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Sep 15, 2009
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Slump shows Botswana rough side of diamond trade

By
Reuters
Published
Sep 15, 2009

LETLHAKHANE, Botswana (Reuters) - It is a long way from Wall Street to Granny's Lodge in central Botswana, but the slump triggered by the fall of Lehman Brothers a year ago has nonetheless turned Gracious Oageng's career dreams to dust.



"I'm here because of the recession," said the 19-year-old woman sitting behind the guest house's spartan reception desk, leafing listlessly through a reservations book whose blank spaces tell of all the people who aren't coming to stay in this diamond town 400 km (250 miles) north of Gaborone.

Twelve months ago she had hoped to be long-gone, the beneficiary of a university place funded by the government from the world's most valuable diamond business.

With annual sales well in excess of $3 billion, diamonds had been helping turn Botswana -- the country in sub-Saharan Africa best known for the series "The No. 1 Ladies' Detective Agency" -- into a model of commodity-powered development.

Its slogan "diamonds for development" was designed to counter that of "blood diamonds" mined to fund civil war in West Africa.

But the contraction in the global economy has crushed demand for the gem stones that account for 40 percent of Botswana's economy: in a country with one of Africa's highest rates of adult female literacy, education has taken a hit.

"The government sponsors us but they came and said 'Sorry, there is no money so we are cutting numbers,'" said Oageng. "I'm really stressed. It's really affected me badly."

In poorer African states, low female literacy is associated with weak economic and human development. All Botswana's 1.8 million people in the last 12 months have had a taste of what life would be without the natural riches beneath their feet.

In February, the mines that gouged millions of tonnes of rock from the country's vast interior shut down, for the first time in the former British colony's 40-year history of diamond mining.

De Beers, which runs them as a joint venture with the government, also suspended operations in Namibia and Canada, as it had during the Great Depression.

"This period of no diamond exports is a bit of an insight into what it's going to be like when the diamonds run out -- and it's not been very nice," said Keith Jefferis, an economist with econsult in Gaborone.

The government expects Botswana's diamond reserves to start running out in 10 years.

PLUNGED INTO DEBT

De Beers' Botswana joint venture, Debswana, has cut costs by a quarter this year and shed 900 of its 6,200 staff. It is projecting 2009 output of 20 million carats -- 60 percent of usual levels. Revenues are likely to fall more steeply.

And with gross domestic product widely forecast to shrink 10 percent, Botswana's government has after years of budget surpluses plunged into debt.

In May it turned to China for an $825 million loan for a new power station. In June it went cap-in-hand to the African Development Bank to borrow $1.5 billion to plug a budget hole.

The shutdown was only temporary at Letlhakane, a 35-year old mine whose slag heap rises like a mountain from the surrounding bush. But it had a profound effect on the town of 10,000 people.

All the contractors are gone from its bottle stores and roadside bars, and those miners who are still in work complain of wage cuts and a lack of overtime or bonuses.

"This mine is killing us," said David 'Dog' Bontshetse, a taxi driver sitting idle in a long line of cabs waiting for customers, who chose instead to walk.

"These people in the mines used to have so much money, and many, many girlfriends. They'd give them 100 pula here, 100 pula there. They could always afford taxis. I used to be always driving around. Now I just sit here in the queue."

Money-lenders have become cautious about dealing with mine workers: "Their salaries have gone down, and we're afraid to give them money in case they can't pay it back," said Neo Delu, chief cashier at Madi Madi, a cash/loan business operating in a shack next to the town's only bus-stop.

Roadside barber Oamogetswe Kganetso, who calls his business Mr. Happy Man, says he is probably going to head to the capital, Gaborone, in search of work as he cannot get by on the one or two customers he is seeing each day.

RECOVERY

Blackie Marole, Debswana's managing director, says diamond prices are starting to recover and the outlook is now more promising in the United States, which accounts for half the world's diamond jewellery sales.

Other sources also suggest polished diamond prices are picking up, helped by signs of global economic recovery and increasing demand in Asian markets such as China and India.

According to the Rapaport Diamond Report, in mid-2009 the asking price of almost colourless "D" high-clarity diamonds weighing 1-1.49 carats was $17,000 per carat, up from $16,500 a year earlier.

But gem revenues are unlikely to return soon to pre-crisis levels, so the economist Jefferis said the government is going to have to rethink its role as a central pillar of the economy, and cut spending from the current levels of 40 percent of GDP.

"If you don't do it really quickly, you are going to accumulate massive debts before you realise you have to do it anyway," he said.

And change and economic diversification may not come easily to a country used to easy wealth, and run by the same political party for the last 43 years.

"We've spoken about diversifying since I was at university but only in the last two years have we seen anything happen," said Martin Makgatlhe of Motswedi Securities, a brokerage on Gaborone's 20-year-old but still tiny stock exchange.

The ruling Botswana Democratic Party (BDP) faces an election on Oct. 16, but people say it looks set to win five more years thanks to opposition divisions and a feeling the country has been victim to outside forces beyond anyone's control.

"The BDP are doing OK," said Jim Joh, a television repair man watching the sun set from the porch of a friend's barber's shop. "It's not as though people are blaming them for the recession."

By Ed Cropley

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