What began as a housing subprime credit crisis in the United States more than a year ago, has eventually unleashed a domino effect on many economies around the world. Botswana has not been spared. The crisis has come in the form of falling diamond prices, constricting diamond markets, falling base metal prices, fewer avenues for raising project capital, and lower foreign currency reserves due to declining mineral revenues.
The impact goes far beyond, also affecting offshore investments made by public, private and parastatal bodies, whose value has been eroded by the crisis. For the ordinary Batswana, the crisis has resulted in mine closures, resultant job losses, negative downstream implications, and general uncertainty within the economy.
Diamond prices on the world market rose by approximately 20% during the first three quarters of 2008, continuing a trend seen in previous years. Prices were largely fuelled by the supply/demand balance in the market, a trend towards higher value stones and the emergence of new buyers in the East. Now diamond prices are expected to decline by 15% in 2009, taking the lustre off the precious stone.
Diamonds, being a luxury product, are among the first to be struck off budgets by belt-tightening consumers in target markets, while diamonds for industrial use contribute less value to producers' bottom lines. Starting from last September, local analysts began warning that diamond prices would be hard hit by the global financial mess, which had its roots in the USA, the single biggest diamond market. Warning signs of hard times were seen on 30 October when DiamonEx received $20 per carat for 10,612 carats sold in its inaugural sale from the Lerala Mine. This was against the valuation of $48 per carat.
Botswana's diamond giant, Debswana (a joint venture between the state and De Beers), was not left unscathed as it was unable to sell any diamonds in November, and only recorded "very low sales" in December, according to the company's spokeswoman, Esther Kanaimba.
Sources also indicate that Debswana's January 2009 sales were similarly depressed. Of the 32.6 million carats produced by Debswana in 2008, only 28.9 million were sold by year end. The company shut down for four weeks beginning in mid-December as a cost-cutting measure. It is understood that Debswana saved more than 100 million pula (Botswana's local currency) through the shutdown exercise.
Starting this year, uncertainty has surrounded Debswana, with reports that the future of its 5,800-plus workforce is in jeopardy. Recent local media reports claim that the management has, apart from instituting a slew of cost cutting measures, asked workers to accept retrenchment or concede to half-salaries to reduce operational costs. In addition, the company has urged workers who have previously been unable to go on leave to do so now that demand is low.
Debswana's managing director, Blackie Marole, has said retrenchments will be a last resort and when done, these will be in consultation with workers' unions. A 29 January meeting of Debswana's board of directors stressed the importance of conserving cash in view of the reduced sales volumes at the company's mines. Thus, Debswana has requested approval from the Ministry of Minerals, Energy and Water Resources to suspend production at its Damtshaa Mine and Orapa Number 2 Plant for 2009. …