This week Botswana celebrated her 53 years of independence, a sterling economic marathon and democratic transition that began over 5 decades ago, anchored and pivoted on dedicated civil service and selfless leadership across the political divide.
Much credit goes to stalwarts in nation building, right from the immerse contribution of tribal leaders, politicians to early post-independence civil servants who started building the landlocked country’s economy from absolutely nothing. Fundamental to Botswana‘s rapid economic transformation is the discovery of what would later become one of the world’s key rough diamonds mining operation ,bolstering infrastructural development and birthing an upper middle income country widely celebrated across the globe today.
Immediately after independence was declared in 1966,British administration slowly removed its aid and financial assistance, Botswana now , though still assisted on setting up was left by in large to fend for itself, however sooner than later a complete turnaround would emerge. Three years post-independence, after over 10 years of immerse geological prospecting, Botswana‘s first diamond mine was found in Boteti District. A team of De Beers’ geologists discovered what today is the largest diamond mine by area and one of the most important industrial diamonds mining operation in the world, the bold and magnificent Orapa mine, loosely translated to mean a resting place of lions in Sesarwa language.
This birthed what would later become the world’s leading rough diamond producer and a globally celebrated Private-Public Partnership, between Mining giants De Beers Group and Government of Botswana, De Beers Botswana Diamond Mining Company was formed in 1969. In 1971 Orapa Mine was officially commissioned, four years later a small gem pipeline discovered few kilometers from Orapa, Letlhakane Mine popularly known today as DK1 was commissioned. But behold a sparkling upswing came into light in 1972 when a rare gem pipe was found beneath a 40 metre layer of sand and calcrete in the Naledi River Valley birthing Jwaneng Mine, the prince of mines , what is today believed to be the richest diamond mine by value.
FAST FORWARD TO 2019…
These two partners, Government of Botswana and De Beers Group are meeting to review and renew their vows, circumstances have changed, the global diamond industry has evolved, and various factors are at play. Key to negotiations which are reported to be ongoing in discrete places at London and in Gaborone is the Sales Agreement. The Botswana-De Beers diamond sales deal was last renewed into a 10 year union in 2010 and it lapses next year September 2020.
Recently reports have been rife that Botswana is being ripped off along the way as the stones leave Debswana operations crossing borders to diamond trading centers across the globe. However De Beers Group has constantly denied these reports. Government is yet to clearly comment on the reports.
To date on the overall, the De Beers-Botswana marriage has birthed Debswana Diamond Mining Company, the partnership’s flagship entity. This year the company celebrated 50 years of existence. Debswana is Botswana‘s largest private sector employer, only government employs more people than Debswana. The company is directly owned by Botswana Government and De Beers on 50-50 shareholding.
Another offspring of the partnership is Diamond Trading Company Botswana (DTCB), also a 50 -50 venture between the two parties .DTCB sorts and values diamond from Debswana mines. If there are to be changes from these multibillion dollar serious negations it’s likely to be from DTCB going up the pipeline.
DTCB avails 85 % of their sorted and valued diamonds to De Beers Global Sight holder Sales (DBGSS) and 15 % to Okavango Diamond Company (ODC) which is wholly owned by Botswana Government .This was birthed by 2011 agreement with ODC established in 2012. Another key change in 2011 was the relocation of DBGSS from London to Gaborone, transferring De Beers’ operations consolidated rough diamond sales into Gaborone, bringing alongside professionals, skills, and the world’s biggest rough diamond transactions to Africa.
ANTICIPATED INCREASE IN ODC UPTAKE
One of the highly earmarked outcomes to possible emerge from the negotiations is increase in percentage volume of ODC‘s uptake from DTCB. The argument has always been that Botswana as one of the largest diamond producers in the world has the capacity and ability to develop its own price book through its own independent window outside De Beers’ channels. Before ODC was establishment in 2012 all diamond recovered from Debswana mines were made available to De Beers for dispatch into the sight holder market.
Currently ODC rakes in sales in the region of $500 Million annually (approximately P5 billion). This according to Minister of Mineral Resources Eric Molale demonstrates beyond reasonable doubt that Botswana has independent capacity and ability to be a major player in the sight holder space outside De Beers’ bracket.
