"No pie-in the sky policies." (Botswana's mining sector)(Cover Story)(Interview)

Botswana's Minister for Minerals and Water Affairs, The Honourable DN Magang (right), talks frankly to African Business Editor, Anver Versi on the role played by the mining industry in his country.

AB: What is the long term role of the mining industry in the overall economic development of Botswana?

Hon Magang: The mining industry has still a major role to play in economic development of Botswana until such time as the economy is diversified. And I do not see any short term solution in the near future.

AB: How much does mining contribute to Botswana's GDP?

Hon Magang: Mining's contribution to Botswana's GDP was 37% in 1994/95. This figure is expected to remain at about the same level (close to the 40% range) during 1996. The value of mineral production during 1994 was P31.5bn. The 1995 value of mineral production is expected to be in the same range as the 1994 figure.

AB: Has there been a decline in the value of Botswana's diamonds over the past few years?

Hon Magang: It is not correct to say the value of Botswana's diamonds has been falling over the past few years. In fact, our records indicate that the year on year increase in the estimated value of Botswana's diamonds averaged 9% during the past five years.

The average price of diamonds has remained almost stable over the past few years, increasing only marginally every year. On the other hand, the Pula price equivalent has increased as a result of the Pula depreciating against the US dollar. This price stabilisation has been achieved largely through cooperation between diamond producers and the De Beers Central Selling Organisation.

AB: Please outline new developments and investments in the country's mining sector.

Hon Magang: A number of new developments are underway. These include: The recent completion of the fourth stream project at Jwaneng Diamond Mine, which is expected to increase carat production by about 21%; the rehabilitation of the Gope shaft and development of a bulk sampling plant for intensified exploration work at this diamond prospect; the development of the Phoenix copper/nickel Mine which is expected to produce some 80,000 tonnes of concentrate; the re-commissioning of the Rainbow Gold Mine, and development of the Signal Hill Gold Mine.

AB: Is there a danger of over-dependence on diamonds as the main engine of the economy?

Hon Magang: Obviously we recognise the danger of over-dependence on diamonds, but we are also fortunate that our reserves are large enough and rich enough to provide a dominant industry in an economy with relatively few other world class natural resources.

We have, with some success, developed other mineral industries including coal for local use, and nickel, copper and soda ash for export. The latter two have not been trouble-free but have made a valuable contribution to the economy and should continue to do so in the future.

In other sectors, we have been at pains not to pour subsidies into industries where we have no comparative advantage. On a selective basis, our Financial Assistance Programme (FAP) has done much to promote manufacturing in sectors which can be viable in the longer term, but which need assistance in the start-up phase.

For the future we are looking towards further development of the tourism sector and financial services as possible future growth industries capitalising on some of our unique tourist attractions and our relative financial strength.

AB: The amount of illegal diamonds finding their way into the global market is increasing. What plans do you have of policing the supply of diamonds?

Hon Magang: Illegal diamonds finding their way into the global market are a threat to any producer, and not to Botswana alone. As a producer we try to control the supply from source by strengthening the policing of our mines. We are spending a lot of money on improving the security systems in our mines.

AB: Apart from diamonds, what is the state of the rest of the mining sector?

Hon Magang: In the recent past the mining sector in Botswana, like elsewhere, has been going though difficult times due to the global recession coupled with depressed metal prices. The copper/nickel industry is performing satisfactorily and we hope current prices will hold. The soda ash and salt market are also showing some improvement. The small gold mines around Francistown have temporarily closed with one or two hoping to start production soon. The contribution from the rest of the mining sector without diamonds is very small indeed.

AB: Will the copper/nickel mines at Selebi-Phikwe ever become viable? If not, how long can the Government continue to subsidise the project?

Hon Magang: First let me correct a common misunderstanding. Apart from very minor assistance with respect to power costs, BCL Ltd receives no subsidy from Government or anybody else. The last time it was unable to meet its operating costs was in 1987/88 and the "emergency funding" then provided by the shareholders was repaid with interest in 1989. The misunderstanding arises because the company has accumulated large debts. However, all lenders have rescheduled those debts such that they will only become payable in the event of the company having surplus cash available.

