Botswana and the impending trade war cross fire
After President Mokgweetsi Masisi’s trip to new darling China he jetted off to the US for a United Nations assembly, ironically these trips happened during an unprecedented era of a trade war between two of the world’s economically powerful nation, China and USA.
Masisi with his infant administration appears not much concerned about the trade war, however observers says it is visible that the Botswana president is currently a man carefully treading on eggshells lest this country finds itself caught in a brutal trade war crossfire.
Biggest economy USA exports most of Botswana diamonds. According to latest findings by World Top Exports, its total diamond imports are worth US$23.2 billion (20 percent of total diamond imports) and this country gets a larger chunk out of this. China, the second economic superpower, spends US$7.9 billion on diamonds being the one of the top importers of Botswana diamonds.
The diamond-dependant Botswana economy depends on both China and US’s money, meaning a trade war between the two should scare this country. According to reports diamonds, gems or precious metals takes 91.5 percent of Botswana exports which amounts to US$4.5 billion.
The US and China are having an economic conflict resulting from extreme protectionism as they are engaged in a tit-for-tat for tariffs in each other’s goods and this has been going on for months. US President Donald Trump started the war as he lambasted China for “unfair” trading practices including theft of US companies’ intellectual property.
Trump launched a trade war with China in a bid to create more US manufacturing jobs. In a see-saw affair of tariff war the “America First” president imposed US$ 200 billion on Chinese goods and China in return retaliated with a much milder response of US$60 billion. After US tariffs on China, the large Asian nation responded saying it “deeply regrets” the White House’s decision, adding that “China has no choice but to take counter-measures”.
But is Botswana affected by trade war, and how?
When delivering a keynote address at last month’s budget Pitso, Minister of Finance and Economic Development Kenneth Matambo said it was a time “when there are trade related uncertainties, particularly between China and the US which has resulted in externality to our domestic economy. The domestic economy can be affected negatively particularly the mining sector.”
The question of trade war effect on Botswana followed Minister of Investment, Trade and Industry Bogolo Kenewendo in a recent interview with Bloomberg. Kenewendo told the business media outlet that Botswana’s linkage with China and USA does not make it susceptible to the negative impacts of trade war.
“At the moment there is no direct impact but we are concerned…we are keeping our eye on it because it could have drastic impacts on our economy because we are a diamond based economy and our biggest markets are China and the US,” said Kenewendo.
Economists predict that the trade war between China and the US shows no obvious signs of ending and there are fears that this will drag down global economic growth this year and in 2019. The World Bank which has been trying to mitigate the China versus US trade bout warned that this may also bring the global economic recession à la the 2008 financial crises.
During the recent UN General Assembly US president Trump said, “the United States has just announced tariffs on another $200 billion in Chinese-made goods.” The “America First” president was not apologetic as “we reject the ideology of globalism and accept the ideology of patriotism.”
Trade experts have warned that there is not going to be a winner at the end of the trade war but the global economy will have a slump in growth. Analysts believe “when elephants fight, it is the grass that suffers” as it is the case for developing countries like Botswana will suffer when the global economy collapses. Also, economists argue that border tariffs are typically counterproductive because the higher costs are passed on to consumers, even domestic consumers like the case of US farmers who uses China as an ideal import hub.
Bakang Ntshingane, a Motswana political scientist based in South Korea whose focus is in international trade and economic diplomacy, is worried about the already fragile global economy which is likely to collapse to its knees. In his trade advice to Botswana, Ntshingane believes Botswana should be practical in dealing with both superpowers; China and US.
“We should learn from them. We should learn whatever we can from them, like China in terms of industrialization and special economic zones, unabated by the trade. China’s increased focus and attention on Africa means there will be more opportunities for development partnerships. We should be ready and prepared to exploit those opportunities and seek fair trade arrangements.
Trade remains one of the most critical tools for economic growth. We have to invest more time and effort in building infrastructure and building export competitive industries. Let us also shift our attention to intra-regional trade,” said Ntshingane.
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.