Botswana braces for another knock
Diamond-rich Botswana might feel the brunt of the United States’ plans to cut back on asset purchases in a bid to stimulate economic growth.
Ben Bernanke, the charismatic Fed Governor has announced the possibility of implementing the programme before the year ends. This will among others result with the world’s biggest economy slashing its monthly $85 billion on bonds purchases. This week two local observers concurred that Botswana could be affected either directly or indirectly especially since the country sells most of its diamonds to the world economy through De Beers. “When they implement it (reduction on asset purchases), it means the US will no longer put more money into the economy which has effects on production and consumer confidence,” said Karabo Tladi of the fund management outfit, IRPO Botswana. “In other words there won’t be more money to stimulate growth.” De Beers, through its Forevermark brand, sells diamonds to the US market and other global markets.
Locally, diamonds remain the biggest revenue earner within the mineral sector, which in turn contributes significantly to the national treasury. Tladi explained that the impact could be short term, but will have devastating effects to the already constrained diamond industry. “The announcement comes at a time when the Chinese and Japan economies are not as robust as we thought they would be,” said Head of Research at brokerage firm Motswedi Securities, Garry Juma. China, the world’s second-largest economy expanded by 7.5 percent over a year earlier in the three months ending in June, down from the previous quarter’s 7.7 percent, Associated Press reported last week. De Beers, a leading diamond producer owned by Botswana and Anglo American is hoping to diversify its market away from US to the East. Juma pointed out that the US economy is also facing fragile economic recovery, which has been steady since the 2008 economic recession. “The implications (of a cut back on asset buying) will happen the way the recession did to the local economy,” opined the seemingly disturbed Juma.
Both analysts believe that the ‘luxury’ commodity-diamonds- could be hard hit as consumers’ attention shift to more ‘basic stuff’. Announcing a possible cut in bond-buying programme, Bernanke cited challenges in unemployment and subdued economic outlook. Tladi said reduction on bonds buying is ‘not all bad’. “It has advantages in the sense that it may lead to lower inflation rates,” he said on Tuesday.
However, in a statement to the House of Representatives’ Finance Committee last Wednesday, Bernanke said the central bank’s assets purchases ‘are by no means on a preset course and could be reduced more quickly or expanded, as economic conditions warrant. Secretary of economic affairs at finance ministry, Dr. Taufila Nyamadzabo said, “Any restriction in spending will cut production. This will mean the economy will not grow hence demand for our products will be limited’. The US will grow marginally at 2,2 percent this year, the White House has said.
