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GDP swells

The year 2019 started with positive growth in the economy albeit at a slower pace.  Even though mining production increased in the first quarter of 2019 it was not the major factor in the swelling Gross Domestic Product (GDP) as is always expected, according to Statistic Botswana. The national statistics agency also reveals a rise in generation of electricity for the first quarter of the year.

According to Statistics Botswana, when looking at the GDP crossover between years of 2018 and 2019, a narrow increase of 0.5 percent was realized. This is the estimated GDP at current prices for the first quarter of 2019 which was P48, 728.9 million compared to P48, 491.6 million registered in the fourth quarter of 2018. The statistical release contains the first quarter of 2019 Gross Domestic Product estimates by economic activity and components of final demand at current and constant prices.

According to the national statistics custodian, during the quarter under review, Trade, Hotels & Restaurants remained the major contributor to GDP by 19.1 percent. The mining and quarrying which was placed with General Government and Finance & Business services at 16.6, 14.5 and 14.3 percent respectively trailed behind the named top contributors of the GDP. Other sectors contribution was below 6.7 percent with Water & Electricity being the lowest at 1.2 percent.

Statistics Botswana says Real Gross Domestic Product for the first quarter of 2019 increased by 4.3 percent and this increase was attributed to the significant growth in real value added of Transport & Communications and Trade, Hotels & Restaurants and industries by 5.9 and 5.7 percent respectively.

Transport and Communications value added increased by 5.9 percent in the first quarter of 2019, according to Statistics Botswana and growth was mainly attributed to the increase in real value added of Post & Communications, Air transport and Road Transport by 7.6, 6.2 and 5.6 percent respectively. According to Statistics Botswana, Trade, Hotels and Restaurants real value added increased by 5.7 percent in the first quarter of 2019 compared to a decrease of 2.0 percent registered in the same quarter of the previous year.

This recorded positive growth is attributed to an increase in real value added of Retail Trade, Hotels & Restaurants and Vehicle Dealers sub industries by 7.1, 6.2 and 4.7 percent respectively. In the first quarter of 2019 Airport Junction undergone rapid expansion and this is said by Statistics Botswana to have been vital in boosting the increase in the Retail Trade value added. New mall around the county were also opened in this quarter of the year also contributing to increase in the Retail Trade Value hence the growth in GDP.

Despite being admired as one of the biggest participant of the local economy Banks was trailing behind at 5.8 percent while Business Services and Real Estate each scored 6.4 and 6.2 percent respectively while contributing in the 5.4 percent increase in the real value added of the Finance and Business Services industry.

The Manufacturing real value added increased by 4.1 percent in the first quarter of 2019 compared to an increase of 4.6 percent registered in the same quarter of the previous year, according to Statistics Botswana. This depiction rounds up an increase in real value added of Other Manufacturing and Beverages sub industries by 4.8 and 1.5 percent respectively. Other Manufacturing comprises of all manufacturing entities except those dealing with Production, processing & preserving of meat, Beverages, Textiles and Leather & leather products. Also, the Other Manufacturing sub industry includes diamond cutting and polishing value added.

In mining whose real value added increased by 3.3 percent was driven by Soda Ash. In production of these two minerals, Soda Ash produced the most with 14.3 percent increase in tonnes while diamond production in carats rose by 3.3 percent. This all happened in the first quarter of 2019. Debswana production increased by 2.0 percent and this was spiked by 12.0 percent increase in production at Jwaneng mine. Orapa was once again an impediment in diamond production

Soda AshThe increase in the real value added of Mining by 3.3 percent was mainly driven by Soda Ash and Diamond value added. Soda Ash production in tonnes went up by 14.3 percent while Diamond production in carats rose by 3.3 percent in the first quarter of 2019 compared to an increase of 11.6 percent recorded in the same quarter of 2018. Debswana production increased by 2.0 percent and this was driven by Jwaneng production which increased by 12.0 percent. Orapa production decreased by 7.0 percent as a result of plant shut down in March 2019. According to Statistics Botswana, non-mining GDP increased by 4.4 percent in the first quarter of 2019 compared to 3.7 percent registered in the same quarter of the previous year.

