Role of Coal in Botswana’s Future Economic Developments

Thabelo NemaoraniApril, 2013

Economic BackgroundUpper-middle income economy, GDP/cap around $7500 among the highest in SSALong period of rapid growth since independence in 1966Diamond mining historical the largest economic sector around 30% of GDPA dominant role for government in the economy largely financed by mineral revenues

Economic Growth - 5year averages

Chart1

0.1309561648

0.1023590918

0.1166355012

0.0466296491

0.0539408059

0.0368971806

0.0325806384

Series 1

Sheet1

Series 1Series 2Series 3

1975-8013%2.42

1980-8510%4.42

1985-9012%1.83

1990-945%2.85

1995-005%

2000-054%

2005-103%

1975-19801980-851985-901990-941995-20002000-052005-10

0.13095616480.10235909180.11663550120.04662964910.05394080590.03689718060.0325806384

GDP Growth Sluggish growthTotal 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)

Chart1

0.0323472130.0067954748-0.0020783042

0.06035376620.1272301250.0083000505

0.05148452990.09705160790.0157272769

0.04556645670.08277662790.0356474846

0.06102228670.09818187280.0761452502

0.07209288970.06399726370.105111366

0.08357244270.0672657930.1280983385

0.07959531190.05148285390.1418492533

0.06801410640.00454711170.1338201314

0.0746492408-0.01543100160.1530956846

0.0716951323-0.0426653120.150668544

0.0868234065-0.04759849120.1577256117

0.0791488992-0.05849959210.1403040591

0.0563953335-0.06984944930.1124452191

0.0538196071-0.046620180.100841388

0.0390146675-0.08020474210.0997352233

0.0067312205-0.21118808360.1089086796

-0.0190376747-0.29647251930.0999647459

-0.0615660291-0.43109714980.0882814054

-0.0784100195-0.46185055650.0589475697

-0.0329652739-0.28515154860.0406180625

-0.001738564-0.16519429890.0415512631

0.05752739810.11495558880.0554972677

0.08594135560.22745966730.0812741438

0.0739475080.08888962920.1052302586

0.07781545470.08762843770.1039331104

0.0574052304-0.00722021450.0967152477

0.0607475714-0.02443050980.0966195644

0.0586680002-0.03975579460.083430014

0.048401555-0.07442603320.092341336

0.0478685467-0.12415291550.1003100194

0.0369699706-0.08134010260.0745211904

GDP

Mining

Non Mining Priv. Sect.

Growth rate

Sheet1

Column1GDPMiningNon Mining Priv. Sect.

20053.2%0.7%-0.2%

Q26.0%12.7%0.8%

Q35.1%9.7%1.6%

Q44.6%8.3%3.6%

20066.1%9.8%7.6%

Q27.2%6.4%10.5%

Q38.4%6.7%12.8%

Q48.0%5.1%14.2%

20076.8%0.5%13.4%

Q27.5%-1.5%15.3%

Q37.2%-4.3%15.1%

Q48.7%-4.8%15.8%

20087.9%-5.8%14.0%

Q25.6%-7.0%11.2%

Q35.4%-4.7%10.1%

Q43.9%-8.0%10.0%

20090.7%-21.1%10.9%

Q2-1.9%-29.6%10.0%

Q3-6.2%-43.1%8.8%

Q4-7.8%-46.2%5.9%

2010-3.3%-28.5%4.1%

Q2-0.2%-16.5%4.2%

Q35.8%11.5%5.5%

Q48.6%22.7%8.1%

20117.4%8.9%10.5%

Q27.8%8.8%10.4%

Q35.7%-0.7%9.7%

Q46.1%-2.4%9.7%

20125.9%-4.0%8.3%

Q24.8%-7.4%9.2%

Q34.8%-12.4%10.0%

Q43.7%-8.1%7.5%

To resize chart data range, drag lower right corner of range.

Sources of growth 2003-2012 (economy diversified?)

Chart1

-0.3799731499

-0.0241198756

0.0171784752

0.1133053936

0.1263048945

0.1392658637

0.1726985741

0.1751283577

0.1820966432

0.2161804595

0.2619343641

Series 1

contribution to Overall growth

Sheet1

Series 1AgicultureMiningManufacturingWater and ElectricityConstructiontradeHotels and restTransp and CommunicFinance and Bus Serv.General GovtSocial and Personal Serv.

