Botswana digs deep

Neil Ford

In Focus: Botswana

The world’s second largest producer of diamonds, Botswana is now looking at developing its vast coal reserves to diversify the economy and provide more employment for its relatively small population


Photo: De Beers

Photo: De Beers


Botswana has a well-deserved reputation for being one of the most stable countries in Africa, both politically and economically. A combination of substantial diamond revenues and a small population of just two million would count for little if it were not for sound governance. Intelligent mining sector reforms and the emergence of a strong banking industry offer the prospect of economic diversification, but it is another strand of the mining industry that is likely to take the economy on to the next level.

Diamonds exports account for 40 per cent of GDP and 72 per cent of export earnings, making Botswana the world’s second biggest diamond producer by volume after Russia, so the country could be seen in a similar light to other African states that rely on the export of a single commodity. However, the government ensures that it takes a large slice of diamond revenues. It jointly owns the world’s biggest diamond producer, Debswana, with South Africa’s De Beers and also holds a 15 per cent stake in De Beers itself.

However, diamond exports have not increased in recent years as quickly as had been hoped. The opening of the Ghaghoo Mine was delayed, while maintenance work at other mines curtailed production, although the new Karowe Mine has come on stream as expected. In addition, global prices were about three per cent higher in 2013 than in 2012, resulting in a 17 per cent year-on-year increase in diamond revenues in 2013.

Unlike in some other parts of Africa, the government’s efforts to encourage a diamond-processing sector have paid off. A total of 27 polishing and cutting companies now operate in the country and the polishing sector bought $770 million worth of diamonds last year. De Beers moved its Diamond Trading Company’s (DTC) aggregation, quality-assurance and sight-preparation operations from London to Gaborone last November. But economic diversification is vital if the country is to reduce its vulnerability to fluctuations in diamond prices.

The global financial crisis saw prices crash, which in turn resulted in a budget deficit of 15 per cent of GDP for Botswana in 2009-10. However, the government now operates a fiscal surplus, with the economy growing by 4.2 per cent in 2012 and then 5.4 per cent in 2013. This turnaround in fortunes has been achieved largely by a recovery in demand for diamonds, but government efforts to rein in spending have also helped. The total government wage bill, for example, was cut by ten per cent between 2010 and 2012. Diversification is also crucial in order to create employment. In relation to its contribution to GDP, diamond mining employs relatively few people.

The government has had great success with its poverty reduction schemes and the proportion of the population living below the poverty line fell from 30.6 per cent in 2002-03 to 20.7 per cent in 2009-10. Higher employment levels are needed, though, if this proportion is to be further eroded. The tourist sector is one option, as the country’s natural beauty and wildlife is becoming increasingly popular. Botswana’s biggest attraction, the Okavango Delta, was unveiled by UNESCO as the 1,000th World Heritage Site in June. The wetland area is home to many species of rare animals, including the African wild dog, and black and white rhinoceros. Visitors also have the rare opportunity to view animals by boat.

However, the most obvious source of new revenue is the coal industry. At present, Botswana produces only a very small amount of coal at the Morupule Colliery to supply a single domestic power plant, but it possesses vast reserves that have been untapped because of the difficulty of getting them to export markets.

Landlocked Botswana has traditionally relied on South African ports to handle most of its imports and exports, but there is insufficient capacity on the South African rail network to transport Botswanan coal to Richards Bay Coal Terminal for shipping around the world. However, Gaborone has redoubled its effort to find an alternative export route over the past decade and two main options have emerged: a new railway eastwards to a planned new port at Techobanine in southern Mozambique or another new line westwards to the established port of Walvis Bay in Namibia.

In March the governments of Namibia and Botswana finally put pen to paper on the construction of a new coal terminal at Walvis Bay and the associated 1,500 km Trans-Kalahari Railway (TKR). Total construction costs are estimated at US$9.2 billion. Road links between Botswana and the Namibian port have already been improved and traders are switching their business from Durban to Walvis Bay because of the shorter journey time. As a result, the government of Botswana has acquired a 50-year lease on an area at Walvis Bay for the development and use of Botswanan traders.

The new coal terminal is expected to have an annual handling capacity of 65 million tonnes, although the government of Botswana is hopeful that it could produce twice this volume in the longer term. To put this figure in context, South Africa is expected to export about 65 million tonnes of coal this year. Such a huge industry would obviously have a far bigger impact on Botswana’s small population than South Africa’s.

Onkokame Kitso Mokaila, Botswana’s Minister of Minerals, Energy and Water Resources, says: “The development of the TKR and commodity handling facilities in Walvis Bay will go a long way in facilitating the development of the estimated 212 billion tonnes of the coal resource in Botswana in power generation and others… The TKR will stimulate economic growth, employment and diversification in our two countries.”

It now seems unlikely that the Techobanine scheme will proceed, in the short term at least. Coal could also be used to supply a coal to liquids (CTL) fuel industry. Synthetic fuel production has a long history in South Africa, particularly by Sasol, which turns both natural gas and coal into motor fuel. Now the government of Botswana and the country’s Chamber of Mines are backing a two-year feasibility study into the commercial viability of a domestic CTL plant.

The government is also keen to promote the development of a coal shale gas (CSG) industry. CSG has revolutionised the North American energy sector, driving down prices, cutting exports and potentially opening up a new source of export revenue. Gaborone hopes that Botswanan CSG can be used to supply new power plants that could satisfy both the domestic market and the wider Southern African Power Pool, including regional economic heavyweight South Africa. This would be a major step towards the regional integration and trade that can transform the Botswanan economy.

About the author:

Dr Neil Ford is an independent consultant and journalist, focusing on international affairs, particularly in developing countries


Sorry, the comment form is closed at this time.

Amnesty International