Gems of former prosperity are now Botswana's woe
April 12, 2009
By Nasreen Seria
Botswana, where diamonds made up 65 percent of exports last year, has sold few gems since November, according to the government. From boasting one of Africa's largest fiscal surpluses, Gaborone now is racking up record debt as revenue plummets.
Debswana Diamond, the joint venture between Botswana's government and De Beers, has closed four mines whose production equalled almost a third of the country's gross domestic product (GDP).
While three are set to reopen next week, they will not earn much - the government expects diamond sales to fall by half and prices to drop by 20 percent this year.
Garetshele, who was paid in the interim, worries his job will not last.
"This crisis is for everyone here," he said. "I'm not educated; all I know is how to be an operator. What will I do if I lose my job?"
Botswana is not without resources to fight the global financial crisis. The country has record foreign currency reserves of about $10 billion (R91.6 billion), while years of fiscal surplus mean local banks and foreign lenders will be able to finance deficit spending this year and next.
The open-pit Jwaneng mine in south central Botswana is the richest in the world, producing 15.6 million carats in 2005. Debswana says it will reopen it and two others on Wednesday.
A fourth mine, Damtshaa, and the Orapa number two processing plant will remain closed.
The reopening will not prevent Botswana's economy from contracting 5.2 percent in the year to June and 6.2 percent in the 12 months after that, according to Moody's Investors Service.
That follows five years with average growth of 4.4 percent.
Hundreds of contractors at the mines are worse off than Garetshele and about 5 000 other miners who continue to be paid - they have not received any money since February.
Many of them have gone back to their rural homes, while others are living with less.
Koko Kabelo, a contract worker who helped machine operators at the mine, has built a makeshift room out of black refuse bags adjoining his cousin's home, across the road from a local drinking spot.
"I have to live in a shack now," Kabelo said, as he shared beer with Garetshele and other men under the tree. "I couldn't afford to pay the 600 pula (R726) rent any more."
The crisis is evident at the Score supermarket in the main shopping precinct of Jwaneng, where three cashiers sit idle while a packer sweeps the aisles.
Store manager Paki Serunya says sales have plunged as much as 90 percent since December, and that he will have to dismiss staff.
"We always thought that diamonds are forever," said Sebataladi Ramoitoi, the head of the Jwaneng branch of the Botswana Mining Workers Union.
"But now, there's so much uncertainty. Debswana is bread and butter for most of us here."
Finance Minister Baledzi Gaolathe says the economy is facing its biggest test since the country gained independence from Britain in 1966.
Diamonds helped transform Botswana from one of the poorest countries in the world, with per capita income of $70 at independence, to middle-income status.
Per capita income was $5 680 in 2007, the highest among non-oil exporting countries in Africa.
Gaolathe added: "This is a major setback for our economy. We are a major exporting country, and those international markets are not buying our products."
Botswana had a fiscal surplus of 5.4 percent of GDP in the fiscal year to March 2007.
Now the government estimates a shortfall of 10 percent, the biggest on record, in the year that began on April 1, according to Gaolathe.
The country's Aa3 credit rating, the highest in Africa, was under threat if the government failed to rein in expenditures, Moody's said on March 19.
Yet the government has no plans to cut social spending in a country where 30 percent of people survive on less than a $1 a day, even though the governor of the central bank, Linah Mohohlo, said last month that some reductions might be needed.
With the global recession slashing demand for most commodities, Botswana's tentative steps to diversify away from diamonds by encouraging production of coal, copper and nickel have also come to a halt.
Norilsk Nickel, the Russian mining company that owns Tati Nickel in Botswana, said in February that it might review the company's African units because of "virtually zero profitability".
The government would turn to multilateral lenders such as the African Development Bank for low interest loans, accelerate its 5 billion pula bond programme and seek funds from China to help finance the 13.5 billion pula deficit this year, Gaolathe said.
Diamond prices dropped 16 percent in the five months to March, according to an index published by Polished Prices.com.
Debswana does not report diamond sales, only production.
"All our eggs are in the basket of hope," Ramoitoi said. "We are hoping that the banks in America will start giving money again, that American wives and ladies will buy jewellery." - Bloomberg
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