If 2015 was a bad year for Kitso Mokaila, then 2016 is not promising any reprieve as his key sectors remain in ICU. The former army captain will have to draw on some of his military training tactics for staying power. He heads a ministry that is at the forefront of addressing and cautioning the effects of the most devastating challenges facing the country today. You count minerals, they have suddenly lost value; energy, local supply has dwindled at the back of failure to develop timely local supply capacity; and water – devastating drought has left the country reeling from its worst water shortage in ages.
It is almost a case of the country having gone back full circle – back to square one to early independence days before the discovery of diamonds when economic activities were more agrarian though at the time population was low and rain was in abundance. And as was the case last year, all eyes are on the Minister of Minerals, Energy and Water Resources, Kitso Mokaila as the 2016 economic journey begins. He has nowhere to hide. He should brace himself for absurd requests of playing God and making the rain fall or otherwise face protest marches and unrelenting attacks from across the Parliament floor.
The somber spectacle of mines closing and production being reduced in others while an ambitious beneficiation scheme that saw the relocation of the diamond sorting and aggregation system from London to Gaborone is not as lucrative as used to, has left Mokaila in a desperate position. The head count of employees that were in the mining sector at the start of 2015 has shot down. Where production has been reduced, employees are spending more time idling at home than busy at their work stations. Most were given extended rest during the festive season. Statistics Botswana’s latest report on the performance of the mining sector paints a gloomy picture of what has been the country’s biggest revenue earner.
“Diamond production declined for the fourth consecutive quarter reflecting a decrease of 33.4 percent in the third quarter of 2015 as compared to the third quarter of 2014. The continued decline is as a result of the weakening demand for diamonds in the global market. Copper-Nickel-Cobalt Matte production decreased by 61.6 percent in the third quarter of 2015. The decrease was largely attributable to the smelter shutdown which took more than the anticipated time. Copper in Concentrates production decreased by 84.0 percent in the third quarter of 2015. This is attributable to the liquidation of one of the copper mines which is currently not producing owing to re-organisation following take over by new management.
This decrease followed a 69.7 percent decline recorded during the second quarter of 2015,” said Statistics Botswana in an economic review of the third quarter of 2015. Regrettably Mokaila has no way of controlling the world commodity prices and with this week’s crash of China’s financial market, indications are that it will take more time for the world’s leading commodities consumer to recover. And he has to pay a price for other sectors that failed to grow to caution the economy against the effects of overly depending on one sector.
At Debswana, the management has mounted survival helmets – closing Damtshaa mine for three years while reducing production at Orapa. At the initial stage the company has maintained that there will be no job losses as it plans to redeploy employees to other busy sections and even to Jwaneng mine whose production is to remain higher. But the Botswana Mine Workers Union (BMWU) believes there is better solution to the current developments – employees must be offered voluntary exit packages. “The three years is not even definite, the problems in the diamond market could continue beyond that, for all we know," said Jack Tlhagale, BMWU president recently.
Debswana is the biggest contributor to the GDP, and has been the cornerstone of the local economy since discovery. Although Debswana may not lose financially because they have enough stock to sell for the next three years without production, so its cost saving, the closure will negatively distort forecast profits. With demand for diamonds low, Sightholders have found themselves stuck with stock of jewellery and precious stones that they could not sell anywhere. This has resulted with some local diamond polishing firms retrenching employees. De Beers has had to downgrade some of the sights, on the basis of reduced demand.
And critics of the diamond giant are not relenting. Chairman of the Rapaport Group Martin Rapaport led the attacks on De Beers, going further to call for the resignation of De Beers CEO, Philippe Mellier. He accused them on of running a Ponzi scheme where they are not only starving the trade of profits, but have begun to starve the people of Botswana of revenue by halting their rough purchases and payments.
Meanwhile BCL Mine which for years has relied heavily on Government bailouts has faced even more serious financial crisis as a result of the sharp fall in Copper prices. Worsening the situation has been the fact that the smelter which was being rehabilitated has closed longer than usual. For the past year Mokaila has been messenger of doom among his cabinet colleagues; always cap in hand pleading for bailouts for BCL and other organs under his watch. Having secured a huge bailout last year, it is said even before the end of the first month of the year he is already pleading for Government approval of another bailout for the copper mine.
Demonstrating how desperate the situation has become, Mokaila publicly pleaded with his South African counterpart to see to the completion of sale of Nkomati mine in South Africa where BCL has bought Norilsk assets. This was expected to see a slight improvement in BCL as it would then get to process some of the produce from Nkomati mine. By late last year Mokaila was ready to fly out even at short notice to ensure that this deal was finalised.
National Budget deficit
With the mining sector having been the mainstay of the country’s economy for years, it is almost a forgone conclusion that following low sales and revenue from the sector the national budget (2016/17) that is to be tabled early next month will reflect a huge deficit.
Power supply in the country is expected to remain subdued this year as major work on rehabilitating Morupule A and work on Morupule B continues. This means that external sourcing of power shall remain, leaving the country as vulnerable as it has been. Its major supplier ESKOM – South Africa power utility – still has to meet primary power requirements before supplying regional partners. The country’s attempt to diversify energy supply by developing solar energy is still slow and neglected. This means that recent problems of power outages that resulted with many businesses suffering heavy losses shall continue in 2016. Companies have been forced to identify alternative sources like generators to ensure that they keep afloat.
Devastating drought has led to a complete drying up of Gaborone Dam – major water supply to the capital city. As 2016 opens, there have not been any rains in the country to restore water in the dam and worse still all other dams around the country are running at below full capacity. Water supply from South Africa’s Molatedi Dam, which is equally suffering from severe drought, has been cut due to the dwindling of the water level in the dam. Though Botswana has just cut a water supply deal with Lesotho, it will take years for the pipeline to be developed to provide the country with alternative supply.
Meanwhile constant North South Water Carrier Project pipelines breakdown have not helped the situation with the national water utility Water Utilities Corporation (WUC) also facing leadership and financial crisis to offer credible and inspiring solution to the current situation. While not asking Mokaila to have miraculous rain powers, it is the much needed insightful interventions and solutions that are expected of him and his team. With or without rain, problems faced by WUC since it absorbed the Department of Water Affairs have frustrated local communities who feel that councils should have been left to manage their water requirements.
For Mokaila, it could be wise, to advise Cabinet that it retraces its steps to reduce the burden on WUC and forthwith empower districts to develop water sources to supply their areas. WUC is too big, cumbersome, overwhelmed and too broke to manage the situation as it is.