Agriculture remains one of Africa’s most important economic sectors, accounting for over 15% of the region’s Gross Domestic Product GDP and providing employment to more than two-thirds of the population.
If the sector’s most notable challenges can be overcome, agriculture could play an even larger part in transforming economies. In particular, governments across the continent are working with international organisations to find solutions to the rising effects of climate change. Nevertheless, the overall is quite bright; cultivated areas are expected to expand and farmers are set to increase their use of inputs, such as fertilisers, improved seeds, irrigation systems and mechanisation.
According to Oxford Business Group Agriculture in Africa report 2019, Africa holds more than 60% of the world’s arable land, but the continent’s share in global agricultural production is low. Vast areas of land are not cultivated and productivity is lower than in the rest of the world. Nevertheless, farming is key for the majority of African economies and accounts for at least 15% of the region’s GDP. In addition, around two-thirds of the African population is employed within the agricultural sector, the vast majority working in small-scale plantations that currently produce at least 90% of overall food production.
The report said chronic long-term underinvestment and poor governance have resulted in an agricultural sector that has been unable to play a role in transforming Africa’s economies, either by ensuring food security, creating jobs or reducing poverty. Now, the sector faces many challenges, the most notable of which is low productivity. This results from a variety of factors, some of which include low use of inputs and irrigation systems. In this context, farmers are particularly vulnerable to the effects of climate change- a fact that has shed light on the need for increased attention an investment in the continent’s promising agricultural sector.
It indicated that Africa’s 30.4 square kilometres boast a diverse range of agro-ecological areas and climates. These include rainforest vegetation with tropical weather, found in the south of West Africa and in Central Africa from Sierra Leone to the Congo’s. Other areas are dry and arid vegetation, such as those countries in the continent’s Sahel region.
‘’This diversity is a tremendous asset, but it also poses a substantial challenge for African agricultural development,’’ Abidjan-based African Development Bank stated on its website. ‘’On the other hand, it creates a vast potential with respect to the mix of agricultural commodities and products which can be produced and marketed in domestic and external markets. On the other hand, the diversity implies that there are no universal solutions to agricultural development problems across the continent’’ it said.
According to Washington-based International Food Policy Research Institute, during colonial period- which for most African countries ended around the 1960s- agriculture was the most significant sector in the continent’s economy. At this time, farmers were made to produce cash crops which were then exported to European countries as raw materials for their own growing industries. The exported cash crops included: cocoa, coffee, palm oil and rubber from West Africa: cotton from the Sahel region; tea and coffee from East Africa; and tobacco and sugarcane from the south of Africa.
‘’In general, food crops were not promoted and farmers grew them for subsistence only’’ the IFPRI reported. ‘’During the colonial period, Africa was developed essentially as an agricultural-exporting economy. This goal was achieved with some success, as evidenced by the number of African countries being top global producers of tropical cash crops’’. Cote d’Ivoire, for example, has become the world’s largest producer of cocoa beans. Today, the country accounts for 40 per cent of the world’s cocoa input.
After independence, the report said many African countries focused on financing local manufacturing and considered agriculture to be a less productive food supplier. As a result, the post-colonial period was characterised by underinvestment in the agricultural and rural sectors. Consequently, Africa’s agriculture recorded poor performance throughout the 1970s and 1980s, with production in sub-Saharan Africa growing on average by only 1% annually between 1971 and 1980, compared with the 3% growth seen throughout Asia. Land productivity was also two to three times lower than that observed in Asia.
Throughout the 1980s and 1990s the International Monetary Fund IMF and the World Bank pushed for the implementation of structural adjustment programmes SAPs, which were schemes designed for poor nations and countries in crisis, intended to reduce the role of governments in the economy. Countries were asked to implement these SAPS as a pre-condition for loans or external resources. The report said key measures included liberalisation of the economies, with the abolition of regulations such as price controls; privatisation of state-owned companies that were considered to be inefficient, reduction of public expenses and promotion of foreign direct investment FDI.
Further according to the IFPRI, the austerity measures resulted in a reduction of government spending in the sector. In sub-Saharan Africa the share of public agriculture spending inn the total budget declined to an annual average of 3.3% in the 1990s, down from 7.4% in the 1980s. The expansion of cultivated land meant that production growth climbed higher than in the 1970s, though productivity remained low, with output per ha of land at approximately 180 US Dollars in 1990. This was about one-third of the yields producer in Asia.
