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INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
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RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 GABORONE 000190 
 
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STATE FOR AF/S, AF/EPS, EEB 
STATE PLEASE PASS USTR WJACKSON 
 
E.O 12958: N/A 
TAGS: ECON ETRD EFIN EMIN PTER ENRG BC
SUBJECT: BOTSWANA ECONOMIC BRIEFS MARCH 2009 
 
¶1.  This is the third edition of U.S. Embassy Gaborone's Botswana 
Economic Briefs, covering economic and commercial news from February 
¶2009.  Topics of this edition are: 
 
- Financial Intelligence Agency Coming 
- Mmamabula Power Project Ready to go by Mid-Year 
- Diamond Exports Plunge 90 Percent 
- Bank of Botswana (BOB) Cuts Interest Rates 
- Government to Develop Long-Term Strategy for Mines 
 
Financial Intelligence Agency Coming 
------------------------------------ 
¶2.  The Government of Botswana is in the process of establishing a 
Financial Intelligence Agency in an effort to curb money laundering, 
detection of financial offences and other suspicious cash 
transactions.  The primary function of the agency will be to analyze 
and disseminate financial information to investigating authorities. 
The agency shall be the central unit responsible for requesting, 
receiving, analyzing and disseminating to an investigating 
authority, supervisory authority or comparable body, disclosures of 
financial information concerning suspicious transactions required by 
or under any enactment in order to counter financial offenses or 
concerning the financing of any activities or transactions related 
to terrorism.  Parliament is expected to debate and pass into law 
during the current session an act that would enable the reporting of 
suspicious transactions and other cash transactions and provide for 
mutual assistance with comparable bodies outside Botswana or 
financial information. (Botswana Guardian, February 20, 2009) 
 
 
Mmamabula Power Project Ready to go by Mid-Year 
--------------------------------------------- -- 
¶3.  The construction of the 1,300 MW first phase of the Mmamabula 
coal-fired power station, which is projected to cost approximately 
US$ 3 billion, is scheduled to begin during the second half of 2009. 
 According to the President of CIC Energy, Greg Kinross, the company 
is on track to achieving a financial close for its proposed 
Mmamabula Power station in Botswana.  Coal production from the mine, 
which will ultimately supply 6 million tons annually to the power 
station, will start in 2011,  and the first generating set due to be 
commissioned in early 2013.  The second generating set will be up 
and running four months after the first one is commissioned.  The 
key development which has to take place before the financial close 
can be achieved is the signing of power purchase agreements (PPA) 
with Eskom (South Africa) and Botswana Power Corporation.  Eskom 
will be importing 70 percent of Mmamabula's electricity.  Under the 
terms of the new project, the financial risk will be covered by the 
preferred engineering, procurement and construction (EPC) contractor 
which is the Shanghai Electrical Group.  New capacity expansion 
requirements in Southern Africa are in excess of 1,500 MW per annum 
for the next 20 years, of which more than 1,300 MW is in South 
Africa alone.  COMMENT: The development of Mmamabula project will 
place Botswana as a significant player in the regional power market 
as well as contribute to the country's economic diversification 
program.  END COMMENT. (Business Monitor, February 16, 2009) 
 
 
Diamond Exports Plunge 90 Percent 
---------------------------------- 
¶4.  Botswana's diamond exports plunged by close to 90 percent in the 
months between August and November 2008 as the global recession hit 
demand for luxury goods.  Figures released by Botswana's Central 
Statistics Office (CSO) have revealed that diamond exports, which 
amounted to P3.3 billion (US$ 423 million) in August, fell to P 2.3 
billion (US$ 294 million) in September and P 821 million (US$ 103 
million) in October before plummeting to a mere P 371 million (US$ 
46 million) in November as a result of falling demand and weakening 
prices.  In its 2009/2010 budget, the Government announced that it 
will pump P 10.56 billion (approx US$ 1.32 billion) into the economy 
to cover developmental projects in a bid to boost economic activity. 
 Botswana is a net importer of goods, particularly uel and food, 
and is economically dependent on mneral exports (especially 
diamonds), and its groth prospects are larely built around 
investmentin minerals.  The latest trade figures from CSO indcate 
that a 55 percent plunge in diamond export in November led to a P 2 
billion trade deficit in the same month.  This deficit will 
certainly eat into Botswana's foreign exchange reserves, which in 
the budget were reported to stand at P 72 billion (US$ 9 billion), 
the equivalent of 30 month's goods and services import cover. 
Looking on the brighter side, analysts say that the "long term 
fundamentals of the industry continue to hold considerable promise 
in spite of the current turmoil.  The diamond industry is now in a 
stabilizing phase where stocks, prices and supply and demand have to 
 
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find a new equilibrium." (Mmegi Business Week, February 20, 2009) 
 
 
Bank of Botswana (BOB) Cuts Interest Rates 
------------------------------------------ 
¶5.  In line with the falling inflationary pressures and the need to 
support economic activity in view of the global economic recession, 
the BOB has reduced the bank rate from 15 percent to 14 percent. 
The Bank rate cut comes shortly after the Governor of BOB Linah 
Mohohlo announced in her 2009 monetary policy statement that the 
Bank will ease monetary policy this year. This is the second time 
the Bank has reduced interest rates in the past three months, with 
the last reduction in December 2008 when it fell by 0.5 percent. 
Although inflation remains above the Bank's medium-term target range 
of 3-6 percent, it is anticipated that inflation will move towards 
it in 2009.  According to a statement released by the Bank's Public 
Relations Officer Chepete Chepete, the Bank remains committed to 
responding appropriately to all economic and financial developments 
in order to maintain inflation within the medium-term objective 
range, which is supportive of long-run sustainable economic growth. 
(Monitor Business, 02 March 2009) 
 
 
Government to Develop Long Term Strategy for Mines 
--------------------------------------------- ----- 
¶6. The Botswana Government has announced plans for a long-term 
strategy to ensure the survival of the country's mining sector.  The 
strategy will run alongside current government interventions to 
stabilize the sector.  These entail Government guarantees on 
bridging loan finance to mining houses and deferral of royalties and 
certain levies.  The strategy is due to be implemented in April 
¶2009.  The move comes at a time when approximately 2000 workers in 
the mining sector have either been retrenched or put on forced 
leave.  A UK-based consulting company which is assessing the 
country's mining sector will provide recommendations that will be 
incorporated in the long-term strategy.  The Minister of Minerals, 
Energy and Water Resources revealed the strategy and other 
interventions recently in South Africa where he said the global 
economic crisis had reduced access to credit and resulted in the 
deferral of new capital projects and that there had been a slowdown 
in exploration as mine developers sought to conserve cash.  COMMENT: 
Botswana's mining sector continues to suffer.  Debswana announced in 
early March that over 500 of its employees stand to be affected by 
further reductions within two of the company's mines.  END COMMENT. 
(Mmegi Business Week, February 27, 2009) 
 
 
NOLAN