MINING UNDER SIEGE

MINING UNDER SIEGE

The productions of diamond, gold, salt and soda ash took a nosedive during the first quarter (q1) of 2017 (as compared to the previous corresponding period), the downturn worries analysts who indicate that Botswana’s overreliance on the mineral sector is making it a ticking time bomb. Mineral revenue contributes an estimated 28.6 percent to state coffers.

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Debswana

– Diamonds, gold, salt, soda ash production plummets
– SACU revenues uncertain
– Diversification needed urgently

 

The productions of diamond, gold, salt and soda ash took a nosedive during the first quarter (q1) of 2017 (as compared to the previous corresponding period), the downturn worries analysts who indicate that Botswana’s overreliance on the mineral sector is making it a ticking time bomb. Mineral revenue contributes an estimated 28.6 percent to state coffers.

The National Accounts office released its 2017 q1, Indices of the Physical Volume of Mining Production, this week, the statistics depicts a quarter-on-quarter decline in almost all areas.
According to the report, diamond production recorded a decrease of 2.7 percent during the first quarter of 2017 as compared to the first quarter of 2016. The decline, according to the Annah Majelantle led Statistics Botswana, was largely due to the mining of lower grades diamonds in Jwaneng mine as well as maintaining business strategy to align production to trading conditions.
The quarter-on-quarter analysis shows that diamond production decreased by 5.0 percent during the first quarter of 2017 when compared with production during the last quarter of 2016.

Diamonds, the backbone of Botswana’s economy and they contribute over a quarter to the GDP. However, it was not only diamond production that slowed down during the period under review. Gold production also declined by 26 percent in the first quarter of 2017 when compared to the same quarter of 2016.
The decline was as a result, in part, of unstable commodity prices, notes the Report. The quarter-on-quarter production comparison shows a decrease of 37.2 percent for production during the quarter under review when compared to 2016 fourth quarter production. Additionally there was a decrease of 39 percent in Soda Ash production during the first quarter of 2017 when compared to the same quarter of 2016.

The quarter-on-quarter comparisons reflect a decrease of 52.4 percent during the period under review as compared to last quarter of 2016. Salt production recorded a decrease of 31.7 percent in the first quarter of 2017 when compared to the first quarter of 2016. The quarter-on-quarter comparison shows a decrease of 52.1 percent in production during the first quarter of 2017 as compared to production during the last quarter of 2016. The decline for both soda ash and salt is attributed to low commodity demand as well as the unstable commodity prices in the international markets.

Coal is the only commodity that recorded positive growth in production, increasing by 14.7 percent in the first quarter of 2017 as compared to the corresponding quarter of 2016. However, the comparison of the first quarter of 2017 and fourth quarter of 2016 shows a decline of 9.6 percent.

Botswana is a mineral led economy, and any deceleration in mining production, especially diamonds leads to a negative GDP growth. Market watchers are concerned by Botswana’s overreliance on mining which is risky due to the industry’s volatility.

The Botswana Exporters and Manufactures Association (BEMA)’s Vice President, Pako Tsimanyana said that failure to develop other economic sectors will be the downfall of Botswana’s economic stability.

Although BEMA is not a diversification driver but rather a representation of members through advocacy, Tsimanyana notes that they have realized gaps across markets. He spoke of the dependence on diamonds as a deprivation to the Agriculture and Textile sector relevant growth. Tsimanyana indicated that in order to clear barriers that hinder the growth of such economic sectors, government should work on its industrialization policy and protection of earnings. To him, most industries fail to make returns that are able to bring equitable turnover.

Tsimanyana noted that the Southern African Development Community (SADC) region is large and Botswana can be able to enter trade within it, if policies of toward trade were improved. “Botswana Millers Association could be able to produce a billion pula worth of grain if Agriculture was properly commercialized,” he explained.

The BEMA’s second in command cites that lack of support from government will continue overburdening the mining sector and losing out on prospective markets. ‘Botswana is strategically positioned to supply its people and even cater for the outside markets.” Government spends over P6 billion monthly on imports from South Africa.

The mining sector and mining production are not the only sources of revenue under siege. Collections by Taxman, Botswana Unified Revenue Service (BURS) have punched a P2.1 billion hole in the national coffers for the 2016 fiscal period, resulting from a depressed local economy that has shed thousands of tax paying jobs and shut down several tax paying businesses as well. Tax is a significant contributor to state coffers.

BURS, an institution at the captaincy of Commissioner General, Kenneth Morris collected P37.4 billion in total in the 2014/15 financial year, collections have however slowed to P35. 3 billion during the 2015/16 fiscal year.

According to Morris, the decline is due to weak performance across the mining sector which resulted in a decline of income tax collections from P15.884 billion in 2014/15 to P13.832 billion in 2015/16. “The VAT collection declined by 3.76 percent,” he mentioned, in the BURS annual report.

Botswana secures significant revenue from Southern Africa Customs Union (SACU) Common Revenue Pool (CRP), which is also facing challenges. While the President Ian Khama led economy saw an upward adjustment in its receipts from the SACU revenue pool, the total SACU revenue pool for the year under review has declined to R88. 898 billion (approximately P69.3 billion as per the latest exchange rates) compared to R89.201 (approximately P69.8 billion) in 2014/15.

Although Botswana’s receipts saw a marginal increase, the biggest danger lies in that the total SACU revenue pool is on the decline which will consequently affect Botswana’s share to the negative. Despite the pools revenue decrease, Botswana Unified Revenue in its 2015/16 annual report states that Botswana’s share from the pool stood at R20.039 billion (Approximately P15.6 billion) compared to R19.276 ( Around P14.9 billion) in 2014/15.