Nickel is a very cyclical industry, and only occasionally are there periods when producers make large profits. When this happens, as it did in 1989/90, loan repayments are made. Although it seems a strange thing to say, BCL has in some ways benefited from its financial misfortunes. In order to survive it has had to ensure that its operations are as efficient and cost effective as they can possibly be. As a result, the mine is now internationally recognised in this regard. The company has had the benefit of concessional funding for ongoing capital expenditures through the Sysmin facility of the European Development Fund. This has led the company to invest and plan for a continuation of its operations until well into the next century. Unless metal markets take an unexpectedly sharp drop, or some technical disaster occurs, we anticipate that the operation will continue for many years, without further support from its shareholders.

AB: Do you envisage a situation when the Government will withdraw from all involvement in the minerals sector?

Hon Magang: Despite recent economic advances, Botswana remains very much a developing country. A large proportion of its citizens have very few, if any, opportunities to participate directly in the modern sector of the economy, which largely consists of the mining industry. It therefore seems entirely appropriate to us, that as the owners of mineral resources, the people of Botswana, through their Government, should enjoy an ownership stake in that industry.

Unlike many Governments, we have never sought majority ownership or any form of control except for the usual regulation on safety and environmental matters. Indeed, we insist that all our mines are run on strictly commercial lines - otherwise we would have bailed out the Soda Ash company, rather than liquidate it. Privatisation of the mines would simply concentrate their ownership and profit potential into the hands of the relatively well off sections of our community. As it is, Government has been able to use its handsome dividends from the diamonds sector in all manner of national development projects. We firmly believe that the nation has derived great benefits from Government's shareholding in all the major mineral projects. I would not be a bit surprised if in a few years time, those Governments who once sought majority control, and who are now selling their assets into private hands, will have come to regret that they did not maintain a more circumspect course and retain some ownership stake in their own industries.

AB: How much control do indigenous Batswana have in the mining industry?

Hon Magang: Indigenous Batswana have no control in the industry except through participation by Government. I hope Batswana will take advantage of recently announced reduced taxes to invest in the mineral sector.

AB: There has been a lot of criticism that Botswana, like Namibia, does not do enough to add value to its mineral products. How are you addressing this situation?

Hon Magang: Adding value to natural resources seems, at first glance, to be an entirely logical path to economic development but it is fraught with difficulties.

The factors which give comparative advantage in mineral extraction are by no means the same as those that give comparative advantage in further processing.

To suggest that a world class diamond mining industry must give rise to a world class diamond cutting industry is an economic non-sequitur. The input requirements for the two industries are totally different.

However, within the constraints of basic economics and international competition, we do what we believe is sensible. For example, our copper nickel ore is concentrated and smelted to form a high grade matte material. It is exported not as pure metal but as mate with about 80% metal content, having started out as ore with perhaps 1% metal content. We do not operate a refinery to produce pure metal because these are enormously expensive capital projects which typically require coastal locations to ensure a large and continuous supply of material from many producers and low energy costs to operate efficiently.

In the diamond sector, we have embarked on two or three projects which over time, should result in a skilled and productive workforce - although we are very far from that right now. Many other countries - none of them incidentally, major diamond mining countries, already have large numbers of highly skilled and productive people - who are prepared to work for wages far below those acceptable in Botswana. We will not be able to compete with them overnight, but we have made a start in that direction.

AB: Are there any plans to increase exploration and exploitation of Botswana's huge reserves of coal?

Hon Magang: At the moment there are no plans to increase exploration of Botswana's huge reserves of coal. The Government has been looking at the exploitation of the coal reserves by encouraging the private sector to build a power station to export electricity to our neighbours. We hope private companies will be interested in our coal reserves as the coal price and infrastructure in the region improves.

AB: Finally, how do you assess the future of the minerals sector over the next two decades?

Hon Magang: I do not quite follow your question. If you mean the future of the minerals sector in Botswana, then I would say the future looks bright. There are a number of companies presently doing exploration and hopefully there will be discoveries which will carry us into the next two decades. On the diamonds side, the present three mines will be going strong during the next two decades provided, of course, the producers cooperate in supplying the market. I expect more minerals to be discovered over the next two decades since most of Botswana is still under-explored.

If your question refers to the future of the global minerals sector, I would not want to commit myself to forecasting the future, which depends on too many variables determined by global economics.