Following a tough year for the diamond industry, emanating from economic uncertainties generated by unstable geopolitical climate arising from Washington –Beijing tension the multi billion industries is said to be showing slight signs of improvement.
Diamond companies are expected to pump in millions of dollars in the last quarter of the year to the first two months of 2020 in rigorous marketing to push jewelry sales figures and further spark confidence in industry players across the value chain especially bankers who had shrunk their financing dispatch to traders. Recently leading diamond mining giant De Beers Group announced that its marketing spend in the entire 2019 will be totaling to $180 million (around P1.9 billion) during the course of the year 2019.
This was revealed by De Beers Group Chief Executive Officer Bruce Cleaver on the sidelines of the Diamond Conference held in Gaborone recently. Bruce said the $180 million dispatch is De Beers largest marketing spend in 10 years. “This illustrates how difficult the market was in 2019 , and contrary to what many may think ,when the global demand is subdued we may cut down any expenditure for cost containment but not the marketing spend ,that is actually when you have to increase the marketing budget,” he said.
The De Beers Boss explained that on top of the traditional way of doing things in television the company will further expand its reach in the digital space. “Technological advancements and digital platforms which are the order of the day especially for millennials present great opportunities for us to reach our end consumer clientele,” he said.
Bruce Cleaver revealed that the larger part of the marketing budget is spent during the second half of the year with much concentrated expenditure in the last quarter of the year, spilling over to the first months of 2020. “We have to respond to trends in the market, and we usually spend large part of that amount in the last quarter of the year, this is because the main selling season is during the festive season in the US.”
The CEO explained that 30 percent of De Beers’s diamond jewelry sales in the US take place around Christmas and Thanks giving as well as increased demand for Chinese new-year celebrations. “Marketing is a tricky undertaking, it requires and needs long term programs, it is difficult to track its effectiveness if its rolled out under a short term, with us at De Beers we are much more concerned with big three places where our diamonds sell, India, China and US, so we have very sophisticated tools around the digital space and technological provisions to track market response. Last year, De Beers spent $166 million marketing.”
NATURAL DIAMOND AUTHENTICATION CAMPAIGN
Last week De Beers also announced its new partnership with Circa, buyers of pre-owned jewelry and watches, aimed at authenticating pre-owned diamonds. De Beers diamond detection technology will be adopted and implemented by Circa to provide confidence to those selling their jewelry.
“One of our core missions at De Beers Group is to develop and deploy ground-breaking, low-cost testing services designed to strengthen consumer confidence in diamonds,” said Jonathan Kendall, president of De Beers Group Industry Services. On top of providing Circa with the ability to authenticate pre-owned diamonds, the two companies will also host a series of educational consumer events in Asia, Europe and the U.S as well as, helping owners understand how to authenticate natural diamonds in their jewelry.
Information from De Beers explained that the collaboration will entail offering advanced diamond appreciation classes to Circa clients. “By partnering with De Beers Group and using its cutting-edge diamond detection equipment, our buyers are able to assure sellers that their diamonds are natural. We’ll also be able to clearly identify and avoid buying any diamonds which are not natural at the time they are submitted,” said Oren Schneider, chief executive officer of Circa.
De Beers has been putting its weight behind technology in the diamond industry. In May 2018, the company launched a pilot program, GemFair, an app that tracks a diamond’s journey across all stages, from sourcing to consumer in the name of traceability. That same year in September, De Beers launched its own lab-grown diamond company, Lightbox. The company has been working on entering wholesale with full expansion planned for 2020.Over than a decade ago; De Beers launched Forevermark, a brand of ethically sourced, numbered diamond
2019 TOUGH FINANCIAL YEAR
During 2019, the diamond industry didn’t have it easy, trade wars sparked uncertainty, depressing manufacturing inventories and slowing down the polished diamonds market uptake. These fostered a heightened sense of caution among the banks that finance the trade, as well as diamond brokers and consumers of luxury goods. An in-depth analysis by Paul Zimnisky, a New York based independent diamond industry analyst and consultant published recently alludes that these industry conditions are a “crisis.”
In some segments of the industry, anecdotes of “no business” have surfaced as well as “no demand” for certain categories of diamonds. A representative for a leading trade group of manufacturers in India has recently said the current “recession” is “worse than the one witnessed in 2008-2009” during the global financial crisis. De Beers' rough diamond sales in dollars are down 17% year-to-date through June compared to the same period last year. Russian diamonds outfit ALROSA’s sales are down 33%.
According to the Zimnisky Global Rough Diamond Price Index, a proxy for the like-for-like change of the global product mix, rough diamonds are down 2.3% year-to-date as of July 20 and are currently sitting at a 52-week low. In March this year the US diamond and jewelry industry hinted fear of the possibility of higher tariffs on goods from China as the trade war between China and United States of America escalates. The Trump administration had proposed a levy of up to 25% on products from China worth a total of $300 billion, the US Trade Representative (USTR) announced in May this year.
Raw materials and accessories used in the jewelry trade are among the 3,805 items on the list of goods noted to be possibly affected. Both natural and lab-grown diamonds in various forms, as well as precious and semi-precious stones, made the list. Others include metals used in jewelry creation, such as gold and silver, as well as certain finished jewelry items.
De Beers has thus far had a difficult year, with year-to-date sales of $3.21 billion compared to $5.39 billion by the same time in 2018. The trouble stems from 2017, when high levels of smaller stones were taken up by the diamond cutting and polishing firms, raising inventories and reducing their appetite for new sales.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.