ECONOMIC RECESSION GRIPS BOTSWANA AS ITS DIAMOND INDUSTRY FALTERS

Fri 08 November 2024:

Botswana’s economy is technically in recession, as the southern African country’s diamond sector is faltering on the global market, an official said on Thursday.

Innocent Molalapata, director of the research and financial stability department at the Bank of Botswana, the country’s central bank, told reporters at a media briefing held by the Monetary Policy Committee in Francistown, Botswana’s second-largest city.

“We are basically in a technical recession. When we have two consecutive quarters of contraction, that is classified as technical recession,” said Molalapata.

Botswana’s economy contracted by 0.5 percent year-on-year in the second quarter of this year, following a 5.3 percent decline recorded in the previous quarter, according to the latest figures from Statistics Botswana.

According to the statistical agency, the contraction in economic activity was driven by lower external demand for mining sector output, particularly diamonds. This has led to reduced export earnings, which is constraining government spending and impacting overall economic activity.

Central Bank Governor Cornelius Dekop confirmed that Botswana’s real gross domestic product contracted by 0.5 percent year-on-year in the second quarter, in contrast to the 3.4 percent growth recorded during the same period in 2023.

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Botswana, one of the world’s largest diamond producers, faces several challenges that threaten its diamond industry, impacting the economy and employment. The main issues include fluctuating global demand, competition from synthetic diamonds, and dependence on a single resource for economic stability.

Global demand for diamonds has been unstable, especially with economic downturns and shifts in consumer behavior favoring sustainability over luxury items. The rise of synthetic diamonds, which are cheaper and often marketed as eco-friendly alternatives, has created new competition, potentially diminishing demand for mined diamonds. This shift puts Botswana’s natural diamond industry at risk of losing market share to lab-grown alternatives.

Botswana also faces a unique dependency challenge; diamonds contribute roughly one-third of its GDP and more than 90% of its export revenue. As diamond reserves gradually deplete, the nation’s heavy reliance on diamonds for income has raised concerns about long-term economic sustainability. Efforts to diversify the economy have made some progress, yet sectors like tourism and agriculture aren’t yet sufficient to replace diamond revenue.

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SOURCE: INDEPENDENT PRESS AND NEWS AGENCIES

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