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Role of Coal in Botswana’s Future Economic Developments

Role of Coal in Botswana’s Future Economic Developments. Thabelo Nemaorani April, 2013. Economic Background. Upper-middle income economy, GDP/cap around $7500 – among the highest in SSA Long period of rapid growth since independence in 1966

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Role of Coal in Botswana’s Future Economic Developments

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  1. Role of Coal in Botswana’s Future Economic Developments Thabelo Nemaorani April, 2013

  2. EconomicBackground • Upper-middle income economy, GDP/cap around $7500 – among the highest in SSA • Long period of rapid growth since independence in 1966 • Diamond mining historical the largest economic sector – around 30% of GDP • A dominant role for government in the economy – largely financed by mineral revenues

  3. Economic Growth - 5year averages

  4. GDP Growth • Sluggish growth • Total GDP grew by 3.7% in 2012, slowing down from 6.1% in 2011 • NMPS recorded growth of 7.5% in 2012 (9.7% in 2011) • Mining output contracted by 8.1% in 2012 (-2.4% in 2011)

  5. Sources of growth 2003-2012 (economy diversified?)

  6. International Trade

  7. Share of Exports in 2012(Need for Export Diversification?)

  8. Exports, Imports & Trade Balance • Both imports and exports have growth steadily since early 2009 • Imports driven by higher fuel prices • Exports spiked in 2012 H2 due to recovery in diamonds, but have since fallen back • Perpetual trade deficit

  9. Fiscal Position

  10. Sources of Government Revenue • SACU largest share (34%) in 2012/13, first time since 1970’s • Mineral’s share declining • Fell from 48% in 2006/07 to 29% in 2012/13

  11. Employment

  12. Formal Employment levels • Most recent data-June 2011 • Total of 335,156 jobs • Formal employment growth slow – 1.5% in year to June 2011 • Job creation insufficient: • 4,828 new jobs in 12 months • Approx 15-20,000 new jobs needed each year • Official unemployment rate (2009/10) 17.8%

  13. Share of formal employment – June 2011 • 335 156 jobs in to formal employment • Relative to GDP shares, govt has high employment, while mining share is low • Mining share 4 % (11,688)

  14. Botswana faces challenges of; • Undiversified exports • Fiscal dependency on Mineral revenues • High unemployment

  15. Is Coal the answer to Botswana’s Challenges?

  16. Coal Economic opportunities • Coal mining- large reserves ( estimated 212 billion tonnes) • Coal exports (India and China is potential markets) • Electricity generation for domestic use and export • Coal exports need dedicated railway line and Port Faced with 3 Options: • Through Zimbabwe to Mozambique in East (complex) • Trans-Kalahari through Namibia (simpler) • Through South Africa’s (Waterberg area) and use existing infrastructure (limited capacity)

  17. Projected Mineral Exports (real) • Coal exports projected to grow steadily till they plateau at P 15.9 bn in 2024 • At peak of Mineral export in 2025, coal’s share is 23% (diamond’s share is 60%) • Coal becomes increasingly important as Diamond export deteriorates • However, coal cant replace diamond exports

  18. Projected Real Govt Revenues from Mining • Mineral Govt revenues to increase until they plateau at around P26 bn • Remains fairly stable from 2017 until 2026 • The decline brought upon by fall in Diamond sector

  19. Projected Employment levels • Coals contribution to employment low • Coal employment to peak in 2024 (6,759 ) • At peak, only accounts for 2% of total employment & 35% of employment in mining

  20. Barriers /challenges • Narrow window of opportunity • Increased efforts to reduce Green House Gas emissions • Renewable energy (solar and wind) getting cheaper • High risk • High investment on uncertain future • No real alternative use of infrastructure • Coal can’t fully replace diamonds as source of Govt revenues • Relative profitability (coal much less profitable to mine than diamonds) • Tax rates (lower on coal compared to diamonds)

  21. Diamonds Vs Coal • If you replace a BWP 1 bn worth of Diamonds with a BWP 1 bn worth of Coal, Govt stands to make less • Diamond have a higher profit margin and taxed more than Coal.

  22. Conclusion • Coal alonecan’t replace Diamonds, especially with respect to: • Exports • Government Revenue • But it can make a significant contribution – along with other activities – to economic diversification • Need for swift action on providing the necessary infrastructure • Railway line (West or East) • Dedicated Port

  23. Thabelo Nemaorani thabelo@econsult.co.bw

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