Weak diamond demand weighs on Botswana’s growth

Botswana, known for its thriving diamond industry, is currently facing a challenging economic outlook as diamond demand weakens. The main driver of the lower expected growth for Botswana is the fact that diamonds are not shining as brightly as they used to for the end consumer. Diamonds are the lifeblood of the Botswana economy, representing about 90% of exports. However, diamond production is expected to slow down this year to about 0% from 6% last year. This decline is primarily due to a slowdown in global diamond demand, caused by factors such as uncertainty in the global market and slowing economies in major diamond markets like India and China. The main diamond company in Botswana, a joint partnership between the government and De Beers, has also lowered its production guidance for the year. Some diamond mines are closing down, further impacting production. The downstream diamond activities in Botswana, including wholesale operations, are expected to be affected, leading to reduced government revenues and possibly budget cuts, further hampering economic growth. In addition to the challenges in the diamond industry, Botswana's economic growth will also be affected by lower capital expenditure. The government has opted to cut capital expenditure to reduce the budget deficit, leading to lower taxes from diamond companies and impacting economic growth. The Botswana government has long emphasized diversification to reduce its dependence on diamonds. There have been efforts to explore coal exports as an alternative revenue source, particularly to South Africa. With opportunities arising from ISCOM's troubles, Botswana aims to export coal to South African power stations to reduce energy imports and expand export markets across Africa. Despite the economic challenges, Botswana is seeking increased investments to drive growth. However, the fluid political landscape, including the return of former President Ian Khama to the political scene and the formation of new parties, raises uncertainties about policy direction and business environment. The government will need to focus on diversifying the economy, providing incentives for manufacturing and agri-processing, and ensuring policy certainty to attract investments. While there may be concerns about the political situation impacting business confidence, it is unlikely to cause significant policy shifts, as the ruling party is expected to retain control in the upcoming election. The opposition parties in Botswana have similar policies to the ruling party, offering some stability in terms of economic policies and investment climate.