After a tough few years, Botswana seems set for fresh growth as new projects and infrastructure come on line.
By Eduardo Arcos
In 2016, the streets of Botswana were filled with blue, white and black flags, celebrating 50 years of the country’s independence. This southern African nation of just 2 million inhabitants has much to celebrate. Following its independence, the country was one of the poorest nations in the world, with virtually no developed infrastructure and economically dependent on a small beef industry. Since then, the country has undergone a dramatic transformation, becoming one of the most democratic and stable countries in the continent, as well as boasting one of the highest GDP per capita rates in Africa. In fact, from 1966 to 2014, Botswana’s GDP per capita increased at a sustained average of roughly 6% per year, one of the highest rates of any country during that time period.
Botswana’s diamond trade largely sustained this stellar economic performance. Nonetheless, adequate policies and good governance also played a significant role in Botswana’s transformation, leading the country to escape the fate of other African nations where mineral wealth has not delivered economic development.
However, Botswana has not been immune to the global mining slump, as mining accounts for roughly 21% of its GDP. The latest full-year figures by the Bank of Botswana show that mining output declined by 11.8% during 2015. This was mainly attributable to a 12.2% decline in diamond production during that year, as global demand weakened. Moreover, the country’s copper and nickel mines have suffered greatly from the slump in prices over the last two years, leading to the closure of the mines operated by Messina Copper, Tati Nickel and BCL.
Despite these adverse developments, Botswana has experienced a turnaround during 2016, mainly driven by diamonds. Revenues from these gems are expected to surge by over 25% this year on stronger global demand while the country is expected to post production growth of roughly 3%. During the third quarter of 2016, Debswana, the country’s largest private employer, announced a 12% increase in production relative to the same quarter of 2015, with production at Jwaneng mine up by 47%. Moreover, prospects for the diamond industry continue to brighten, as DeBeers announced that its consolidated rough diamond sales increased by 77% during the third quarter of 2016, to 5.3 million carats. Other diamond producers, such as Karowe mine and Gem Diamond’s Gaghoo mine are operating at full capacity, adding up to optimism in the industry.
This optimism has also reached equipment and service providers, who have experienced a sharp drop in new orders over the past year but are now increasingly bullish about future prospects, as new projects loom in the horizon. “We have been talking to companies about new projects, expansions, or the reopening of sites. 2017 is looking good and hopefully the recovery will translate into orders of new capital equipment. Our prospects for 2018 are very bullish because of what we have been hearing from our clients,” declared Archibald Seleka, country manager at Atlas Copco.
Simultaneous to the recovery of the diamond industry, the Botswana government has reiterated its commitment to diversify the country’s mining sector, which remains overwhelmingly reliant on rough diamonds. Among the initiatives undertaken in this pursuit stand the promotion of diamond trading, cutting and polishing activities, and the conduction of countrywide studies to monetise Botswana’s coal resources.
The uptick in coal prices experienced this year has already attracted investors and increased optimism from those already present. “We believe our Botswana project is 100% successful. The project is now a reality and it is just a matter of time until we start. We are working on mitigating the risks before starting and I believe 2017 will bring more good news on the projects. If you see the industry as a whole, the last two years have been the lowest and now is the time to move upwards,” declared Neeraj Saxena, project manager at Jindal Africa.
Furthermore, Khoemacau Copper, owned by Copper Canyon Capital, is in the construction phase of its Zone 5 project, currently the only copper project in Botswana. However, the company holds nine prospective licences and its regional manager, Johannes Tsimako, has highlighted the advantages of operating in Botswana: “First of all, there is security of tenure, allowing to progress from one stage of the project to another without any bottlenecks. The Ministry offers certainty because they really understand the nature of the projects. We have a very positive relationship between stakeholders and the authorities, who are very supportive”.
Botswana needs to upgrade its energy sector and the government foresees coal as the main driver of this transformation. The National Energy Policy, currently tabled in parliament, aims to achieve energy self sufficiency at first, as demand is expected to grow by roughly 50% by 2025, but ultimately envisions the country as an energy exporter for the Southern Africa region. Work on transmission lines to South Africa and Namibia is already underway. Jindal is currently developing its Mamabula project, which will be divided in three phases and once completed, is expected to produce 3,000 MW. Likewise, Shumba Resources is developing its Sechaba energy project, envisioning a 300 MW power station and associated coal mine.
Green energy projects are also envisioned in Botswana’s energy plan, which includes the development of a 100 MW solar plant and a target of 18% penetration of renewable energy sources to installed electricity capacity by 2018. Meanwhile, environmental regulations for coal projects are also in place. “The global drive is for clean coal, as it is done in Japan and South Korea. This is the reason why we have partnered with companies from those countries to provide expertise on the best practices for our projects, considering environmental regulations,” declared Thapelo Mokhati, director at Shumba Resources.
Long-awaited, ambitious infrastructure projects have also been revisited as commodities recover, mainly a railway line linking Botswana to neighbouring Namibia and Mozambique. Governments from these countries have expressed their support for these projects and plans are underway to turn these into a reality. Mokhati stated: “The only way Africa is going to develop is through hard-core infrastructure projects on the ground. We see ourselves as playing a role in the Africa rising narrative on the ground, not just as newspaper headlines”.
Botswana’s ambitious energy and infrastructure plans have the potential to transform its mining sector and reduce its reliance on diamonds. In order to bring these projects to reality, the government needs to demonstrate that the country is the better suited in the region to attract investments. In this regard, Botswana has much to boast about. According to Transparency International’s Corruption Perception Index, Botswana ranks as the least corrupt country in Africa, while The Economist’s Global Democracy Index places Botswana as the second most democratic country in the continent, only after Mauritius. This political stability, together with improved economic prospects will inevitably lure investors to this safe haven. For Botswana, all the right components are in place, and expectations are high.