Botswana: Economy Blossoms As Mining Shines

Botswana: Economy Blossoms As Mining Shines

Mmegi/The Reporter (Gaborone)

COLUMN
21 December 2007
Posted to the web 21 December 2007

Brian Benza And Wanetsha Mosinyi

The year 2007 has been a hive of economic activity with all sectors recording significant investments, although mining will stand out as the most vibrant sector in the year.

All the macroeconomic indicators seem to be pointing in the right direction with inflation being tamed to manageable levels, although at 7.7 percent in November, it is still out of the central bank's objective. Increased economic activity is likely to boost the GDP while the central bank seems to be scoring points on the exchange rate management front. However, although authorities will be pleased with achievements made on the economic front, particularly the attraction of foreign direct investment (FDI) in the mining sector, a damning report by the United Nations released towards the end of the year spoiled the party a bit.

The report revealed that the country's high income levels have not been converted into an improved standard of living for Batswana. With a GDP per capita of US$12 387, the highest in Africa, Botswana was ranked 124 out of 177 countries as measured by the Human Development Index (HDI).

The HDI measures a country's average achievements in three basic dimensions of human development, which include life expectancy, income and knowledge, divided into adult literacy and primary, secondary and tertiary enrollment ratio.

Other African countries ranked ahead of Botswana in terms of human development such as Egypt, Tunisia and Algeria have nearly half as much GDP per capita, a development which suggests the country's inadequate improvement in the literacy and life expectancy category.

Looking at the respective economic sectors, the mining sector most certainly had the most activity. As bullish commodity prices continued their run in 2007, so has there been a significant growth in the mining sector and related activities, especially in the northern and central parts of Botswana had the most visible mining activities.

Diamond Trading Company Botswana (DTC Botswana) took centre stage in 2007. The appointment of its Managing Director and Board has been completed. The company announced the licensing of 16 diamond cutting and polishing companies who all met the criteria for supply and will become DTC Botswana Sightholders.

The Mmamabula Energy Project also took major strides this year. CIC Energy, in partnership with International Power, plans to construct a power station and an integrated coal mine. A power purchasing agreements ("PPAs") between South Africa's Eskom and Botswana Power Corporation has been signed. Russian mining giant Norilsk Nickel entered Botswana in June after acquiring LionOre shares for Ca$6,8-billion. The company now has interests in Tati Nickel Mines, Botswana Metal Refinery and BCL. Norilsk recently began construction of a P4 billion BMR Activox Refinery.

African Copper announced positive results for its Thakadu-Makala exploration properties. It also signed a five-year mining contract with Moolman Mining and its processing plant has been completed. African Copper's Mowana Mine (previously Dukwe) will produce its first concentrate in early 2008.

Discovery Metals published upbeat results for its Maun Copper Project, which comprises seven prospecting licences within the Kalahari Copper Belt. Positive results were also reported at their other project in Dikoloti.

This year also saw DiamonEx commence construction of its diamond mine near Lerala and secured about P98 million funding from Babcock & Brown. Carat production at the mine is scheduled for the first half of 2008. African Diamonds also announced positive results for its AK6 joint venture project with De Beers near Orapa. The AK6 resource is targeted to come on stream late in 2009. African Energy Resources discovered uranium at its Sese project while Aviva Corporation recently listed on the local bourse to raise capital to develop its Mmantswe coalfields.

With all these mineral developments and investment, the question going into 2008 is: will Botswana manage to diversify its economy from mining? In manufacturing (excluding diamond polishing and cutting), more new companies came onto the scene, a development which is going to boost the sector regarded as the missing link in national development. The year saw new companies set up in the leather/tannery industry, plastic bottle making and condom manufacturing, among others.

The improved performance in the manufacturing sector is partly attributed to Government facilities such as CEDA Venture Capital Fund. However, disappointment should be expressed with the CEDA main fund, which we reported this year to be on the brink of collapse due to high operational costs and poor or non-repayment of loans by beneficiaries.

CEDA's operations will need to go through the scanner next year, with a view to restructuring the whole system from both the policy and operational angles.

Not much was reported on the agriculture side in the year, although it is pleasing to note that more and more Batswana are developing an interest in farming, which should reduce its dependence on South Africa for food. With food shortages anticipated in the coming years, Government should put more effort in ensuring that the country can sustain itself as far as food requirements are concerned, which will mean more and more funds being pumped into the sector.

The financial services sector continued to grow in 2007, with institutions coming up with new and innovative products in a bid to survive in this highly competitive industry. A stable macroeconomic environment and prudent monetary policy has meant banks had to come up with new ideas on how to lure customers in a sector which some regard as already over-banked.

In the spirit of citizen economic empowerment, innovation and diversification, most financial institutions this year focused more of their attention on Small to Medium Enterprises (SMEs).

Barclays and FNBB signed a Memorandum of Understanding with the Local Enterprises Authority (LEA) to facilitate affordable funding for local entrepreneurs, while Standard Charted Bank crafted two products for SMEs. With talk of another bank coming on to the scene next year, competition is bound to get even tougher. Another milestone by commercial banks in 2007 was the establishment of the Botswana Credit Bureau, which will be an information sharing mechanism enabling banks to exchange detailed client information. The mechanism, which got operational this month, came against the backdrop of a high credit defaultment rate caused mainly by heavy indebtedness to multiple financial institutions by consumers.

The Botswana Stock Exchange has also been abuzz with action this year, which was just a reflection of what was happening on the ground particularly in the mining sector. The DCI opened the year at 6195.45 and has risen by 42 percent since. But it has been on a free fall in the last quarter, mostly due to market correction by commercial banks as investors thought shares were over-priced.

The highest level the DCI reached was 9866.19 points on 31 August 2007. Only two companies, Aviva and PrimeTime, listed on the Botswana Stock Exchange this year, while two others, LionOre and Forbes, de-listed from the bourse. Five companies listed on the BSE last year, which resulted in improved liquidity on the market.