Mining-38.0%2%-38%11%-2%18%18%22%13%26%14%17%

Water & Electricity-2.4%

Agric1.7%

Manuf.11.3%

Transp. and Communic.12.6%

Govt.13.9%

Social & Personal Serv.17.3%

Construction17.5%

Trade18.2%

Hotels & Restuarants21.6%

Fin. & Bus. services26%


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

Chart1

Export shares, 2012,Q1-3

Sheet1

Exports

Meat395707.264

Soda Ash476533

Gold505315.837

Textiles508602.436

Vehicles and parts654128.833

Machinery & electrical eq.743703.037

Other manufactures1460907.218

Copper-nickel2451825.168

Polished Diamonds3899828.674

Rough Diamonds17546274.86759

Exports, Imports & Trade BalanceBoth imports and exports have growth steadily since early 2009Imports driven by higher fuel pricesExports spiked in 2012 H2 due to recovery in diamonds, but have since fallen backPerpetual trade deficit

Chart1

4355.476082166727.8889962372.41291384

3953.442411654514.727535561.28512335

4160.631820267209.9728133049.34099274

4464.002299634872.663043408.66074337

3818.70904576351.6109512532.9019053

4126.644312914255.552663128.90835009

4897.767231236564.8381171667.07088577

5003.843280688272.8019743268.95869332

4915.569128249039.406244123.83711176

6051.804919367084.2002671032.39534764

6330.655929948814.064098162483.40816822

7608.808084436771.72104172-837.08704271

7559.330420629136.4774851577.14706438

8873.089639668390.002169-483.08747066

9718.4959694910735.605741017.10977051

9393.777400154446.832463-4946.94493715

7798.397049583744.103403-4054.29364658

8059.231573656925.631937-1133.59963665

8459.466942076840.200991-1619.26595107

9256.784372216626.013289-2630.77108321

9325.711059227791.906417-1533.80464222

8851.703992067344.35306253-1507.35092953

9492.292256638190.178473-1302.11378363

10804.974886488491.026963-2313.94792348

12260.55969959344.46505587-2916.09464363

11782.6122000710702.316546-1080.29565407

12918.2368303111039.504098-1878.73273231

12775.870226368920.733792-3855.13643436

12992.063392810076.929957-2915.1334358

13042.858285110052.730226-2990.1280591

19678.0352477213397.217151-6280.81809672

15635.6282167111968.115376-3667.51284071

Imports

Exports

Balance

BWP million

Sheet1

Column1ImportsExportsBalance

20054355.476082166727.8889962372.41291384

3953.442411654514.727535561.28512335

4160.631820267209.9728133049.34099274

4464.002299634872.663043408.66074337

20063818.70904576351.6109512532.9019053

4126.644312914255.552663128.90835009

4897.767231236564.8381171667.07088577

5003.843280688272.8019743268.95869332

20074915.569128249039.406244123.83711176

6051.804919367084.2002671032.39534764

6330.655929948814.064098162483.40816822

7608.808084436771.72104172-837.08704271

20087559.330420629136.4774851577.14706438

8873.089639668390.002169-483.08747066

9718.4959694910735.605741017.10977051

9393.777400154446.832463-4946.94493715

20097798.397049583744.103403-4054.29364658

8059.231573656925.631937-1133.59963665

8459.466942076840.200991-1619.26595107

9256.784372216626.013289-2630.77108321

20109325.711059227791.906417-1533.80464222

8851.703992067344.35306253-1507.35092953

9492.292256638190.178473-1302.11378363

10804.974886488491.026963-2313.94792348

201112260.55969959344.46505587-2916.09464363

11782.6122000710702.316546-1080.29565407

12918.2368303111039.504098-1878.73273231

12775.870226368920.733792-3855.13643436

201212992.063392810076.929957-2915.1334358

13042.858285110052.730226-2990.1280591

19678.0352477213397.217151-6280.81809672

15635.6282167111968.115376-3667.51284071


Sources of Government RevenueSACU largest share (34%) in 2012/13, first time since 1970sMinerals share declining Fell from 48% in 2006/07 to 29% in 2012/13

Chart1

131146610307222481905

123347835257328522459

101827750460843772915

90887931556139432731

120606207641346382263

158238424611348512742

1203814151787747702727

Mineral

SACU

NMIT

VAT

Other

Sheet1

Column1MineralSACUNMITVATOther

06/0713,1146,6103,0722,2481,90526949

07/0812,3347,8352,5732,8522,45928053

08/0910,1827,7504,6084,3772,91529832

09/109,0887,9315,5613,9432,73129254

10/1112,0606,2076,4134,6382,26331581

11/1215,8238,4246,1134,8512,74237953

12/1312,03814,1517,8774,7702,72741563

13/1413,25413,6838,9684,7472,934


29%34%19%11%7%

Employment

Formal Employment levelsMost recent data-June 2011 Total of 335,156 jobsFormal employment growth slow 1.5% in year to June 2011Job creation insufficient:4,828 new jobs in 12 monthsApprox 15-20,000 new jobs needed each yearOfficial unemployment rate (2009/10) 17.8%