The Water and Electricity value added at constant 2006 prices for the first quarter of 2019 was P266.2 million compared to P256.3 million registered in the same quarter of 2018, recording an increase of 3.9 percent, according to Statistics Botswana.  The national statistics centre says in the first quarter of 2019, Electricity recorded a positive value added of P31.0 million compared to P30.1 million registered in the same quarter of 2018 leading to a positive growth of 3.0 percent.

Statistics Botswana said the increase in the electricity real value added is attributed to a rise in the local electricity production by 13.8 percent. This depiction also sees imports of Electricity going down by 31.8 percent during the first quarter of this year. According to Statistics Botswana, the significant increase in local Electricity production were largely attributed to improved performance of the Morupule B Power Station with a view to meet the country’s electricity demand.

 Electricity Generation increases

According to Statistics Botswana, the Index of Electricity Generation (IEG) stood at 184.8 during the first quarter of 2019, reflecting a year-on year increase of 13.8 percent compared to 162.3 recorded during the corresponding quarter in 2018. The quarter-on-quarter comparison shows an increase of 71.5 percent, from 107.7 during the fourth quarter of 2018 to 184.8 during the current quarter.

This statistical brief is intended to apprise on Electricity Generation, Importation and Distribution by presenting Monthly, Quarterly and Yearly Volumes as well as Indices for Electricity Generation in Botswana. Also included are Year-on-Year and Quarter-on-Quarter Percentage Changes in Indices of Electricity Generation from 2009 to the first quarter of 2019. In subsequent sections of this report, emphasis will be on the first quarter of 2019, compared to the fourth quarter in 2018, and the corresponding quarter in 2018.

This report uses 2013 as the base year. The release further shows changes in the volume of electricity generation in a given period against the base year (2013), and hence provides a reflection of the trend in the local electricity sector. Statistics Botswana also studies the local generation and imported electricity to come up with electricity that is available for distribution in Botswana. This does not take into account electricity used for auxiliary services, pumping, network losses as well as production of electricity through incineration of waste, according to Statistics Botswana.

An increase of 0.6 percent (6,068 MWH), from 959,650 MWH during the first quarter of 2018 to 965,718 MWH during the first quarter of 2019 was recorded by Statistics Botswana. From a quarter-on-quarter perspective, distributed electricity increased by 0.3 percent (2,482 MWH), from 963,235 MWH during the fourth quarter of 2018 to 965,718 MWH during the quarter under review, according to Statistics Botswana.

Electricity generated locally contributed 80.4 percent to electricity distributed during the first quarter of 2019, compared to a contribution of 71.1 percent during the same quarter in 2018, according to the statistics parastatal, this gives an increase of 9.3 percentage points. According to Statistics Botswana, on the other hand, a quarter-on-quarter comparison shows that the contribution of electricity generated to electricity distributed during the current quarter increased by 33.4 percentage points compared to the 47.0 percent contribution of locally generated electricity during the fourth quarter of 2018.

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Business

Global recovery from COVID-19 remains unbalanced

2nd March 2021
Global recovery

As COVID-19 and its variants continue to cast a shadow over the world’s health systems and economies, the level of uncertainty and strength of the economic recovery will vary across countries. The real GDP in all G-20 countries is expected to grow compared to the previous year, but some countries will take longer than others to return to full capacity.

According to Mooody’s Global Macro Outlook 2021-22 report released this week, precautionary behavior and official restrictions are still hampering interpersonal interactions. The resulting toll on global economic activity has been staggering, even as the economy has also shown a remarkable degree of resilience.

Overall economic outcomes in 2020 exceeded Moody’s forecasts in most countries because of stronger-than-expected rebounds in the second half of the year. Aided by technology, many people and businesses quickly adapted so that they could carry on with daily activity with reduced in-person interactions.

However, Moody’s says the recovery remains unbalanced, with the pandemic affecting individual businesses, sectors and regions very differently. According to the group, goods demand has almost fully recovered because goods can be produced and consumed with limited in-person interactions, while the recovery in service continue to lag.

