The fact that the decline in demand and prices for diamonds has affected the economy

From advertising agencies in New York's Madison Avenue is far to Gaborone, but for Botswana, success largely depends on the advertising campaign that De Beers will launch in the coming weeks.

Just like the oil-exporting countries, which now suffer from a deficit because their annual budgets were compiled on the basis of a price of $ 100 per barrel of oil, and now it has fallen below $ 50, Botswana suffers from falling sales and prices On the diamonds mined in the country. Diamonds account for about a third of the country's GDP, 80% of exports and 40% of all government revenues.

Last week, Botswana's Finance Ministry revised its forecast for GDP growth in 2015, lowering the figure from 4.9%, mentioned earlier, to 2.6%. The Ministry of Finance also revised the budget and announced a GDP deficit of 1.1% in the 2015-2016 fiscal year, although a surplus was previously predicted.

"The main factor in reducing these forecasts remains the country's strong dependence on diamonds, whose prices and demand are subject to global fluctuations," the ministry wrote in its strategy for the 2016-2017 fiscal year published on September 11.

Decrease in production and exports

Botswana has recently made some progress in diversifying the economy - the Ministry of Finance reported that in 2014 growth in non-mining areas outpaced growth in production. However, the fact that the decline in demand and prices for diamonds has affected the economy of the country, recalls that Botswana is still heavily dependent on the extraction of precious stones, and in particular from De Beers. It is estimated that 80 cents per dollar received by the company from rough diamond sales goes to the government that owns a 15% stake in De Beers, and is also its equal partner in the mining corporation Debswana and the trading company DTC Botswana.

As De Beers sales fell, Botswana's diamond exports declined 15% year-on-year to $ 1.7 billion in the first half of 2015, according to the Bank of Botswana. Deliveries abroad are expected to reach the lowest level in five years in the second half of the year, as De Beers sales fell again in July and August, and this trend is expected to continue until the end of the year.
Economists see the main indicator of growth in the decline in diamond output - in the first six months of the year, the extraction of diamonds by Debswana fell by 4% to 12 million carats. This decline has a wider impact on economic growth, as mining is an important component of the country's GDP, says Keith Jefferis, managing director of Econsult Botswana and former deputy general manager of the Bank of Botswana.

De Beers lowered its production plan in 2015 to a figure of 29-31 million carats from a previously projected 34 million carats. Basically, this decline will occur at the expense of Debswana, which accounts for two-thirds of the entire production of De Beers. Debswana's secretary for economic and financial planning, Taufila Nyamadzabo, notes that the company reduced its production forecast in 2015 from 23 to 20 million carats, according to Reuters. Consequently, according to Rapaport, Debswana's production in the second half of the year will decrease by 31% and amount to about 8.5 million carats.

The protracted decline

Now Jefferies is not too worried about the budget, since, as he noted, the government has a surplus of the current account and balance of payments, as well as sufficient foreign exchange reserves to complete the year 2015. Botswana benefited from a two-year boom in diamond mining, which stimulated GDP growth by 4.4% in 2014 and by 9.3% in 2013. In addition, growth of 2.6% and a small deficit is projected for this year - it's not so bad in the light of today's economic reality. Next year, he stressed, there will be another story, and there may be additional difficulties if the fall continues - and some experts consider this likely.

"We see the risk of an even more pronounced deficit due to a protracted fall in global demand for diamonds due to the rebalancing of the Chinese economy and a reduction in spending on luxury goods," Moody's Investors Service analysts wrote on August 27. "Given the weight of the proceeds from the sale of diamonds to the budget, a prolonged global recession could lead to a loss of current account surpluses and make fiscal consolidation an essential component of government policy."

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