Chart1

1362311322281871

1326211342085346

1339801371886418

1357601378788003

12587713608100016

12587713569103870

14215013709104023

14766113400105618

15506213564105156

16020012900108812

16500012300113709

16448912863121364

168248.6914934111707

17288214706114390

17586814280118500

17900114497124329

18342515696129189

18468616178129464

18565216210130742

18623416749130709

18686516947131414

18798616992130196

Private

Parastal

Government

Sheet1

PrivateParastalGovernment

1994136,23113,22281,871

1995132,62113,42085,346

1996133,98013,71886,418

1997135,76013,78788,003

1998125,87713,608100,016

1999125,87713,569103,870

2000142,15013,709104,023

2001147,66113,400105,618

2002155,06213,564105,156

2003160,20012,900108,812

2004165,00012,300113,709

2005164,48912,863121,364

2006168,24914,934111,707

2007172,88214,706114,390

2008175,86814,280118,500

2009179,00114,497124,329

Mar'10183,42515,696129,189

Jun'10184,68616,178129,464

Sep'1018565216210130742

Dec'10186,23416,749130,709

Mar'1118686516947131414

Jun'11187,98616,992130,196


Share of formal employment June 2011335 156 jobs in to formal employmentRelative to GDP shares, govt has high employment, while mining share is lowMining share 4 % (11,688)

Chart1

148361

11668

36549

47370

17095

74183

% of formal employment

Sheet1

% of formal employment

Govt148361

Mining11668

Manufacturing36549

W/sale & Retail Trade47370

Hotels & Rest.17095

Other74183


Botswana faces challenges of;

Undiversified exports Fiscal dependency on Mineral revenues High unemployment

Is Coal the answer to Botswanas Challenges?

Coal Economic opportunitiesCoal 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 PortFaced with 3 Options:Through Zimbabwe to Mozambique in East (complex)Trans-Kalahari through Namibia (simpler)Through South Africas (Waterberg area) and use existing infrastructure (limited capacity)

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

Chart1

04390.7726280328625.9531485

298.56109698087388.541364823728625.9531485

1456.689934.143426455532919.846120775

3812.7612723.405049813637213.73909305

5018.610210.240304340839695.9405449218

773111053.524907489340254.2675005308

10179.412370.904940512940994.4595868042

11068.212449.678444549340476.4113552505

12721.1912631.993000179438946.1798173109

13742.4312892.580960784139905.4862816937

13742.4313039.654565898938841.625258833

14799.5412167.680995209238597.4652982279

15856.6511913.602740197638152.5277749517

15856.6511806.183098586441038.7870484883

15856.6511012.014790360841223.5924122313

15856.659209.045034389124156.8837251035

15856.658324.682502670913449.2774413943

15856.658233.2289917759497.7660432925

15856.656640.28612235171088.6735171851

15856.656617.37210026060

Coal

Other minerals

Diamond

BWP millions

Sheet1

CoalOther mineralsDiamondTotalTotalCoal

201204,39128,62633,01733,0170%

20132997,38928,62636,31336,3131%

20141,4579,93432,92044,31144,3113%

20153,81312,72337,21453,75053,7507%

20165,01910,21039,69654,92554,9259%

20177,73111,05440,25459,03959,03913%

201810,17912,37140,99463,54563,54516%

201911,06812,45040,47663,99463,99417%

202012,72112,63238,94664,29964,29920%

202113,74212,89339,90566,54066,54021%

202213,74213,04038,84265,62465,62421%

202314,80012,16838,59765,56565,56523%

202415,85711,91438,15365,92365,92324%

202515,85711,80641,03968,70268,70223%60%

202615,85711,01241,22468,09268,09223%

202715,8579,20924,15749,22349,22332%

202815,8578,32513,44937,63137,63142%

202915,8578,2339,49833,58833,58847%

203015,8576,6401,08923,58623,58667%

203115,8576,617022,47422,47471%


Projected Real Govt Revenues from MiningMineral Govt revenues to increase until they plateau at around P26 bnRemains fairly stable from 2017 until 2026The decline brought upon by fall in Diamond sector