The report indicated that in 2003 the African Union launched the Comprehensive Africa Agriculture Development Programme CAADP, a strategy centred on agriculture, with the goal of reducing poverty and ensuring food security. The programme defined agriculture as a main engine of economic growth, and called for African governments to allocate 10% of their annual budget to the sector with the target of 6% annual growth. The Maputo commitments made in 2003 were renewed in 2014 in Malabo Equatorial Guinea.
One of the CAADP’s most notable achievements has been that it ‘’has significantly raised the political profile of agriculture’’ according to the IFPRI. Some 40 countries has signed CAADP agreements by the end of 2014, with many nations designing their own investment plan for the agricultural sector. However, the CAADP’s targets are still far from being met. Countries in sub-Saharan Africa only achieved a 2.6% average annual growth rate in the agricultural sector between 2003 and 2009.
Nevertheless, six countries- Angola, Ethiopia, Guinea, Mozambique, Nigeria and Rwanda- have managed to meet the growth goal of 6%. In regard to the investment target, in 2016 just 13 countries had successfully met their pledge to invest at least 10% of their budget in agriculture.
According to the Alliance for a Green revolution in Africa AGRA: ‘’Progress has generally been slow, mainly because many countries, despite the willingness to do what is right, grapple with capacity challenges that hinder their ability to design and implement a transformational agenda’’ it stated in its 2018 Africa Agriculture Status Report.
AGRA noted that recent policies placing farming at the heart of Africa’s economic development and promoting public investment in the sector are key to developing agriculture across the continent. However, more needs to be done to improve the poor structural governance seen in some African governments: although the private sector dominates the agriculture sector, its success is only made possible with public investments and policies.
‘’The past norm in African countries has been poor governance with respect to the agricultural transformation. Poor government performance has been in part associated with past foreign aid efforts at reducing the size and scope of government. Those policies were felt quite harshly by the agriculture sector, which depends heavily on government actions, and thereby inhibited the growth of the small-scale commercial private sector that dominates the sector. AGRA said. ‘’Fortunately, more recently these foreign aid policies appear to have been reversed, however, the quality of governance continues to be poor in many African countries’’
According to AGRA, Ethiopia, and to a slightly lesser extent Rwanda and Ghana, are positive examples for the continent when it comes to successful large-scale agricultural expansion. For the past 25 years Ethiopia has recorded sector growth above the 6% target defined by the CAADP. The East African nation has massively invested in its agriculture, including in irrigation and made the CAADP in a 50% reduction in rural poverty.
According to Thomas Jaine, professor at Michigan State University, public investments in the agricultural sector have had a direct and measurable impact on productivity. Jaine stated that recent yield improvements were observed in countries that embraced the AU’s CAADP scheme, especially in Ghana, Rwanda, Ethiopia and Burkina Faso.
Lucara Diamond Corporation, 100% owners of Karowe Diamond mine, has released its results for the first quarter of 2021 ending March 31, 2021.
Figures contained in the report depict strong financial and operational performance for the quarter. Revenue for the three months period jumped by 56% to $53.1 million (approximately P540 million) or $579 per carat sold in Q1 2021.
This includes diamonds sold through a combination of regular tenders, Clara, and through HB Antwerp (HB) under the supply agreement announced in July 2020.
This 56% increase in revenue comes after a slow Q1 2020 which was characterized by intensifying COVID pandemic. Lucara then announced it would hold on and suspend sale of its large stones until the market normalizes.
During the quarter total operating cash costs of $29.24 per tonne processed was incurred, this was 7% lower than Q1 2020. Adjusted EBITDA closed the quarter at $22.2 million, marking a return to higher levels of operating margin.
The company recorded net income of $3.4 million during Q1 2021 (earnings per share of $0.01), as compared to a net loss of $3.2 million for Q1 2020 (loss per share of $0.01).
The value of the rough diamonds transacted through the Clara platform in Q1 2021 was $6.0 million over six sales, double the $3.0 million transacted on the platform in Q1 2020.