Within services, businesses that were able to effectively deliver their products at arms-length have stabilized, if not prospered. Large businesses with access to cheap funding have performed better than small and mid-sized firms. According to the report, the transportation, hospitality and leisure and arts sectors continue to languish, but the information technology, consumer goods, pharmaceuticals and financial sectors have thrived.

According to the report, many individuals around the world (including Botswana), have lost their jobs and continue to face employment uncertainty, but on the flip side, the forced decline in household consumption and the rise in asses prices have buttressed household financial balances at an aggregate level. Moody’s reported that all G-20 countries will post growth rates in 2021 and 2022, but the pace of recovery will vary significantly.

“The COVID-19 shock has exposed differences between countries in terms of political leadership, community health management, fiscal and monetary policy response, economic structures and inherent economic dynamism. Public health considerations drove the economic shock of the pandemic. In that sense, the steep declines in GDP in 2020 across advanced and emerging market countries were less a reflection of underlying weaknesses in the economy, and more a function of the combined effects of the spread of the virus and the stringency of lockdown measures,” says Moody’s.

Economic outcomes will remain closely tied to the pandemic, Moody’s said. “The quicker countries can curb the spread of the virus, the faster their economic activity will recover. Otherwise the costs of keeping parts of the economy shut, in terms of lost income and revenue, will keep adding up. The longer the crisis lasts, the more difficult it will be for governments to compensate the private sector for its continuing losses.”

Without adequate government support, Moody’s predict that large-scale deterioration in asset quality will ensue. Such detrimental effects, it says, could eventually transmit the shock through financial channels to other parts of the economy.

“We have cut or estimate of the 2020 contraction for the G-20 countries. We now expect a collective contraction of 3.3%, compared with our previous estimate of 3.8%, because of a better-than-expected recovery across a wide range of advanced and emerging market economies in the second half of the year. We expect the G-20 countries to grow by 5.3% in 2021 and 4.5% in 2022, up from our prior forecasts of 4.9% and 3.8% respectively.”

US ECONOMY TO LEAD THE GLOBAL SERVICES DEMAND RECOVERY

The US economy advanced at a 4.0% annualized rate in the fourth quarter 2020, but the headline figure masks the fact that the economy has lost momentum since November, when COVID-19 cases began to rise. Moody’s says it expects this current moderation in economic growth to be temporary. Economic momentum will likely puck up pace over the course of 2021 and 2022, supported by: enhanced pandemic control, significant additional fiscal support to the economy and a more predictable policy environment.

With infection rates now starting to fall, economic momentum should naturally pick up in the second quarter and into the summer as individual states progressively ease up social distancing restrictions, Moody’s reports.  “We believe that a stronger pandemic management response from the Biden administration, will increase public confidence and allow for a relation of restrictions over this year and next.”

COVID-19 SHOCK EXACERBATES EXISTING STRUCTURAL CHALLENGES IN SOUH AFRICA

South Africa’s economy is expected to growth by 4.5% in 2021 and by 11% in the following year, following an estimated 7.0% contraction last year. According to Moody’s, this will make South Africa’s recovery one of the weakest among emerging market countries. The economy has struggled to build momentum for many years, and as a result suffers from chronically high unemployment. The COVID-19 shock has made the economic situation all the more challenging, says Moody’s.

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BOL, MDC advised to take interest in Kavango oil tale

2nd March 2021
BOL-MDC

Reconnaissance Africa, a Canadian exploration company has started piercing the natural resource-rich lands of Kavango basin in Namibia, the company in searching for oil and gas.

The prospective area stretches into North West district of Botswana, the company through its local subsidiary Recon Africa Botswana has been given the nod by Ministry of Mineral Resources, Green Technology & Energy Security to explore petroleum mineral for four (4) years.

Amid all the negative reports around the company’s drilling activities in the Kavango basin, which covers ecosystem components feeding into the mighty Okavango Delta, the bottom line is that there are prospects of billions of dollars beneath the area in form of oil and gas-and Recon Africa is out to unearth the treasures.

