Recently Debswana Diamond Company just unleashed the much anticipated Cut 9 project at the world‘s richest mine by value, Jwaneng mine, amid much expectation and glittering hope. Cut 9 breathes more life or a lifespan going up to 2035 into Botswana’s diamond industry-this will bring more sparkle to the mineral dependant local economy.
Cut 9 comes against the slight threat of synthetic diamond revolution and any unexpected or unprecedented drop in diamond sales, but economists and experts believe natural diamonds will remain dominant for coming years. Debswana chairman Bruce Cleaver has said the Cut 9 project places Botswana as one of the leading diamond producing nation by volume and value.
“The extension of Jwaneng Mine secures Botswana’s rightful place as a leading diamond producing nation for years to come. With global consumer demand for diamonds reaching record levels in 2018, the extension will enable us to continue to meet the needs of our consumers all over the world. We are deeply proud of the central role Jwaneng Mine has played in Botswana’s remarkable development story and of the role this investment will play in its future,” said Cleaver.
Recently, Debswana has decided to extend the life of Jwaneng Mine to 2035 and the mine is expected to yield an estimated 53 million carats of rough diamonds from 44 million tons of treated material. Debswana shareholders have approved the budget for 2019 and have revealed that the company will invest approximately P20 billion over the life of the project. Debswana is a 50/50 joint venture between the Government of the Republic of Botswana and De Beers Group
The Cut 9 project was given to a local contractor Majwe Mining for P15.7 and will offer more than 1000 jobs predominantly to Batswana. Majwe Mining which will provide diamond mining services is billion a joint venture between Bothakga Burrow Botswana and Thiess Botswana. Majwe mining was also involved in Jwaneng’s Cut 8 Phase 2. The P30 billion which began in 2010 Cut 8 contract services included mine scheduling, drilling and blasting, waste removal and limited ore mining.
Local economist Keith Jefferies is confident that increasing the life’s mine will ensure government has more mineral revenue. He hopes the 1000 jobs will increase, with more indirect and direct employment being added into the mining sector. Mining giant Debswana is a significant contributor to Botswana’s economy and Jwaneng Mine contributes approximately 70 percent of Debswana’s total revenue.
Citizen economic empowerment
Debswana managing director Albert Milton has suggested that Cut 8 does not only come with jobs and revenue to Botswana economy but also brings citizen economic empowerment (CEEP). “As we have throughout the history of Jwaneng Mine we remain steadfast in ensuring that all projects are delivered safely and to the benefit of the people of Botswana. We are also committed to delivering on the citizen economic empowerment (CEEP) goals and will focus on training our people, developing their skills and harnessing technology to create further safety and efficiency improvements,” said Milton.
According to Milton, the high-level Social Investment CEEP key performance indicators for the Cut-9 project include the establishment of an Apprentice and Artisan Training Centre, a Component Rebuild Centre which is expected to mature into a self-sustaining business within three years from the launch of the project and additional local business development initiatives.
The future of synthetics as Botswana expands naturally
With the recently unveiled Debswana’s Cut 9 project at the world‘s richest mine by value, Jwaneng mine, extending production of natural diamonds to 16 years economists and experts in the diamond industry believes natural diamond production will remain towering against the production of synthetic diamonds. This is despite fears that natural diamond production will give way for lab manufactured diamonds-but in Botswana natural diamond production remains a mainstay in the mineral industry. However local economist Jefferies believes synthetic diamonds do not pose much of a threat.
International diamond expert Edahn Golan has waged the extent at which the synthetics may threaten naturally produced diamonds. In his latest research, Golan found out that for lab made diamonds not all that glitters is gold as the synthetics continue to take a back-foot in the market when compared to prices of natural diamonds.
“On average, 1-carat lab-grown goods were priced 64% lower than natural diamonds at the end of December, while third-carats were 75% cheaper. If you are wondering why the price gap in retail prices is so much smaller, the answer is simple: retailers are keeping a wider margin,” said Golan. Golan gave an advice to producers like Debswana, saying the natural diamond producing industry should fight hard because it retailers have better margins on synthetics, giving them an incentive to keep promoting them to consumers.
Golan said a quick comparison of retail prices show a price difference of 20-40 percent, depending on the specific goods and the retailers’ branding, market positioning. Wholesale prices behave very differently. In the wholesale market diamonds are priced as a commodity, said Golan. The diamond expert said that makes for a much more accurate way of measuring price changes over time. According to Golan, polished wholesale prices of lab-grown goods are 50-85 percent lower than those of natural diamonds and the depth of the price gap has two general characteristics: first, the smaller the goods, the larger the price difference.
“If diamond companies want to preserve the market they are operating in, they need to wake up now and get going. Otherwise, the demise may be just around the corner. The economics of it are simple: most diamond mines produce a range of goods, from very small low-quality stones to large stunning beauties. But because miners need to sell the entire range to make their operations worthwhile economically, they won’t mine at all if they cannot sell low and mid-range goods. Without the basic goods, hardly anything else will be mined or offered,” advised diamond expert.
Golan is an analyst advising financial institutions, global diamond firms, diamond industry organizations and governmental agencies on topics ranging from provenance of fancy color diamonds to the diamond’s contribution to local economies. Among his clients are diamond firms, miners and the world’s second largest retail metrics firm. He says, “I’m more than happy to make the case for natural diamonds and ethics anytime.”
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”