Strong price increases have been observed in each of the sales conducted since the beginning of the year.
As at March 31st 2021, the company had cash and cash equivalents of $27.9 million, an increase of $23.0 million from December 31st 2020 and a net debt of $22.2 million.
Following the quarter-end on May 5th 2021, the Company’s $50 million working capital facility was extended with Rand Merchant Bank, a division of FirstRand Bank Limited, London Branch.
In January 2021, Lucara announced the recoveries of two, top white gem quality diamonds (341 carats and 378 carats) from ore sourced from the M/PK(s) unit within the South Lobe. Both stones were recovered unbroken.
In April 2021, Lucara announced the 24-month extension of its novel supply agreement with HB in respect of all diamonds produced in excess of 10.8 carats in size from the Karowe mine to be sold as polished.
In May 2021, Lucara received credit approved commitments from a syndicate of five international lenders for a senior secured project financing debt package of up to $220 million (over P2.3 billion) to fund an underground expansion at the Karowe Mine in Botswana.
Eira Thomas, President & CEO commented: “Lucara has bounced back in the first quarter of the year, demonstrating its resiliency at a time of continued uncertainty in respect of the ongoing COVID-19 pandemic. Our solid performance in the first quarter reflects a stronger business environment, Lucara’s continued focus on operational discipline and our innovative approach to sales.
We also made significant progress towards the completion of a supplemental debt financing package with credit approved commitments received from five international lenders, in support of our plans for underground expansion.
Our outlook for the diamond market remains strong, and with close to 20 years of future mining now ahead of us at Karowe, Lucara is highly levered to an improving diamond price environment, particularly in respect of large, high value gem diamonds, the hallmark of Karowe’s production profile.”
Ore and waste mined of 1.1 million tonnes and 0.8 million tonnes, respectively.0.67 million tonnes of ore processed resulting in 80,014 carats recovered, achieving a recovered grade of 11.9 carats per hundred tonnes.
188 Specials (+10.8 carats) were recovered from direct milling during the first quarter, representing 6.8% weight percentage of total direct milling recovered carats, in line with resource expectations.
2 diamonds were recovered greater than 300 carats in weight and 2 diamonds were recovered greater than 200 carats in weight.
Diamond sales in Q1 2021 were held through a combination of regular tenders, and the Clara platform, for diamonds less than 10.8 carats, and through HB under the supply agreement for those diamonds greater than 10.8 carats.
The Company recognized revenue of $53.1 million or $579 per carat from the sale of 91,760 carats. Price recovery was observed in most size and quality classes.
Included in this amount is variable consideration of $9.1 million which relates to “top-up” payments which arise from polished diamond sales in excess of the initial planned value paid to Lucara.
Beginning in Q2 2020, all +10.8 carat diamonds mined from Karowe were sold to HB pursuant to the terms of the diamond supply agreement described below.
Karowe’s large, high value diamonds have historically accounted for approximately 60% to 70% of Lucara’s annual revenues.
Though the mine remained fully operational following the declaration of COVID-19 as a global pandemic, Lucara made a decision not to tender any of its +10.8 carat production after early March 2020 amidst the uncertainty caused by the global crisis and the significant weakness observed in the rough diamond market.
LUCARA- HB SALES AGREEMENT
The polished diamond market performed better through this period and subsequently, in July 2020, Lucara announced a ground breaking partnership agreement with HB, entering into a definitive supply agreement for the remainder of 2020, for all diamonds produced in excess of +10.8 carats from their 100% owned Karowe Diamond mine in Botswana.
This agreement was subsequently extended for a 24 month period, from January 1, 2021 to December 31, 2022.
Under the supply agreement with HB, Lucara’s +10.8 carat production is being sold at prices based on the estimated polished outcome of each diamond, determined through state of the art scanning and planning technology, with a true up amount payable to Lucara on actual achieved polished sales in excess of the initial estimated polished price, less a fee and the cost of manufacturing.
This unique pricing mechanism delivers regular cash flow for this important segment of our production profile.
Revenue from stones delivered to HB in 2020 will continue to be recognised in 2021 as polished diamonds are sold and “top-up” payments are realised.
