Fiscal boost as diamond sales recover
Brian Benza | Friday January 13, 2017 18:00
Latest financial statistics from the Bank of Botswana show that, thanks to higher mineral revenues, the national budget recorded a P1.65 billion quarterly surplus in the three months ending September 2016.
This was the first quarterly budget surplus since the three months ending March 2015 and it was largely driven by P14 billion tax revenue, which includes mineral royalties and dividends.
This was the highest quarterly tax revenue figure since the 2012-2013 financial years, which is the last quarterly budget figure availed by the central bank.
The quarter ending September 2016 also realised a tax revenue of P1.08 billion, itself also the highest since the last quarter of the 2014-2015 financial year.
Government gets about 80 thebe from every pula worth of diamonds sold by Debswana to De Beers. Diamond revenues are accrued from state-owned Okavango Diamond Company (ODC), which sells 15% of Debswana run on mine annual output.
According to estimates provided by Rapaport, De Beers closed 2016 with sales up 36% to $5.58 billion.
“Rough sales increased significantly in 2016, largely due to the low base created when rough demand slumped in 2015.
“Mining companies sold more diamonds in 2016 at lower prices than the previous year,” Rapaport stated.
On the other hand, Okavango’s reported sales grew 80% to $546.5 million in 2016, with its average price declining 13% to $160.25 per carat.
“We expect rough demand will improve in the first quarter as manufacturers start to ramp up production to meet resurgent polished demand. It will be a challenge for mining companies to resist raising rough prices, but manufacturers are more determined not to overpay for rough than they used to be.
“There is also some concern rough supply will increase as various new mining projects come to fruition. Miners and manufacturers will be careful not to oversupply rough or polished to the trade, which might lead to a repeat of 2015’s rough price bubble and resultant market slump,” Rapaport added.
Although Debswana is expected to have kept production at a flat 20 million carats in 2016, fiscal authorities will be encouraged by the numbers that show mining bounced back in the third quarter of 2016 to anchor a 4.5% jump in Gross Domestic Product (GDP).
Latest figures from Statistics Botswana show that the domestic economy increased by 4.5% in the third quarter of 2016 compared to a decline of 5.4% recorded in the same quarter of 2015.
The increase was attributed to real value added of water and electricity, mining, trade, hotels and restaurants, and transport and communications, which increased by 59.0%, 13.3%, 6.8% and 5.1% respectively.
The significant growth in the real mining value added of 13.3% was attributed to the increase of the diamond industry value added by 9.3% in the third quarter of 2016 compared to a decline of 33.4% registered in the same quarter of the previous year.
In the quarter under review, diamond production increased by 9.3% due to positive recovery in the global markets, particularly in the major markets for diamonds.
“In 2016, diamond prices remained relatively stable and therefore the diamond industry has not been significantly impacted by the commodity price downturn. The revenue generated from diamond industry sales have been higher in the current year,” Statistics Botswana stated.