Member of Parliament for Selibe Phikwe Dithapelo Keorapetse says Botswana should strive to participate in the exploration and development of these potential oil and gas deposits in the North West district. Contributing to the 2021/22 budget speech on Monday Keorapetse cautioned government against watching from afar while a potential multi-billion pula industry unfolds in the Okavango area.

He implored Botswana Oil Limited(BOL) and Mineral Development Corporation Botswana (MDCB) both state owned enterprises, to take up equity stakes in the exploration activities as early as now to “ rather than being spectators and waking up late when the foreigners are enjoying the billions”.

ReconAfrica through its subsidiary Recon Botswana was issued an exploration license under the Petroleum Act to explore for petroleum minerals in the North West District of Botswana, on 1 June 2020, for a period of four years.

“Botswana Oil as the country ‘s petroleum investment company together with MDC-a state owned mineral interest holding company must come together and acquire a stake in the ongoing exploration activities ,not to wait until Recon is making money and you say you want shares”. Keorapetse made reference to Karowe mine which Botswana’s diamond mining partner De Beers Group sold to Lucara over a decade ago while still at exploration stage.

Lucara bid on the site, and its internal partner Lundin provided a bank guarantee to De Beers for fifty million dollars, capturing some seventy per cent of the stake.Soon afterward, Lucara bought the remaining stake by acquiring De Beers’s London-based junior venture partner, African Diamonds. Lucara now owns AK6 (now Karowe Mine), having spent a little more than seventy million dollars.

The mine has since developed into a prolific rare gem producer celebrated worldwide, having unearthed some the world’s largest diamond ever in history , such as the over 1000 carats Lesedi La Rona, Sewelo and the magnificent 813 carats Constellation.

“We are now mulling acquisition of shares in Lucara but when transactions were happening in 2009 we were just spectators, we could have acquired shares back then when they were affordable now it is expensive to buy into Karowe mine, we must not make the same mistake with this oil and gas projects” said Keorapetse urging Government to be pro-active and move quickly to approach Recon Africa for a stake in Recon Africa Botswana.

ReconAfrica is a junior oil and gas company engaged in the exploration and development of oil and gas in North East of Namibia and North West of Botswana—the Kavango Basin. The company officially launched the oil and gas exploration project in Namibia in early January 2021. The exploration activities are taking place in the Kawe area, Kavango East Region, Namibia.

ReconAfrica holds a 90% interest in a petroleum exploration license in Namibia which covers the entire Kavango sedimentary basin in Namibia, the remaining 10% is owned by Government of Namibia. The exploration licence covers an area of 25,341.33 km2 (6.3 million acres), and based on commercial success, it entitles ReconAfrica to obtain a 25-year production license.

Further, ReconAfrica holds a 100% interest in petroleum exploration rights in Botswana over the entire Kavango sedimentary basin in the country. This covers an area of 8,990 km2 (2.2 million acres) and entitles ReconAfrica to a 25-year production license over any commercial discovery. The company acquired a high-resolution geomagnetic survey of the license area and conducted a detailed analysis of the resulting data and other available data, including reprocessing and reinterpretation of all existing geological and geophysical data.

The survey and analysis confirm that the Kavango Basin reaches depths of up to 9,000 m (30,000 feet) under optimal conditions to preserve a thick interval of organic rich marine source rock, and is anticipated to hold an active petroleum system.

“We believe that the Kavango Basin is another world class Permian basin, analogous to the Permian basin in Texas It is estimated that the oil generated in the basin could be billions of barrels. Recon Africa’s initial goal is to establish the presence of an active petroleum system with its fully funded 3-well drilling program starting early January 2021.

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Lucara suffers P287 million loss in 2020

2nd March 2021
LUCARA

Canadian mining company, Lucara Diamond Corporation, well known globally for producing rare gems of unprecedented quality, has not been spared by the 2020 global market downturn caused by the COVID-19 pandemic.