CLARA SALES PLATFORM
With global restrictions impeding travel for many diamond manufacturers, interest in Clara- Lucara’s proprietary, secure, web-based digital sales platform- grew significantly in 2020 and that positive momentum continued through Q1 2021.
Six sales were held in the first quarter with total sales volume transacted of $6.0 million, more than double the volume from the comparable period in 2020.
Encouragingly, Clara also observed consistent price increase at each subsequent sale throughout the period.
The number of buyers on the platform increased to 80 and the company is maintaining a waiting list to manage supply and demand. Discussions continue with third party sellers to build supply.
KAROWE MINE UNDERGROUND PROJECT
During Q1 2021, Lucara spent $9.9 million (over P100 million) on project execution activities for the Karowe underground expansion, including shaft and geotechnical engineering, surface infrastructure, dewatering and power line engineering and procurement.
Site construction work commenced early in the quarter and in March the production and ventilation shaft box cuts were drilled and blasted to bulk excavation elevations.
A significant amount of time and effort was also spent on due diligence related to technical, environment and social matters as part of ongoing project financing efforts.
The first quarter of 2021 continued with unprecedented challenges emanating from the 2020 outbreak of the COVID-19. In Botswana, the economy continues to reel from the effect and impact of the pandemic.
The FABI generated a negative quarterly return, with the index declining by 0.3% for the quarter. Government bonds were the main reason for the decline, registering a return of -0.4% for the quarter under review.
According to Kgori Capital Domestic Fixed Income and Macro Commentary Q1 2021, corporate bonds generated positive returns of 0.9% for the quarter.
Kgosi Capital Portfolio Manager, Kwabena Antwi, says government bonds have continued to come under pressure due to increased supply as government looks for funding for its Economic Recovery and Transformation Plan (ERTP). He says there were three auctions held during the quarter where P8.6 billion of bonds and T-Bills were offered.
“There was decent demand with P10.8 billion of bids received, however, in a similar manner to Q4 2020’s auctions, all auctions were under-allotted with an allotment ratio (allotment divided by securities on offer) of 59.0%. The low allotment was likely due to bids received considered too rich. The key question is how the government plans to fund its projected deficits. Even with the possibility of securing bilateral funding, there is an increase likelihood that projects under its ERTP may be delayed.”
Antwi indicated that inflation breached the lower bound of the Bank of Botswana’s objective range, ending the quarter at 3.2% in March 2021. He says, the main driver of inflation was transport inflation which moved out of deflation territory as a result of the 6.9% increase in pump prices effected in March 2021.
“We expect inflation to accelerate further and briefly touch the 6% upper bound of the Bank of Botswana’s objective range in late Q2 2021/Q3 2021 before accelerating. Our expectation is premised on continued supply-push inflation and base effects arising from the Transport basket,” he said.
GROSS DOMETIC PRODUCT
Kgori Capital highlighted that their GDP growth estimate for 2021 has increased following the release of better-than-expected Q4 2021 economic data which indicated that the economy contracted by 7.9% versus their expectation of an 8.5% contraction.
“We have revised our 2021 growth expectation upwards to 7.2% from 6.3% previously with risks balanced. Whilst there have been no hard lockdowns yet in 2021, curfews have been implemented since January 2021 and alcohol sales were banned between January 2021 and February 2021. Current restrictions are less constricting than the lockdown imposed in 2020 but they will nonetheless constrain business activity in 2021. Forecasts will remain fluid as we get more information on the status of the local and global vaccine rollout as well as the implementation of government’s ERTP.”
Debswana — the world’s leading rough diamonds producer by value says it is “watching” the developments around lab grown diamonds closely as events unfold.
The world‘s largest jewellery maker Pandora, this week announced that it will completely abandon mined diamonds and shift totally to lesser expensive stones manufactured in laboratories citing “environmental reasons.”
Pandora is by far one of the most important jewellery makers in the world.
The company which started as a family-run jewellery shop in Copenhagen, Denmark, is now globally known for its customizable charm bracelets, designer rings, necklaces and watches, crafting them from the world’s finest mined diamonds.
In an announcement that sent shock waves across the diamond industry corridors on Monday, the world’s biggest jewellery maker told global media outlets that it will no longer sell mined diamonds and will switch to exclusively laboratory-made diamonds.
