An international business research and consulting firm has released a new report, titled ‘Production and Investment Forecasts in the Botswana Mining Industry’, which provides a comprehensive analysis of Botswana’s mining industry from 2006 to 2014.
In the 113-page report, Frost & Sullivan finds that a decline in global consumer demand influenced diamond miners in Botswana to implement a production holiday in 2009. This suspension of mining activities caused production output to decline by 45%, and the decline in global copper prices as a result of the financial crisis caused the Botswana nickel-mining industry to temporarily suspend operations and witness a 19% decline in production.
Despite the global financial crisis, which resulted in Botswana experiencing an unprecedented loss of national income as the global demand for diamonds plunged, the country’s mining industry is expected to witness a recovery.
The steady increase in global diamond demand is also expected to contribute to diamond prices gradually returning to the levels achieved during the first half of 2008 by 2012 to 2013.
Botswana’s mining industry produced an estimated 22.97-million carats of diamonds in 2009 and production is fore- cast to rise to 30.83-million carats in 2014. Further, key investment projects in Botswana’s diamond-mining sector cost a total of $355-million in 2010.
“A steady rise in consumer demand from China and India, and a modest improve- ment in demand from North America and Europe, are chief among the factors expected to contribute to the recovery of Botswana’s diamond mining sector,” the report states.
To support the anticipated increase in demand, the Botswana government and De Beers joint venture Debswana’s investment expenditure is expected to increase to $555-million in 2014.
The analysts believe projects expected to contribute to the substantial increase in short-term capital spend include Debswana’s Jwaneng Cut 8 expansion and Debswana’s Morupule colliery expansion, located in the Palapye region.
The report states that, with Botswana’s mining industry mostly comprising multi- national companies that rely on funding from international markets to expand or construct new mine operations, mining companies will continue to struggle to raise funds to start or expand operations in the short term.
“With most international financing houses focusing on investing in low-risk ventures, companies are going to find it difficult to develop their prospects into new mines. The combination of risk aversion and uncer- tainty of mineral commodity prices is expected to have a significant impact on Botswana’s mining companies, particularly the smaller, emerging mining entities,” it states.
Meanwhile, multinational financial services company Credit Suisse reports that, owing to the risk-averse nature of the invest- ment industry, a delay in mining finance of $150-billion to $200-billion is forecast between 2011 and 2013. Delays in obtaining funding are, therefore, expected to affect the mining industry negatively between 2011 and 2014, the report states.
The Frost & Sullivan mining overview report further states: “Despite the limited access to funding, the International Mone- tary Fund (IMF) predicts that Botswana’s diamond exports could be between 80% and 85% of the levels reached prior to the recession in 2008, during the medium term of the forecast period.
“This anticipated growth in global diamond demand could restore investor confidence and reinject the needed capital for the successful implementation of planned expansion projects,” the report concludes.
Botswana remains the highest-rated African country in terms of mining, states independent provider of proprietary data Business Monitor International (BMI). BMI believes the country’s political situa- tion is stable and it has a well-developed mining sector, backed by a sound regulatory framework.
BMI’s forecast for 2011 to 2015 expects Botswana’s mining sector to show an average growth rate of nearly 8% a year, as new projects in the copper, uranium and coal sectors come on stream.
Moreover, tax rates remain relatively low on a regional basis and the country has relatively flexible labour regulations, which should also bolster growth. “Our positive view on Botswana’s mining is shared by the influential Fraser Institute, which placed Botswana in eighth place in its midyear Policy Potential Index, published in August 2010,” BMI states.
In September 2010, there were media reports that Botswana might be considering changes to its current mining policy. Mining Weekly cited the outgoing per- manent secretary at the Ministry of Minerals, Energy and Water, Gabaake Gabaake, who stated: “The new minerals policy objectives will ensure that economic benefits for Botswana are increased from the resources recovery, while enabling private investors to earn competitive returns.”
Gabaake also hinted the country would consider speeding up the issuing of pros- pecting licences to within 30 days of application (down from 60 days) and also diamond export permits to within two days.
Exploitation of rich mineral reserves, especially diamonds, has been a significant driver of Botswana’s economic growth. Diamonds, along with copper and nickel, are major focus areas in metal and mineral exploration, and earn more than three-quarters of the country’s export revenues.
More recently, coal and uranium have also emerged as key future revenue generators for Botswana’s mining industry. The authorities in Gaborone have an impressive record in garnering benefit from the production of diamonds, states BMI, which expects this trend to continue in the coming decade.
The company states that, although diamonds currently dominate the economy, output is set to decline over the medium term as reserves dwindle, and the government has enacted a number of measures to ensure that revenues are used to aid diversification. For example, a fiscal rule has been adopted which states that mineral revenues must be used to expand the economy’s productive base, rather than fund consumption expenditure.
Owing to this rule and other initiatives enshrined in successive six-year National Development Plans and the long-term policy, Vision 2016, growth in the nonmining sectors is burgeoning.