In their financial results for the year ended 31st December 2020, released from Vancouver Canada late Monday, the junior minor reported a significant net loss of $26.3 million for the year (approximately P287 in Botswana currency).

This according to the financials is a loss of $0.07 loss per share, which is a significant decline when compared to net income of $12.7 million ($0.03 per share) in 2019. The company which wholly owns and runs Botswana’s Karowe mine registered total revenues of $125.3 million (over P1.3 billion), a 34 percent drop compared to $192.5 million (almost P2 billion) recorded in 2019 or $335 per carat from $468 per carat in 2019.

The decrease in revenue resulted in adjusted EBITDA of $18.4 million, a decline when compared to adjusted EBITDA for the same period in 2019 of $73.1 million. Lucara executives explained that total revenue decline was a result of challenging market conditions, a longer ramp-up for production and polished sales in the latter half of 2020 under the HB supply agreement.

“As a result, revenue from certain polished diamonds from Lucara’s highest value stones that would otherwise have been recorded as revenue in 2020, is now expected to be realized in 2021.” reads a commentary alongside the figures.

During the year ended December 31, 2020, Lucara sold 373,748 carats at an average price of $335 carat. Diamond sales for the fourth quarter of 2020 were held through a combination of regular tenders, Clara, 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 $42.4 million or $402 per carat from the sale of 105,648 carats. Price recovery was observed in most size and quality classes. Of note, prices achieved for goods sold on Clara (under 10.8 carats in size) in January 2021 have now recovered to the level of pricing achieved early in 2020.

For the year ended December 31, 2020, Lucara registered revenue totaling $55.2 million from the two agreements with HB, including an accrual for variable consideration of $7.2 million related to “top-up” payments arising from polished diamond sales in excess of the initial purchase price paid to Lucara.

With global restrictions impeding travel for many diamantaires, Lucara says interest in Clara grew significantly in 2020 and the number of buyers on the platform increased from 27 to 75.
During 2020, Clara began selling stones on behalf of third party sellers, which was a significant objective for the year.

“As Clara becomes the online marketplace of choice for rough buyers, discussions are underway with several producers to begin trials for the sale of their diamonds on Clara” the company said
Amidst challenging circumstances for the diamond industry in 2020 Lucara forged ahead with the Karowe mine underground project.

During the year period under review $18.7 million (over P190 million ) was spent on project execution activities including the following: Site earthworks (consisting of laydown preparation and clearing of shaft and surface infrastructure locations), geotechnical test pitting and drilling, and completion of two pilot holes at the shaft locations, a 746 metre hole for the ventilation shaft and a 768 metre hole for the production shaft.

The Company was able to complete on-site earth works and geotechnical studies by using local contractors while a State of Emergency remained in effect in Botswana.  Long lead time item orders were also placed for shaft muckers, and hoist and winder refurbishment was initiated. In addition, power line engineering and detailed shaft design and engineering (consistent with original targets for 2020) progressed.

In Q4 2020, the Government of Botswana approved the proposed powerline route and granted a 25-year extension to the Karowe Mine License to 2046, sufficient to cover the remaining open-pit life (to 2026) and the expected life of the proposed underground expansion, currently planned to 2040.

Lucara says it’s currently actively exploring opportunities to arrange debt financing for the underground expansion for those amounts which are expected to exceed the Company’s cash flow from operations during the construction period. The underground expansion program has an estimated capital cost of $514 million (over P5 billion) and a five year period of development.

President & Chief Executive Officer of Lucara Diamond Corporation, Eira Thomas said the measures that Lucara took early in the pandemic, including the decision not to sell rough diamonds in excess of +10.8 carats after Q1, helped protect and support prices for large, high value diamonds that account for more than 70% of the company’s revenues.

“These efforts in conjunction with our transformational supply agreement with HB Antwerp executed in July, resulted in strong price recoveries by Q4, a trend which has continued into 2021.”
Thomas said the recent recovery of two, high value +300 carat stones “continue to highlight the extraordinary nature of the Karowe resource and underpin the rationale for underground expansion, extending our mine life out to at least 2040”.

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