De Beers CEO Bruce Cleaver made a hint that in the next five to six years the company will spend between P100 billion (USD 10 billion) on their core natural diamonds business in Botswana and other countries which slightly supports the mining giant production.
This suggests that the money will be spent during the renewed Botswana-De Beers deal coming after 2020. In the mist of the ongoing secretive and water-tight negotiations for the renewal of the De Beers-Botswana marriage which will end in September 2021, Cleaver’s statement suggested that the P100 billion cash injection will be part of the renewed nuptials. Cleaver pointed out that the money on De Beers pipeline is expected to be used on expansion of Botswana mines-something which should raise hope on the future of mining and the much anticipated long term nuptials.
“This is a 50 year old partnership that will continue. But we are not going to divulge details of the negotiations because they are confidential. We are not going to be rushing and we are going to come with a package that will benefit us all-a win-win deal,” Cleaver told journalists this week.
In the negotiations government side has a ten men Mineral Policy Committee(MPC) which is tasked with doing the talks and is led by none other than the Minister of Mineral Resources, Green Technology and Energy Security Eric Molale. Permanent Secretary to the President and Cabinet Secretary Carter Morupisi, Bank of Botswana Governor Moses Pelaelo and Attorney General Abram Keetshabe are among the ten men team leading the Botswana-De Beers renewal of vows.
From De Beers, there is a five men team lead by the CEO Cleaver and De Beers Resident Director Neo Moroka. Molale said the negotiations will be done on good faith and trust will be an important factor-like when one renews vows with loved ones, meaning the will love each other every day. The minister said he was involved in three negotiations so far.
Molale was part of the 2011 negotiation which gave birth to the ending contract which President Mokgweetsi Masisi said “Our historic 2011 sales agreement was instrumental in achieving these milestones.” Masisi praised the previous Molale led team to have “worked hard to set the stage for the transformation of the diamond industry.” Masisi said he hopes this current team will give Botswana a much better deal and put the stakes a little higher.
When addressing the media on the negotiations Molale said the negotiations are two years ahead because they do not want to work under pressure. He said the negotiations takes time because it is a process and not something to be done overnight. “In these meeting, we sit down and come up with an agenda (heads of argument) and we discuss the heads of arguments further. Mind you De Beers is owned by Anglo America and us a result we own De Beers jointly with Anglo America. This is why the De Beers team has to time and again give Anglo America feedback on any changes made,” Molale told reporters this week.
When making a hint of how De Beers plans to put money in the Botswana-De Beers renewed marriage, Cleaver was answering a question from the media on the threat that comes with the synthetic diamonds revolution. Cleaver said synthetic diamonds cannot be a threat to the natural diamonds mined in Botswana and that De Beers is still a believer in mining of natural diamonds.
“We think there will be a perfectly legitimate market for synthetic diamonds but it will not compete with natural diamonds. All we are giving is trying to give consumers what they tell us what they want. De Beers is a natural diamond business and will always be a natural diamonds business,” said Cleaver.
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”