“The Marcus Te Haar led company was a great accomplishment for us a country, it ended a perception that we cannot sell our diamonds, and its sound performance since establishment will have direct impact in the current negotiation with a view to potentially increase its uptake form 15 % to a larger percentage” he said last year at a mining conference in Gaborone
DTCB TO SORT AND VALUE DIAMONDS FROM NON DE BEERS OPERATIONS
In 2006 the then sales agreement before the 2011 deal, saw the setting up of the world largest and most sophisticated sorting and valuing operation in Gaborone, the Diamond Trading Company Botswana. DTC Botswana was birthed from Botswana Diamond Sorting & Valuing Company, an entity that operated for many years at the famous Orapa house. DTCB is now located in a magnificent high rise cube in the Diamond Hub along the Gaborone airport road, a state of the art infrastructure clinched between Debswana Corporate Centre & DBGSS Buildings .
In 2017 DTCB commissioned a new facility of unparallel global standards, a laboratory of sophisticated chemical processes of quantum physics operations and complex scientific techniques for cleansing and sorting the diamonds. In February last year then Managing Director of DTCB Tobake Kobedi said DTCB with this set up intends to be the world‘s number 1 by 2020. He said by 2020 when a new sales agreement is penned down, DTCB intends to have improved its efficiencies and effectiveness as a rough diamond sorting and valuing operation and thus desires not to only be limited to receiving Debswana rough diamonds.
“Currently our shareholder agreement dictates that we sort diamonds from De Beers mines in Botswana only, but we want to say let more from elsewhere come because we have the capacity” said Tobake when addressing members of the media last year. The DTCB plant has sorting and valuing full capacity of over 45 million carats of per annum but currently only receives around 22 million carats from Debswana mines annually.
“Why can’t we take rough diamonds from other mines locally and in the region?” Kobedi posed these questions explaining the intention of DTCB strategy 2020 and its vision towards ensuring that Botswana remains a Diamond Hub beyond depletion of the stones. Later in 2018 during Zimbabwean President, Emmerson Mnangagwa’s state visit to Botswana it was noted that talks would begin for Zimbabwe to process, sorts and value its diamonds in Botswana.
GOVERNMENT WANTS DEBSWANA TO RIGOROUSLY INVEST IN OTHER SECTORS
Sources close to the echelons of power have revealed to this publication that one of the issues to be posed at the negotiation table by Botswana is that Debswana; the country’s largest company should start investing in other sectors outside its core business of mining diamonds. The argument suggested by this information is that Debswana has the necessary capital, technical capacity and shrewd corporate governance to do that “There are discussions that Debswana should lead economic diversification by investing in solar energy, plant and equipment assembly and machinery equipment amongst others” shared a source from the highest corridors of government enclave.
Debswana has over the years of its existence invested in other establishments outside diamond mining. Morupule Coal Mine was a wholly owned Debswana operation before it was disposed to government owned Mineral Development Company in 2017. Botswana Accountancy College, the country’s premier business academic institution was established as a joint venture between Debswana, Ministry of Finance and Economic Planning and the Botswana Institute of Accountants in 1996.Within its fold Debswana also wholly owns Sesiro Insurance Company, a bespoke insurance services outfit for its employees.
“ This is clear evidence that Debswana should do more , it has done it before , so Government wants the shareholders being itself and De Beers to permit Debswana to rigorously invest in more commercial viable sectors that this country desperately needs for employment creation and economic diversification like ICT , modern and innovative Agriculture amongst others” shared a source.
INFLUENCING FACTORS: BOTSWANA GENERAL ELECTIONS OUTCOME, GLOBAL ROUGH DIAMOND MARKET DOWNTURN, DE BEERS SYNTHETIC DIAMONDS
The negotiations usually comprise a team of 5 from the two parties. From Botswana side common picks are Attorney General, Bank of Botswana Governor, and Minister of Minerals amongst others. These highly anticipated negotiations will however have more influencing factors, experts observe that the global rough diamond market downturn will have an impact, in the main, it is said that the recent De Beers lab grown diamonds announcement will have a play. The Mining giant invested $100 million (Over a billion pula) in a manmade diamonds facility in the United States early this year.
After assuming power in April this year President Masisi noted that he would be eyeing more participation of Botswana in the diamond business, sentiment constantly reiterated his Minister of Minerals Eric Molale. “We have had a wonderful relationship with De Beers and we expect that relationship to be even more cemented, there is a way of actually achieving a win-win for both, we want to participate more on cutting, polishing and retail,” Masisi said when talking to Bloomberg in May 2018.
In the bottom line government has reiterated that De Beers will remain its partner “As partners in this industry, it would shock the world if we were to part; the diamond industry would never be the same again,” Masisi said. Botswana is however going into one of the closely contested general elections in history of its democracy. Since independence one party has ruled the country, It remains unclear what would happen to this partnership should government change. Government of Botswana is a direct Shareholder in De Beers Group, owning 15 % with the larger balance owned by Mining conglomerate Anglo American.
