International demand for Botswanaâ€™s mineral dominated by diamonds, copper and nickel will remain comparatively weak in 2016, given forecast of a further slowdown in Chinaâ€™s economic growth, an international authoritative economic report predicts.
China is the second largest consumer of diamonds while it is the top buyer of commodities such as copper and coal.
According to the report compiled by the Economist Intelligence Unit (EIU), the impact of the softening in international demand was already evident in the first half of 2015, with Botswana’s earnings from rough diamond exports falling by 16.8 percent year-on-year to $1.7 billion (P17.6 billion).
Export of polished stones were worst affected as it declined even more sharply by 32.2 percent to $300 million.
“Although China’s economic growth rate is set to remain relatively lacklustre by its own recent standards, rising demand from other key markets -- including the US, Japan, India and the Gulf -- will help to support a recovery in export revenue in 2017-20. This will be supplemented by the structural shift that is under way in Botswana’s diamond sector -- driven by an expansion in downstream activity, as more local companies provide cutting and polishing services,” read the report.
Weak demand for minerals, particularly diamonds has already forced the ministry of finance officials to cut 2015 growth targets from 4.9 to 2.6 percent while the budget is now seen posting P2.6 billion deficit from a earlier target of P4.03 billon.
Reflecting the dampening effect on economic activity of declining mining production in the face of weak global demand, the EIU has also lowered estimates for Botswana’s real GDP growth in 2015 to 2.8% from 4 percent.
Despite the slowdown in mineral activity this year, the EIU says strong demand for capital goods to develop the burgeoning non-diamond mining sector, together with a recovery in average oil prices, will lead to a quickening in the pace of import growth from 2016 onwards.
“We expect transfers from SACU to average $1.3 billion in 2016-20 down sharply from $1.8 billion in 2014. However, there is a risk that the decline could be even bigger if South Africa follows through with its plans for a reform of the current revenue-sharing formula.
“The deficit on primary income will rise, reflecting a pick-up in dividend payments by mining companies although such payments are expected to remain below pre-2011 levels, owing to relatively muted global commodity prices,” added the report.
Non–diamond mining activities that are also seen boosting Botswana’s prospects in the next two years include the recent inauguration of Pula steel plant, as well as continued growth in tourism helped by a recovery in the key European market.
Notwithstanding the continued weakness in global copper prices, a number of developments, such as Khoemacau’s project in the North West, are seen eventually establishing Botswana as a major copper producer. Considerable headway has also been made in uranium-mining prospects as well as monetisation of the country’s 2012 billion tonnes of coal resource.
Looking ahead, the report says the primary risk to Botswana’s growth outlook is uncertain global demand for diamonds, as well as volatile world copper and coal prices. The current regional drought -- which could be further exacerbated by the El Niño weather phenomenon -- also has the potential to cause significant disruption to economic activity, through increasingly severe shortages of water, the EIU said.