 percent increase in the electricity local production which led to a substantial decrease in intermediate consumption. The decrease in intermediate consumption was because imported electricity went down by 44.9 percent,” said SB.
Following numerous breakdowns in its commissioning, the Morupule B Power Station significantly increased generation in the second quarter as three of the four units became fully operational.
According to Ministry of Finance projections, the domestic economy is expected to grow moderately by 5.2 percent in 2014 and a further 5.0 percent in 2015, underpinned an expected recovery in diamond production.
Government 2014 economic growth projections are slightly higher than other analyst’s estimates including that of the International Monetary Fund (IMF). The IMF forecasts lower economic growth for Botswana this year largely due to slower recovery in diamond production coupled with subdued economic activity emanating from water and power shortages. After the economy grew at a faster than expected in 2013 at about 6 percent, the IMF says that real GDP growth is expected to moderate to 4.5 percent in 2014, as the slowdown in diamond recovery and continued problems in electricity production and water supply will likely soften the pace of economic activity.
The IMF projections also tally with local economists who predict growth to be likely restricted to lower than five percent in 2014, in part due to water and electricity shortages that have disrupted production across all economic sectors.
Powered by a rebound in diamond production, the economy beat analyst’s expectations to grow by an impressive 5.9 percent in 2013 reversing a three-year streak in which the economy grew at a slowing rate.
“In 2014, it is expected that mining would continue to grow but not at the same rate. “We also expect non-mining growth to slow marginally. Hence overall GDP growth in 2014 is likely to be lower, at around 5 percent,” economist Keith Jefferis told BusinessWeek in an earlier interview.