Botswana’s economy showed slight growth signs in the first quarter of 2021, following a devastating year in 2020.
During 2020, the entire second quarter was on zero economic activity as the country went on total lockdown in an effort to curb the spread of the virus.
Diamond trade plummeted to record low levels as global travel restrictions halted movement of both goods and people and muted trade.
The end result was a significant decline for the local economy, at an estimated 7 percent contraction, just marginally below the 2008/09 global financial crises.
According to figures released by Statics Botswana this week, the country’s nominal Gross Domestic Product for the first quarter of 2021 was P47.739 billion compared to a revised P45.630 billion registered during the previous quarter.
This represents a quarterly increase of 4.6 percent in nominal terms between the two periods.
During the quarter, Public Administration and Defence became the major contributor to GDP by 18.4 percent, followed by Wholesale & Retail by 11.4 percent. The contribution of other sectors was below 6.0 percent, with Water and Electricity Supply being the lowest at 1.6 percent.
Real GDP for the first quarter of 2021 increased by 0.7 percent compared to a contraction of 4.6 percent registered in the previous quarter.
The improvement in the first quarter 2021 GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.
The real GDP increased by 0.7 percent during the period under review, compared to an increase of 1.2 percent in the same quarter of 2020.
The recovery in the domestic economy was observed across majority of industries except Accommodation & Food Services, Mining & Quarrying, Manufacturing, Construction, Other Services and Agriculture, Forestry & Fishing.
The overall slow performance of the economy was mainly due to the impact of measures that were put in place to combat the spread of the COVID-19 pandemic.
The Non-mining GDP increased by 4.1 percent in the first quarter of 2021 compared to 4.0 percent increase registered in the same quarter of the previous year.
Agriculture, Forestry and Fishing industry decreased by 2.0 percent in real value added during the first quarter of 2021, relative to a contraction of 5.2 percent registered during the same quarter of 2020.
The main driver of the unfavorable performance stems from a decrease in real value added of Livestock farming by 3.0 percent.
Mining and Quarrying registered a decrease 11.4 percent in the real value added, this was mainly influenced by the drop in the Gold and Diamond real value added by 17.5 and 12.5 percent respectively.
Diamond production in carats went down by 12.1 percent while the tonnage of Gold produced went down by 17.5 percent.
The poor performance of the diamond sub-industry is attributed to the reduction in production due to a lower grade feed to the plant at Orapa in response to heavy rainfall and operational issues, including continued power supply disruptions.
With regard to Gold is due to diminishing resource base which affect production.
The Manufacturing industry recorded a decline of 7.4 percent in real value added during the first quarter of 2021, compared to a decrease of 2.3 percent registered in the corresponding quarter of 2020.
The deep low performance in the industry is observed in the two major sub-industries of Beverages & tobacco and Diamond cutting, polishing and setting by 57.0 and 38.5 percent respectively.
The reduction in Beverages is attributed to alcohol sale ban imposed during the quarter under review in order to reduce the spread of the COVID-19 virus. On the other hand, exports of polished diamonds went down by 24.9 percent compared to a decrease of 11.5 percent registered in the same quarter of the previous year.
The construction industry recorded a decline of 4.8 percent compared to an increase of 4.3 percent realized in the corresponding quarter in 2020.
This industry comprises of buildings construction, civil engineering and specialized construction activities. The industry is still showing signs of the consequences of COVID-19 pandemic. The industry recorded a negative growth of 7.4 percent in the previous quarter.
Water and Electricity Water and Electricity value added at constant 2016 prices for the first quarter of 2021 was P506.2 million compared to P378.2 million registered in the same quarter of 2020, recording a growth of 33.8 percent.
In the first quarter of 2021, Electricity recorded a significant growth of 62.4 percent compared to a decrease of 67.6 percent recorded in the corresponding quarter of 2020.
The local electricity production increased by 22.4 percent while Electricity imports decreased by 33.3 percent during quarter under review. The water industry recorded a value added of P231.3 million compared to P209.0 million registered in the same quarter of the previous year, registering an increase of 10.7 percent.
Wholesale and Retail Trade real value added increased by 11.4 percent in the first quarter of 2021 compared to an increase of 5.5 percent registered in the same quarter of the previous year. The industry deals with sales of fast moving consumer goods.
