Under the Radar: Will 2019 make or break Botswana?

Under the Radar: Will 2019 make or break Botswana?
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Botswana’s opposition will run a single candidate in 2019 in order to unseat the long-ruling BDP. The country’s political and economic future are at stake.

Botswana’s four main opposition parties stated on February 3rd that they will field a single candidate in the country’s 2019 elections in order to challenge the decades long rule of the Botswana Democratic Party (BDP). This new coalition, the Umbrella for Democratic Change (UDC) seeks to shake up Botswana’s politics, as economic troubles and a controversial outgoing president set the stage for uncertainty in one of Africa’s most stable countries.

Like many African independence-era parties, the BDP has held a monopoly on political power, ruling Botswana since 1966. Despite this, the country has managed to peacefully develop and is often touted as a poster-child for effective African governance. That being said, there is increasing talk among observers that we are witnessing the end of Botswana’s exceptionalism, as the country struggles to find a coherent foreign policy, and as inequality, unemployment, and economic hurdles mount.

These factor saw the BDP capture less than 50% of the vote for the first time during the 2014 elections. The four main opposition parties, which have formed the UDC, in turn garnered 53.55% of the vote. Since 2014, UDC member parties have been fielding a single candidate in various by-elections; garnering a string of victories. Duma Boko, president of the Botswana National Front will lead the the UDC, and has described the coalition as “a response to the plea by the people for the opposition to stop splitting votes and work together.”

New president, new direction?

The UDC is planning ahead for the 2019 elections, hoping to unseat the BDP, especially since President Ian Khama is due to step down that same year, as his final permitted five year term comes to an end. The BDP will have to find a candidate to replace a president who leaves behind a mixed legacy.

Internationally, Khama has continued Botswana’s efforts to position itself as a moral leader in the region, yet Gaborone’s paternalistic attitude often annoys its neighbours. This has been reinforced by Khama’s tendency to forgo attending African Union and United Nations meetings, instead delegating representation at these fora to subordinates. Another issue has been Khama’s vocal support of the International Criminal Court (ICC), an institution seen by many African leaders as selective in who it prosecutes, with many viewing the ICC as the West’s ‘court for Africa’.

President Ian Khama

President Ian Khama

President Khama has also attracted ample domestic criticism, being seen as someone who consistently avoids confrontation. This has resulted in a lack of dialogue with key economic and civil society stakeholders – interactions which are vital if Botswana wants to diversify its economy and tackle societal ills. Moreover, during his entire tenure as president, Khama has never sat down with a domestic, private media outlet.

Khama’s shortcomings and Botswana’s problems mean that “with only one opposition party in place now […] the BDP will have to work very hard in the coming years to preserve or better its supremacy at the 2019 elections,” notes political analyst Anthony Morima.

Botswana’s economic outlook

In recent years, the “narrative of Botswana as a country that escaped the resource curse and [became] a success story as an economic and development success is slowly fading.” Indeed, despite its claims of having avoided the resource curse, Botswana is still heavily reliant on the diamond industry, with uncut stones accounting for some 80% of national exports.

Reduced demand and a glut of diamond jewelry caused a 30% decline in prices during 2014-2015, resulting in the closure of many firms and increasing unemployment. Rising unemployment and youth demographics are both creating instability in Botswana, with the diamond price slump directly correlating to the BDP’s (relatively) poor performance in the 2014 elections.

The problem for Botswana – whose diamond reserves are expected to be depleted by 2050 – is how to extend said industry’s lifespan in order to facilitate a smooth diversification transition. To this end, Botswana’s assistant minister for investment, trade and industry, Biggie Ganda Butale stated that “we want to turn Botswana into the diamond capital of the world.” Botswana currently exports uncut stones, thereby missing out on substantial value added income.

Consequently, Botswana is seeking to become a leading diamond cutting and beneficiation hub, in part by encouraging foreign companies to settle in the country with the help of advantageous tax rates and other incentives. A key element of this strategy is the Debswana joint venture with jewelry-giant De Beers. Botswana produces approximately 70% of all of De Beers’ diamonds, so it has valuable leverage with which to encourage domestic processing, if it only manages to exert that influence. Initially this appears to have been the case, with De Beers stating that companies which are based in Botswana are eligible for a higher allocations of diamonds. The problem with this agreement is that there are almost no mandatory requirements for these firms to add value in Botswana.

Moreover, Botswana faces serious competition from China, the leading producer of synthetic diamonds, as well as India, which has positioned itself as the largest diamond beneficiation centre. India’s cheap, yet highly skilled 800,000 strong diamond workforce is a serious impediment to Botswana’s plans: by way of comparison the entire population of Botswana is only 2.1 million. The high cost of skilled labour in Botswana and southern Africa in general, combined with economies of scale, means that the government must initiate serious talks with unions, tie wages to productivity, and cut down on red tape. Yet Khama’s reluctance for such conversations means that any serious reform will have to wait until after the 2019 elections. A business-as-usual attitude is likely to remain among Botswana’s current government, especially as economic growth is set to almost double (from 2.9% in 2016 to 4.2%) in 2017, as commodity prices rebound.

Infrastructure, state-firms hindering progress

Botswana’s diamond mining ambitions will also need to be insulated from future infrastructure failings, if the country wants to maintain growth. Severe drought conditions saw electricity shortages in 2016, with the economy contracting by 0.8% in Q3 of 2016. This resulted in Botswana having to import electricity from South Africa, which in turn added additional expenses. Landlocked Botswana is already very reliant on South Africa’s ports, so further reliance on Pretoria’s own shaky grid during a time of political unrest surrounding the ruling ANC does not bode well. Indeed, instability in the Rand has also been a headache for the Pula and Botswana’s Central Bank, which has been forced to keep adjusting the exchange rate on a crawling peg.

To make matters worse, Botswana’s efforts to secure a more stable electricity supply have been hampered by shoddy infrastructure projects, notably the debacle surrounding the Morupule B power plant. The 600MW, Chinese-built coal plant has been nothing but trouble since its completion in 2012. Given the project’s hefty $970 million price tag, it represents both a serious financial as well as generating capacity loss. Furthermore, the plant’s current owner, Botswana Power Corporation – which is planning to sell the plant – has been running at a loss for the past eight years, posting a $180 million loss in 2016, despite $218 million in government subsidies.

While the government has increased spending on water infrastructure and electricity generation in the 2017 budget – pushing the budget deficit up to 1.43%, it is facing more than just energy problems in its mining sector. Chief among these is the plight of state-owned BCL Mine Ltd. which was put under provisional liquidation in October 2016. Specifically, Russia’s Norilsk is taking legal action against BCL to recover $271.3 million owed for a 50% stake in South Africa-based Nkomati JV. BCL is also facing additional creditor claims amounting to $84.4 million.

Nevertheless, a ray of hope appears to have emerged in the form of a potential buyer for BCL, with the High Court delaying BCL’s provisional liquidation on February 7th. While the buyer is unknown, Minister of Minerals, Energy and Green Technology, Sadique Kebonang recently posted a picture of himself on Facebook with the caption ‘in UAE trying to save BCL.’

Whoever takes the helm in 2019, they will be facing a host of challenges, as Botswana attempts to save, not just BCL, but its future as well.

Under the Radar uncovers political risk events around the world overlooked by mainstream media. By detecting hidden risks, we keep you ahead of the pack and ready for new opportunities.

Under the Radar is written by Senior Analyst Jeremy Luedi.

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