1. Thabelo Nemaorani April, 2013

2. Economic Background 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. DiamondsCoal Profit rate 80%30% Tax rate80%30% Govt revenue 64%9%

22. Conclusion Coal alone can’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