Diamond Traders recorded a significant growth of 112.7 percent as opposed to a decline of 22.7 percent recorded in the corresponding quarter last year. The positive growth is due to improved demand of diamonds from the global market.
The Transport and Storage value added increased by 0.6 percent in the first quarter of 2021, compared to a 2.4 percent increase recorded in the same quarter of the previous year.
The slight improved performance of the industry was mainly attributed to the increase in real value added of Road Transport and Post & Courier Services by 4.3 and 2.1 percent respectively.
The slow growth was influenced by a significant reduction in Air Transport services of 69.7 percent due to reduced number of passengers carried. Rail goods traffic in tonnes went down by 6.4 percent and passenger rail transport was not operating during the quarter under review.
Accommodation and Food Services Accommodation and Food Services real value added declined by 31.7 percent in the first quarter of 2021 compared to a decrease of 4.4 percent registered in the same quarter of the previous year. The reduction is largely attributed to a decrease of 42.1 percent in real value added of the Accommodation activities subindustry.
The suspension of air travel occasioned by Covid-19 containment measures impacted on the number of tourists entering the borders of the country and hence affecting the output of Hotels and Restaurants industry. COVID-19 restriction measures resulted in reduced demand for leisure and conferencing activities, as conferences are largely held through virtual platforms.
Finance, Insurance and Pension Funding industry registered a positive growth of 8.3 percent due to the favorable performance from monetary intermediation and Central Banking Services by 16.4 and 5.4 percent respectively during quarter under review.
It is still tough in the tourism industry — big players in this sleeping giant are not having it easy, but options are being explored to keep the once vibrant multibillion Pula sector alive until the world gets back to normalcy.
One of the primary measures against the spread of Covid-19 is to stay home; this widely pronounced precaution against the global contagion that has claimed over 4 million lives across the world is however a thorn in the flesh of one of the major industries in the global economy — the tourism sector .
This sector is underpinned by travel – an act which is the virus‘ number one mode of spread, especially across borders.
Chobe Holdings Limited, one of Botswana’s leading high end eco-tourism giants said its survival strategies are underpinned by well-crafted stakeholder engagements in the mist of these unprecedented times of muted trading activity.
“Throughout the COVID-19 pandemic, Chobe continued to invest in and strengthen its relationships with key stakeholders in both its traditional markets and the SADC region,” the company directors updated shareholders this week.
To keep the business afloat, the company which owns and operates some of the exquisite tourism destinations along the banks of the mighty Chobe said it has triggered its existing available debt financing avenues.
Chobe revealed that its current overdraft of BWP 25 million has been extended on favourable terms.
The company shared that it has negotiated a further USD 1.5 million (over P16 million) standby loan with a flexible settlement terms and preferable cost implications to the bottom line.
“We are confident that the Group has sufficient cash inflows, cash reserves and un-utilized prearranged borrowing in place to settle any liabilities falling due and support the smooth recovery of operations in the short and medium term,” the company directors said, noting that they will retain the flexibility to vary operations should market conditions change.
Early this year, Chobe announced that the ongoing crisis in the tourism industry forced the company to draw from its prearranged overdraft facility of P25 million to the extent of P11.6 million.
Last year Chobe’s occupancy levels around its lodges and hotels went down 89 percent. This resulted in unprecedented revenue decline of 93% to P27.78 million from the P373.94 million in the previous year ended February 2020.
Operating profits went down 159% with profit after tax down 170%, mirroring a loss of over P67 million.
Chobe management said during the last half of the financial year they have done all they could to contain costs across the company’s operations.
During the last half of the year Chobe’s marketing and reservations teams continued to pursue the “don’t cancel but defer policy”.
“We thus continue to hold advance travel receipts, to the value of about P34 million at the financial year end,” the company revealed early this year.
Chobe said it continues to engage Government, through HATAB and BTO to prioritize the vaccination of workers in the tourism sector.
“Throughout the pandemic we have ensured that employees are trained in and comply with COVID-19 infection mitigation protocols as well as ensuring that all visitors to our remote camps and lodges as well as our staff and contractors are tested for COVID-19 before reaching the camp or lodges,” the company said.
However, the company said vaccinating the tourism staff will provide the best way to ensure that both employees and guests are protected from the virus.
“We continue to manage our cashflow through stringent cost control measures, balanced against the protection of the Group’s physical assets and the wellbeing and retention of its people,” the company said.
Chobe has successfully retained its top management through the pandemic. To this end the company directors continue to closely monitor the Group’s recovery from COVID-19 and adjust salary reductions to support operations and aid retention.
