Botswana cannot rely on diamonds for economic growth

Diamonds As always, the global diamond market is of greatest importance for Botswana.

After a dismal performance in the second half of 2015, the recovery in sales of rough diamonds that started in the first quarter of 2016 continued through the second quarter.

Econsult Review 2016_2nd Quarter_

The reduction of rough supplies in 2015 had the desired effect of unblocking the diamond pipeline – the downstream diamond traders, cutters, polishers and jewellery retailers – and restoring demand for rough.

This recovery provided a major boost for export earnings and government revenues, such that the large balance of trade and fiscal deficits experienced towards the end of 2015 should have been eliminated, or at least significantly reduced. This doesn’t mean that the diamond market is out of the woods yet.

Consumer demand for jewellery remains weak, especially in China, meaning that even a restored flow of diamonds through the pipeline is at lower levels than in recent years. The ability of mid-stream players to hold diamond stocks is also under pressure, especially with the announcement by Standard Chartered Bank that it is withdrawing from the financing of diamond firms, which will take around $2 billion out of the global industry.

Hence, even though the market has stabilised, major producers are being extremely cautious, and Debswana has no plans at present to increase production above the revised target of 20 million carats for 2016. Other signs of weakness are reflected in the decision by one of Botswana’s smaller diamond producers, Gem Diamonds, to reduce production at the Ghagoo mine.

It may also be one reason why Lucara Diamonds’ Lesedi La Rona gem from the Karowe mine – the largest rough diamond found in over 100 years – failed to reach its reserve price when put up for auction in London in late June. More positively, another small mine, Kimberley Diamonds’ Lerala Mine, re-opened in Q2. 

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