Diamond exports soften on sluggish market
Brian Benza | Friday October 2, 2015 11:39
According to financial statistics released by the Bank of Botswana, the country exported $846 million worth of diamonds in the first quarter of 2015 compared to over $919m in the same period in 2014 while the first quarter exports were also 20 percent lower than last year’s.
The decline in rough diamond exports is in line with the glut being experienced in the diamond pipeline where overstocking of polished stones is forcing producers to trim output.
The export figures, however, only refer to the Debswana production as well as output from independent mines such as Ghaghoo and Karowe mines, but do not include aggregated supply from De Beers’ other mines.
Economic analysts see the decline in diamond production as a key indicator of growth as Debswana’s output slid 4 percent to 12 million carats in the first six months while its full year production target has been trimmed to 20 million carats from 23 million carats.
Consequently, Rapaport estimates that Debswana’s second half production will decline by 31 percent to about 8.5 million carats.
On the other hand, parent company De Beers has cut its planned output for 2015 to between 29 million and 31 million carats from an initial projection of about 34 million carats.
The bulk of this reduction is expected to come from Debswana, which accounts for two-thirds of the De Beers total. The prevailing headwinds in the diamond market have pushed finance ministry officials to cut the 2015 economic growth target by half while an envisaged P3 billion fall in custom revenues is seen pulling the 2015/2016 budget into a deficit.
The projected budget deficit is further exacerbated by an increase in government expenditure for the year due to public sector salary adjustments as well as cost associated with drought relief measures.
A 2016-2017 Budget Strategy Paper (BSP) released by the finance ministry recently, estimates the economy to grow by 2.6 percent while the budget balance is now seen posting a deficit of P4.03 billion or 2.6 percent of the GDP.
In February finance minister, Kenneth Matambo announced a growth target of 4.9 percent for 2015 while the budget was seen posting a surplus of P1.23 billion or 0.8 percent of GDP. “The domestic economy is forecast to grow by 2.6 percent in 2015, underpinned by expected decrease in demand for diamonds in the global market. A higher growth rate of 4.9 percent is projected for 2016. However, the downside to these projections continues to be the country’s high dependence on diamonds, whose demand and prices are subject to global fluctuations,” read the strategy paper.
Sluggish sentiment in the market has also seen sales for both of Debswana’s clients, De Beers and the Okavango Diamond Company (ODC), falling by over 20 percent in the first half of the year. Government gets 80 thebe from every pula worth of diamonds that Debswana sells to De Beers and ODC.