Domestic and regional travel resumed during the second quarter of the 2020/21 financial year with the Group opening a strategic mix of camps and lodges.
A comprehensive domestic, regional and international marketing plan was put in place to support these openings.
International travel resumed in the first quarter of the 2021/22 financial year with occupancies forecast to steadily increase, albeit from a low base, through the second quarter.
The company is optimistic that forward bookings are strong for the 2022/23 financial year.
“There is pent-up demand from our traditional source markets to travel now, but this is tempered by uncertainty and access constraints,” the company stated.
“Both the domestic and international markets are sensitive to such uncertainty, and it is critical that both the private and public sector work together to develop and publish clear, authoritative and consistent travel information in order to build confidence”
Chobe entered the pandemic with the Shinde camp rebuild in progress — one of its high end camps and this was completed in the first half of the 2020/21 financial year accounting for the majority of the Group’s capital expenditure for that period.
De Beers Group, the world’s leading rough diamonds producer by value and Botswana’s partner in the diamond business, ramped up its production in the second quarter of 2021, in response to stronger demand for rough diamonds in the global markets.
The London headquartered diamond mining giant revealed in its production report this week that rough diamonds output increased by 134% to 8.2 million carats in the three(3) months of quarter 2 2021, “reflecting planned higher production to meet stronger demand for rough diamonds”.
This was against the backdrop of curtailed demand in the same quarter last year, mirroring the impact of Covid-19 lockdowns across southern Africa during that period.
In Botswana, where De Beers sources majority of its rough diamonds through partly government owned Debswana, production increased by 214% to 5.7 million carats. The percentage jump mirrored planned low production in the second quarter of 2020 where output was adjusted to market demands and implemented Covid-19 protocols.
Debswana operates four (4) Mines: Jwaneng Mine- being its flagship producer and largest revenue contributor. Jwaneng Mine which is the wealthiest diamond mine in the world by value is envisaged for multi-billion expansion to an underground operation in future to stretch its existence by few more decades.
The underground project which is anticipated to cost a whooping P65 billion will be the world‘s largest underground diamond mine.
The company which accounts for over 65 % of De Beers’s global production also operates Orapa Mine- one of the world’s largest by area, Letlhakane Mine currently a tailings treatment operation and Damtshaa Mine which is under care and maintenance following market shrink in 2020.
Namibia production decreased by 6% to 0.3 million carats, primarily due to planned maintenance of the Mafuta vessel which was completed in the quarter and another vessel remaining demobilized. In Namibia De Beers sources diamonds both in land and marine through Namdeb and Debmarine respectfully.
In South Africa-the spiritual home ground of De Beers Group, production increased by 130% to 1.3 million carats, due to planned treatment of higher grade ore from the final cut of the Venetia open pit, as well as the impact of the Covid-19 lockdown in Q2 2020.
Production in Canada increased by 14% to 0.9 million carats, primarily reflecting the impact of the Covid-19 measures implemented in Q2 2020.
De Beers said consumer demand for polished diamonds continued to recover, leading to strong demand for rough diamonds from midstream cutting and polishing centers, despite the impact on capacity from the severe Covid-19 wave in India during April and May.
Rough diamond sales totaled 7.3 million carats (6.5 million carats on a consolidated basis), from two Sights, reflecting the impact of the reduced Indian midstream capacity on Sight 4, compared with 0.3 million carats (0.2 million carats on a consolidated basis) from two Sights in Q2 2020, and 13.5 million carats (12.7 million carats on a consolidated basis) from three Sights in Q1 2021.
The H1 2021 consolidated average realized price increased by 13% to $135/ct (H1 2020: $119/ct), driven by an increased proportion of higher value rough diamonds sold.
While the average price index remained broadly flat, the closing index increased by 14% compared to the start of 2021, reflecting tightness in inventories across the diamond value chain as well as positive consumer demand for polished diamonds.
Full Year Guidance Production guidance is tightened to 32–33 million carats (previously 32-34 million carats (100% bases)), subject to trading conditions and the extent of any further Covid-19 related disruptions.
When commenting to 2021 quarter 2 production figures, Mark Cutifani, Chief Executive of Anglo American- De Beers parent, said the entire Anglo American Group delivered a solid operational performance supported by comprehensive Covid-19 measures to help safeguard the lives and livelihoods of its workforce and host communities.
“We have generally maintained operating levels at approximately 95% of normal capacity and, as a consequence, production increased by 20% compared to Q2 of last year, with planned higher rough diamond production at De Beers” he said.