Chart1

0250.752595129311736.640790885

55684.60804261211736.640790885

112819.703606576914813.9307543487

1015568.290480206918606.869546525

1441383.941638911321832.767299707

2079264.756664895224152.5605003185

2142455.344193865624596.6757520825

1391771.526196977324285.8468131503

1185804.961666226823367.7078903866

1197956.830908764623943.2917690162

12121040.586750927123304.9751552998

16101009.768828891823158.4791789367

1729962.565773705222891.516664971

1656948.968209008424623.272229093

16051015.26904405424734.1554473388

1622.6366147318884.929321287113286.2860488069

1590.702532059700.98733203136724.6387206972

1558.1601811449682.04595281144273.9947194816

1524.9979759277543.2626026431435.469406874

1514.3807703591504.88981909520

Coal

Other

Diamond

Govt revenue (mn)

Sheet1

CoalOtherDiamondTotalCoalOtherDiamond

2012025111,73711,9870%2%98%

20135568511,73712,4760%5%94%

201411282014,81415,7461%5%94%

20151,01556818,60720,1905%3%92%

20161,44138421,83323,6586%2%92%

20172,07926524,15326,4968%1%91%

20182,14245524,59727,1948%2%90%

20191,39177224,28626,4485%3%92%

20201,18580523,36825,3585%3%92%

20211,19795723,94326,0975%4%92%

20221,2121,04123,30525,5585%4%91%

20231,6101,01023,15825,7786%4%90%

20241,72996322,89225,5837%4%89%

20251,65694924,62327,2286%3%90%

20261,6051,01524,73427,3546%4%90%

20271,62388513,28615,79410%6%84%

20281,5917016,7259,01618%8%75%

20291,5586824,2746,51424%10%66%

20301,5255434352,50461%22%17%

20311,51450502,01975%25%0%


Projected Employment levels

Coals contribution to employment lowCoal employment to peak in 2024 (6,759 ) At peak, only accounts for 2% of total employment & 35% of employment in mining

Chart1

3225611251283

325831.3414028324

330980.0901125291777

333331.3814515152231911

340015.362173272130552652

343972.197605871132613825

347619.070569959141124743

352363.181628509144315177

356742.749352936151015707

362276.01059323149935945

368286.220752129147335943

375920.654063411124856391

381312.603874362126476759

387170.382932477128036756

393646.323676464124286756

Non-mining

Other mining

Coal

Sheet1

Non-miningOther miningCoal

2012322,5611251283MEER Projections and Econsult Projections

2013325,83114028324Proj. Mining Employment125951435214306171341570717086188551960820808209382067618876194061955919184

2014330,980125291,777Proj. Coal Employment833241,7771,9112,6523,8254,7435,1775,7075,9455,9436,3916,7596,7566,756

2015333,331152231,911Proj. Formal sector employment335,156340,183345,286350,465355,722361,058366,474371,971377,551383,214388,962394,797400,719406,729412,830

2016340,015130552,652Coal Employment as % of total0.02%0.10%0.51%0.55%0.75%1.06%1.29%1.39%1.51%1.55%1.53%1.62%1.69%1.66%1.64%

2017343,972132613,825Coal Employment as % of mining0.66%2.26%12.42%11.15%16.88%22.39%25.16%26.40%27.43%28.39%28.74%33.86%34.83%34.54%35.22%

2018347,619141124,7433.76%4.22%4.14%4.89%4.42%4.73%5.14%5.27%5.51%5.46%5.32%4.78%4.84%4.81%4.65%

2019352,363144315,177

2020356,743151015,707

2021362,276149935,945

2022368,286147335,943

2023375,921124856,391

2024381,313126476,759

2025387,170128036,756

2026393,646124286,756

To resize chart data range, drag lower right corner of range.To resize chart data range, drag lower right corner of range.

Thabelo:Assumed to grow by 1.5% pa

Barriers /challengesNarrow window of opportunityIncreased efforts to reduce Green House Gas emissionsRenewable energy (solar and wind) getting cheaperHigh riskHigh investment on uncertain futureNo real alternative use of infrastructureCoal cant fully replace diamonds as source of Govt revenuesRelative profitability (coal much less profitable to mine than diamonds)Tax rates (lower on coal compared to diamonds)

Diamonds Vs CoalIf you replace a BWP 1 bn worth of Diamonds with a BWP 1 bn worth of Coal, Govt stands to make lessDiamond have a higher profit margin and taxed more than Coal.

DiamondsCoalProfit rate80%30%Tax rate80%30%Govt revenue64%9%

ConclusionCoal alone cant replace Diamonds, especially with respect to:ExportsGovernment RevenueBut it can make a significant contribution along with other activities to economic diversificationNeed for swift action on providing the necessary infrastructureRailway line (West or East)Dedicated Port

Thabelo Nemaorani

[email protected]

Need to update

*Need to Update

***Change it to sources of revenue***Mention prerequisites 1. New railway and a dedicated port 2. Buyer contracts

****

Role of Coal in Botswana’s Future Economic Developments

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