Mining revenues down P3bn, jobs down 2,000

Brian Benza | Friday April 22, 2016 18:00

 

The prevailing commodity prices slump is a global economic phenomenon largely caused by a slow recovery in the world economy. Africa’s largest economy, Nigeria is feeling it with the crash in oil prices having seen the country’s 2016-budget post a record deficit. Next door, the Zambian Kwacha is reeling from it with the collapse of copper prices and Botswana, with 80 percent of its foreign exchange revenue coming from one commodity, has unsurprisingly not escaped the commodity price slump.

 

Mining production slump

Gross Domestic Product (GDP) figures recently released by Statistics Botswana paint a picture of an overheating economy, dragged into the red largely by lower diamond and copper output.

As much as the current water and power challenges have their own fair share of input towards negative growth of -0.3 percent in 2015, Statistics Botswana figures show that real mining value-add decreased by 30.5 percent in the fourth quarter of 2015 compared to a decline of 0.2 percent registered in the same quarter of the previous year. The real mining value added also decreased significantly in the third quarter of 2015 by 40.6 percent.  This, according to SB, is attributable to the continued weak recovery in global markets, particularly in the major markets for diamonds. In the quarter, copper and diamond production decreased by 59.7 percent and 20.4 percent respectively.

 

Job layoffs

Apart from the impact on the fiscus, parallel familiar effects have also been felt on employment figures with over 2,000 jobs having been lost since the beginning of last year largely due to cost cutting at Boseto, Aveng Moolmans, Thakadu and Mowana shutting down.

Factor in reports that BCL Mine plans lay off close to 2,000 workers while Ghaghoo may cut 100 jobs, and the total number of redundancies might breach the 4,000 mark.

FNBB Research Manager, Moatlhodi Sebabole believes the current status of the economy might have far reaching consequences beyond negative GDP or a budget deficit.

“The recession indicates over-reliance on the mining industry, particularly diamonds as the export concentration for diamonds stand at 80 percent, while mining contributes over 18 percent to GDP.

“These indicate that small strides have been made towards diversification of the economy and as such growth prospects remain fully skewed to developments in the diamond industry.

“There are far reaching implications across the make-up of economic dimensions, particularly on the balance of payments, fiscal budgetary outlook, economic diversification drive and prospects for economic recovery.”

 

Budget deficit

The negative growth also coincides with a period where the fiscus envisages a cumulative deficit in line with declining revenue and rising expenditure, in line with stimulus and funding of state-owned enterprises.

The crash in both commodity demand and prices not only dragged the economy into a recession in 2015, but the budget balance also slipped into a deficit as minerals revenue fell by over P3 billion from P21.5 in 2014 to P18.2 billion last year. 

The revised 2015-2016 budget shows a deficit of P4.20 billion or minus 2.8 percent of GDP compared to the original projected surplus of P1.23 billion.

For the current financial year, fiscal authorities see the overall balance worsening to an estimated budget deficit of P6.05 billion or 3.8 percent of the GDP.

“This implies that there will be need to employ much more prudent fiscal management to steer expenditure towards investment on economic assets that will revive an ailing economy. There is need to consider medium-term fiscal frameworks and budgetary reviews so as to ensure full utilisation of limited funds and effective implementation of the capital budget,” Sebabole said.

“Lower current account balances will also affect both the Pula Fund and the real effective exchange rate and might put our balance of payments under duress. As such, there will have to be structural reforms to allow a congruent fiscal and monetary policy – both aimed at economic expansion and allowing for growth in both consumption and investment so as to allow thriving household and business activities,” he said.

 

Outlook

Due to the cyclical nature of the commodities’ markets, a robust rebound is only expected from 2017 with the diamond market already showing signs of a recovery.

 In line with an anticipated recovery in commodities prices, analysts expect diamond sales to slowly gather momentum, resulting in estimated GDP growth rates of 3.1 percent in 2016 and 3.7 percent in 2017.

In the absence of a robust recovery of the commodities market this year, expectations are for the service sectors to continue leading growth as the primary sectors of agriculture and mining remain stressed in the medium term.

“Yet, we believe that the risks to the outlook are tilted to the downside as global growth might disappoint, while a lack of domestic fiscal implementation could drive growth lower,” said Sebabole.