Debswana, the world's leading diamond producer by value and the largest rough diamond producer, is placed on top of the reason why De Beers’ rough diamond production decreased by 14 percent to 7.7 million carats.
Debswana’s South African counterpart De Beers Consolidated Mines (DBCM) is also said to be equally to blame for the decline as rough diamond production continue to plummet. When commenting on Anglo American’s Production Report for the second quarter ended 30 June 2019, Chief Executive Mark Cutifani praised the company’s other products like the iron ore “successful ramp-up” at Minas-Rio Brazil which contributed to the mining giant’s production going up by 2 percent, nothing positive could be said about diamonds.
According to Cutifani, a “strong performance” at Metallurgical Coal following the longwall moves and plant upgrade work in Q1. Also, the Anglo American CEO said Kumba Iron Ore continues to improve following Q1 production challenges. For De Beers, the 50/50 partner with Botswana government in the Debswana venture, it was not hunky dory in the second quarter of 2019 as production fell. Cutifani’s reason is that, “De Beers, in view of prevailing market conditions, will continue to produce to market demand for the year. “
According to Anglo American, production guidance has been revised downwards to 31 million carats as a careful response to weaker trading conditions. However for Debswana, the main culprit pointed out is the Orapa mine whose plummet in production, “was driven by a decrease at Orapa of 23 percent to 2.5 million carats following a planned plant shut down brought forward from H2 2019, which impacted production in late Q1 and early Q2,” according to Anglo American’s latest production report.
Debswana production decreased by 9 percent to 5.7 million carats and this was due to a decrease at Orapa’s production of 23 percent to 2.5 million carats. In the second quarter of 2018 the whole production for Debswana was 6279 million carats compared to the 5718 million carats of the just ended second quarter of 2019. When pitting the two second quarters head-to-head, a 9 percent decline is realised.
During the beginning of the year, that is the first quarter of 2019, Debswana production was at 5,950 million carats when contrasted to the 5718 million carats recorded in the second quarter of the same year, a shy decline of 4 percent between the two quarters. As if that was not enough, when diving the production into year halves, Debswana recorded 11,668 million carats in this year’s just ended first half compared to the 12,087 million carats scored in the first half of 2018, a 3 percent decline between the two corresponding halves.
A zoom into Orapa, the main culprit of the fall
According to Anglo American, Orapa’s downfall is due to a planned plant shut down brought forward from the second half of 2019, which has impacted production in late first quarter of 2019 and early second quarter of 2019. Orapa constitutes the Orapa Regime which includes Orapa, Letlhakane and Damtshaa.
In 2018, Orapa production fluctuated recording 3254 million carats in the second quarter before hitting a level below of garnering 2556 million carats in the third quarter of the same year. The last quarter of 2018, closing the year down, Orapa recorded an increase from the third quarter of 3,602 million carats.
But 2019 followed with a dim picture as production at Orapa as the mine offering dropped from the previous year, with the first quarter of this year making 2,614 million carats. Orapa mine production continued to fall into the second quarter of the just ended half of 2019 by 2495 million carats, a reflection of 5 percent slump.
When comparing the second quarter of 2018 to this year’s, Orapa mine registered a 23 percent decline. After garnering 3,254 million carats in last year’s second quarter the mine went down in production to 2495 million carats. When coinciding the 2019 first half with the first half of last year, production decreased by 16 percent from 6078 million carats in 2018 first half against 5109 million carats in 2019.
Jwaneng mine is productive
According to Anglo American, from the second quarter of 2018 production at Jwaneng increased by 7 percent to 3.2 million carats, driven by an increase in tonnes treated. When comparing halves of year 2019 and 2018, production at Jwaneng mine ballooned slightly by 9 percent. In the first half of 2018 the mine registered 6009 million carats before going up in production with 6559 million carats.
Recently, the richest diamond mine in the world, Jwaneng, has been beating its sister mine in terms of production. However a slight decrease of 3 percent was registered from the first quarter of 2019 to the second quarter of the same year, from 3336 million carats in the first quarter of this year to 3223 million carats in the just ended quarter of the same year.
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.