Botswana Warns of Declining Diamond Production and Its Effects

Debswana’s 2007 diamond production fell in comparison to the year before, and a further decline is expected in 2008, Botswana’s minister of finance and development revealed during his budget speech Monday. Minister Baledzi Gaolathe warned that declining revenues from diamonds may harm the country’s ratings.

Diamond production rose to 34.4 million carats in 2006, but Debswana’s production is expected to have been lower by about 761,000 carats in 2007, Gaolathe told the National Assembly. This happened while production of other minerals displayed “significant” growth, he added.

However, despite the decline in production, diamond sales increased 6 percent. According to Gaolathe, exports of goods increased 26 percent, mainly driven by a 19 percent rise in diamond exports.

“For 2008 Debswana has planned a substantial increase in capital expenditure, and expects a reduction in diamond production by 1.5 percent. These factors will likely reduce Debswana profit distribution after capital expenditures below the 2007 level,” Gaolathe reported, adding that the expected revenues from all minerals for 2008/09 are lower than the 2007/08 revised estimate by 332 million pula ($52.34 million).

Gaolathe warned that continued high dependence on minerals makes the country’s economy susceptible to a significant decline in the price and profitability of diamonds. “If growth in industrialized countries and major emerging markets like China and India should decline, diamond revenues may not reach the target, which will have negative effects on Botswana’s fiscal and current account balances.”

The minister also noted that diamond cutting licenses have been issued to 16 companies that will receive Debswana mined goods, and the expectation is that by the end of 2008, a total of 3,000 people will be employed in the diamond manufacturing sector in Botswana.