Tough economic times ahead

Bank of Botswana (BoB) has cautioned that the ripple effect of weakened natural diamond demand may translate into scaling down of production by mines, leading to job losses in the mining and related sectors presenting economic crisis. BoB warned on its Financial Stability Report (FSR) October 2024 that diamonds dependency is amplifying Botswana’s vulnerabilities. 

According to the report, household incomes will decline, impacting consumer spending and putting pressure on businesses, particularly those that rely on domestic demand. 

It said this scenario translates into higher NPLs for banks, eroding their profitability and capital buffers. 

“The stress test reveals that while banks can withstand a moderate decline in diamond revenues, a severe and prolonged downturn could push some institutions below regulatory capital requirements,” said BoB. 

BoB said the stress test simulates a scenario where global demand for diamonds plummets, perhaps due to a global recession or a shift in consumer preferences towards alternative luxury goods. This shock is assumed to reverberate through the economy, impacting government revenues, employment, and ultimately, the ability of borrowers to repay their loans. 

Mining Production 

On the other hand, Statistics Botswana (SB) said mining production in Botswana has declined by 27.7 percent in the third quarter of 2024 particularly influenced by sharp decline in diamond production which contributed 26.8 percentage points to the overall Mining Production index. 

Statistics Botswana highlighted this in its Index of the Physical Volume of Mining Production, third Quarter 2024 report which is currently under review. 

According to the report, the Index of Mining Production (IMP) stood at 71.5 during the third quarter of 2024 compared to 98.3 registered in the same quarter of the previous year, showing a negative year-on-year growth of 27.2 percent. 

It said the main contributor to the decrease in mining production were diamonds, which contributed negative 26.8 percentage points. Coal and Soda Ash were the only positive contributors to the overall mining production, each contributing 0.1 of a percentage point. 

“The quarter-on-quarter analysis shows a decrease of 9.9 percent from the index of 79.4 registered in the second quarter of 2024 to 71.5 observed during the period under review,” said Statistics Botswana. 

Diamond production decreased by 31.0 percent (1,845 thousand carats) from 5,944 thousand carats during the third quarter of 2023 to 4,098 thousand carats during the period under review. 

Similarly, quarter-on-quarter analysis shows that production decreased by 14.8 percent (713 thousand carats) during the third quarter of 2024 from 4,812 thousand carats recorded during the second quarter of 2024. 

Copper in Concentrates decreased by 0.6 percent (80 tonnes) from 13,081 tonnes registered during the third quarter of 2023 to 13, 001 tonnes during the period under review. 

On the contrary, quarter-on-quarter analysis shows that production increased by 15.9 percent (1,784 tonnes) during the third quarter of 2024 from 11, 217 tonnes produced during the second quarter of 2024. 

“Gold production recorded zero production during the period under review. Soda Ash production increased by 10.0 percent (7, 741 tonnes) from 77, 730 tonnes during the third quarter of 2023 to 85, 471 tonnes produced during the period under review,” said BoB. 

Similarly, quarter-on-quarter analysis reveals that production increased by 73.2 percent (36,116 tonnes) during the third quarter of 2024, from 49, 355 tonnes registered during the second quarter of 2024.