Pandora Executives cited concerns about the environment and working practices in the mining industry saying this has led to growing demand for “alternative products”.
Alexander Lacik, Chief Executive Officer of Pandora told UK based media group BBC, that “the change was part of a broader sustainability drive”. He explained that Pandora is taking that direction because, “it’s the right thing to do”.
“Synthetic diamonds are also cheaper, we can essentially create the same outcome as nature has created, but at a very, very different price,” he said.
The move by Pandora, according to Industry experts, reflects a reorientation of the jewellery market brought on by the pandemic and the sentiments of younger buyers, who are more likely to factor in environmental and human rights concerns when choosing products.
“For millennials in particular, the awareness of what a lab-created diamond is, is significantly higher than with the older generation, so it’s a matter of education as well,” Alexander Lacik told American media outlet Bloomberg on Monday.
He added: “These categories of buyers are more concerned about sustainability aspects.”
“WE ARE WATCHING THIS SPACE VERY CLOSELY”— DEBSWANA
Two weeks ago, Debswana, a De Beers partly owned company, said the synthetic diamond space is being monitored closely.
In a statement following a virtual stakeholder engagement meeting on the 23rd of April, 2021 Debswana Corporate Affairs said the company is keeping an eye on the new developments.
“We do watch this space very closely and also do know that De Beers does the same, overall, research shows that the size of the lab grown diamond market continues to be very small in comparison to the size of the natural diamond market (a low to mid-single digit percentage of the size,” stated the company.
Debswana said one of the key advancements with regard to lab grown diamonds in 2020 was that new production sources continued to come online, including the new De Beers owned Lightbox facility in Oregon, United States.
The increase in supply, coupled with continued advancements in technology, have seen lab grown diamonds continue their downward price trajectory throughout 2020, the company said- citing a report by Brain- that lab-grown diamonds are now retailing at an average of around 35% of the value of an equivalent natural diamond, down from around 65% in 2017.
In addition Debswana cited a research conducted by its parent company De Beers and other industry players that “90% of consumers want gifts that hold their value over time, and natural diamonds are seen as the top gift of this nature, above other jewellery, designer clothing or electronics”.
“Diamonds hold a symbolism, meaning and value that lab-grown diamonds do not provide as a mass-produced product of technology.”
DE BEERS SYNTHETIC DIAMOND BUSINESS
De Beers entered the retail space of synthetic diamonds space in 2018, through its jewellery brand Lightbox.
The company committed an investment of US$94 million (around P1 billion) on an Element Six production facility near Portland, Oregon, US adding to Element Six’s existing UK-based facilities.
Through its wholly owned subsidiary Element Six De Beers Group has been making diamonds in laboratories for 50 years but solely for industrial purposes.
“Lightbox will transform the lab-grown diamond sector by offering consumers a lab-grown product they have told us they want but aren’t getting: affordable fashion jewellery that may not be forever, but is perfect for right now,” said Bruce Cleaver, CEO of De Beers Group in 2018.
Cleaver said his company was making this move informed by an extensive research that signals consumers regard lab-grown diamonds as a fun, pretty product that shouldn’t cost that much.
“We see an opportunity here that’s been missed by lab-grown diamond producers. Lab-grown diamonds are a product of technology, and as we’ve seen with synthetic sapphires, rubies and emeralds, as the technology advances, products become more affordable,” he said.
Initially De Beers has had a policy against synthetic diamonds however in 2018 the global diamond giant reported that after decades of investment into the extensive Research & Development the company could now offer consumers high quality gems with customer tailored cuts that suits fashion requisites better at affordable prices.
“While it will be a small business compared with our core diamond business, we think the Lightbox brand will resonate well with consumers at the same time provide a new, complementary commercial opportunity for De Beers Group,” observed the Group CEO.
De Beers Lightbox Jewellery brand is retailing in the market, with the product uptake by consumers satisfactory.
However, De Beers reiterated in many forums that it will remain a natural diamond business. In 2019 at the Diamond Conference held in Botswana, Bruce Clever said the over 100 year old mining giant will remain a primarily “natural” diamonds business because the mine stones are forever and offer something no any other product could offer.