United States based financial think tank, Moody’s has forecast further stalled economic conditions for emerging markets in 2020. In their outlook for 2020 released this week, the New York based rating agency says credit conditions for emerging markets in 2020 are set to turn negative amid sluggish growth which is at further risk from political and trade uncertainties.
“Global growth slowed considerably in 2019, and we do not expect much improvement in 2020,” says Moody's Senior Vice President Gersan Zurita. According to Zunita trade tensions have created an extra challenge for manufacturing and trade reliant economies, while heightened geopolitical risk and domestic policy unpredictability cast long shadows in many parts of the world. “Against this backdrop, emerging market debt issuers are vulnerable to sudden shocks such as a slump in commodity prices, an escalation of trade tensions or sudden capital outflows,” he said.
The outlook further states that in most African countries 2020 will post economic growth of waves well below historical levels and in some cases below what is needed to maintain living standards. Moody’s Vice President has noted that in particular South Africa‘s persisting high unemployment, income inequality and the social and political challenges are proving to be strong obstacles to the government’s plans to raise potential growth. He added that as these headwinds contain fiscal deficits thus giving little room for policymakers to explore growth opportunities.
Most of African countries are resource based with a significant bulk of them dependent on natural resources like minerals and oil for economic revenue. Moody’s says as Oil producers like Angola and Nigeria continue to adjust to lower prices, subpar global growth and social and political factors continue to hinder revenue generation and broader fiscal reforms while elevated debt levels constrain fiscal response to shocks.
The US based global economic commentator says progress in addressing high debt burdens and increasingly tighter affordability has been limited, including particularly key economies such as Tunisia, Kenya, South Africa, Angola and Zambia. “The efforts of governments to preserve high living standards, employment growth for nationals and support diversification efforts will slow the pace of fiscal consolidation. Some sovereigns like Egypt continue to implement measures that will over time reduce the debt burden, as long as growth remains robust and social tensions at bay.”
In the entirety Moody’s says it projects a tough year for 2020 resulting in multi sectoral downward pressures across emerging market economies. “The fragility of the global and regional economies, geopolitical risks and higher government debt levels will inevitably affect the banking sector given high interlinkages and rising asset quality pressures,” explained Moody’s Vice President. The outlook says two of the region’s largest banking sectors – Turkey and South Africa – already have negative outlooks reflecting, among other issues, their difficult operating conditions.
“For Turkish banks we have highlighted funding vulnerabilities and capital ratios that are highly sensitive to currency depreciation.” However most other banking systems in some emerging markets regions have sound funding and liquidity and relatively robust capital buffers, which will help them to absorb some unexpected losses. In the main weakening economic conditions and pressures on government credit quality will likely have a knock-on effect on banks. Slowing or volatile economies hamper business generation at banks and weaken their financial health.
“Similarly, our bank credit ratings are typically constrained at the sovereign level, given the banks' large holdings of government securities, policy uncertainty and lack of economic growth stimulus will limit companies' confidence in investing, especially in Turkey and South Africa,” said Moody’s Vice President. Gersan Zunita says subdued economic growth and rising government debt will also lead to increased payment arrears, placing a strain on corporate finances and resulting in rising problem loans.
According to Zunita pressure on sovereign ratings also feeds across to banks that benefit from uplift in their ratings from our assumption that they would receive government support in times of stress. “Despite these macroeconomic and loan quality pressures, we expect banks to maintain their current capital buffers and good earnings generating capacity as well as their high liquidity buffers and sufficient access to funding for their lending activities.”
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.