The waters are familiar because ever since minerals began to dominate values produced in the country decades ago, the economy became joined at the hip with the cyclical fluctuations of minerals, particularly diamonds.
Prior to that, cycles in the economy were more closely linked to periods of drought and periods of healthy rains, as values in the country were generally sourced from agricultural activities.
This year, as in the past, the economy has drifted into a diamond downturn, but the winds feel strange – the slump is less about the naturals’ highs and lows in demand, but more about a market shifting from naturals to synthetics.
The slump has thus become a moment of truth for the global natural diamond industry and an existential period of sorts for the local economy – where the decades of planning and pushing for diversification and transformation, suddenly need to materialise in results right away.
“Overall, growth in 2024 is expected to take a contractionary path, significantly lower than the earlier projection of 4.2 percent in February 2024,” reads the draft Budget Strategy Paper for 2025–2026 released recently.
Finance minister and Vice President, Ndaba Gaolathe, presented an even bleaker picture of the situation recently, noting that the contraction was expected to reach 1.7 percent but could be deeper.
“I must underscore that the projected growth may even be lower if downside risks to growth worsen,” he said in Parliament recently. “These include risks such as further disruptions in the diamond market, extreme weather conditions including droughts, floods, cyclones, and persistent defects in our major power plant.”
In the midst of all the bleak news and projections, the non-diamond mining sector has this year been telling a good story about the progress – albeit limited – made in diversifying the economy.
According to figures from Statistics Botswana, in the second quarter, all non-mining sectors of the economy recorded positive growth, helping to limit the impact of the protracted diamond slump. The second quarter represents the last available figures for Gross Domestic Growth, a measure of economy output. Third quarter figures are due to be released today (Friday).
In the second quarter, non-mining GDP increased by 4.2 percent compared to 3.8 percent registered in the same quarter of the previous year.
Key sectors recording growth included manufacturing which rose 2.8 percent, construction which increased 3.4 percent, accommodation and food services (4.5 percent) as well as finance, insurance and pension funding (3.8 percent), all underpinned by stable electricity and water supply. Real value added by the electricity sector rose by 48.2% in the second quarter, as opposed to a decrease of 57.4% registered in the corresponding quarter of 2023, whilst the water sector recorded 2.2 percent growth in real value added in the second quarter of 2024.
Even the agriculture sector, which is traditionally a weak performer, registered 0.3 percent growth in the second quarter.
Thus far, the new government’s priorities in the economy have been focused on restoring fiscal stability by cutting spending and setting a trajectory to restock national savings, particularly the Government Investment Account which houses government reserves.
However, through both the State of the Nation Address and remarks by Gaolathe, the new administration has given signals on the broader economic policy priorities it intends to pursue going forward.
In the main, the new government intends to pursue the transformation and diversification agenda established by the previous administration, although with a focus on new sectors of potential growth.
“We are determined to cultivate seeds for a harvest of a diversified economy that depends less on diamonds,” Gaolathe told legislators. “Part of our solemn task, as a nation, is to develop distinctive competencies in new sectors to drive foreign direct investment, export earnings, job creation, skills development, and broad-based socio-economic development.”
The major challenge will be the pace of implementation of policy and the fiscal space within which to achieve the targets for diversification. Gaolathe said political will, which for decades has weighed on the pace of transformation and diversification, is guaranteed under the new administration.
“We have a determined President, determined to lift the lives of many of our people,” he said.
Although diamonds have proven over the years to be the Biblical “broken reed on which if a man leans, it will pierce his hand,” the recovery of the shiny stones will unavoidably be key to broader improvement in the economy going into 2025.
