China’s latest play for greater influence in Africa involves advancing $60 billion in aid and loans to African nations. Announced at the Forum on China-Africa Cooperation (FOCAC) last month in Beijing, the summit drew the attendance of more than 40 African Heads of State, including H.E President Mokgweetsi E.K Masisi – the first visit by a Motswana head of state in over 12 years.
The summit came hot on the heels of high-profile state visits to Africa by key Western leaders, including the UK’s Theresa May, Germany’s Angela Merkel and France’s Emmanuel Macron. For most observers, these developments are clear signals that competition for influence in Africa is intensifying. Over the past few months the continent has played host to Heads of State and senior diplomats from Brazil, Argentina, Russia, India and Turkey, to name just a few.
Botswana can leverage off this competition for her own advantage, but to truly understand Botswana’s options today, we must look beyond the East vs West dichotomy and first consider Botswana's own needs and ambitions. Like most countries on the continent, Botswana has a clear development and growth strategy but faces complex political and operational challenges in executing its plans.
What is less well understood is the array of options Botswana now has in addressing some of these challenges. Between 2010 and 2017, more than 65 countries increased their overall trade with sub-Saharan Africa, according to data from the International Trade Centre. All these countries, despite their divergent interests, seem to understand one thing: the future of their nations is linked to the partnerships they forge in Africa today.
This is a continent where 60% of the population is below 25 years of age and expected to double from 1.2 billion in 2017 to 2.4 billion in 2050 (representing a quarter of the world’s population), with 60% of the world’s uncultivated arable land, and which is growing robustly against the backdrop of tepid global economic growth – six of the ten fastest growing economies in 2018 are African, according to the IMF.
There are obvious challenges to overcome, which require proper policy and planning to address the urgency of job creation, climate change mitigation and adaptation and dismantling systemic inequality; but the fundamentals are compelling, particularly when viewed long term.
Amidst the surge in foreign interest in Africa, traditional partners such France and the US are finding it harder to protect and expand their spheres of influence on the continent. Aggressive nationalism within the current US administration has shaped a more inward-looking policy agenda which can appear indifferent – often even hostile – to interests outside US borders.
Meanwhile, the UK is trying to marry complex negotiations around Brexit with a concerted push to lay the foundations of stronger trade and investment ties outside Europe, including Africa, where the UK has set a goal to become the largest investor among the Group of seven most industrialized nations (G7) by 2020. The UK’s pivot away from Europe and her reinvigorated focus on partnerships with other parts of the globe – including Africa – presents good medium and long-term opportunities for nations like Botswana. It is noteworthy that President Mokgweetsi E.K Masisi will visit the UK this week.
In such a crowded landscape, competitive edge among bilateral partners will not be determined purely by capital or favourable trading terms but also by meaningful commitments to reciprocity. Nations and companies that want to succeed in Africa will need to think beyond what they want to export and access, and must seek to address the priorities of their African partners.
Botswana's long held agreement with DeBeers and the creation of Debswana remains a model which many seek to this day, For their part, foreign partners eager to gain traction in African markets should align their strategies with that of their local partners, and in so doing they will build the grounds for sustainability. They will experience less friction, build more brand equity and find doors open for constructive dialogue on operational issues, policies and regulations.
Companies’ ability to design and promote strategies that recognise the need for developmental impact and long-term commitment over quick-wins and fast-bucks will perform better. Such an approach moves relationships from transaction to transformation. Investors and senior management teams must put people, not just numbers, at the heart of decision-making and be equipped to communicate impact and create buy-in from the right stakeholders – governments, suppliers and communities. For their part, African governments must spend more time looking at long term development impact, not just short term commercial terms and outcomes.
Manufacturing holds great trans-formative potential for societies, provided the right approach is taken. In Gabon at the start of the decade, President Ali Bongo Ondimba announced the cessation of exports of raw timber. His announcement was met with a lot of criticism, but eight years later the benefits are clear for everyone to see. Manufacturers of processed wood and finished goods have emerged and new local value chains have been created for foreign investors and Gabonese SMEs, resulting in 10,000 new jobs. Gabon's shift in policy was accompanied by government interventions to equip the labour force with suitable skills for the industry.
In Botswana, economic diversification and manufacturing sector growth are being pursued with rewed vigor by this administration. They are matched by efforts to forge greater alignment between the private sector and government priorities. The last decade witnessed China becoming an increasingly active manufacturer in Africa. Western firms are following suit – their global strategies increasingly feature African nations as markets to service and export from.
Much of the appeal of African nations is being created by shifts in the economies of India and China. China’s evolution from an investment-led economy to a consumption-led economy has led to domestic wage growth, resulting in manufacturers leaving the country for other low-cost destinations. China is expected to lose between 85 million and 100 million low-cost labour-intensive manufacturing jobs by 2030, according to the World Economic Forum.
Some of the Chinese companies leaving the country are establishing operations in Africa, where the Chinese government has already rolled out infrastructure projects that make it easier for Chinese companies to do business and price their products competitively for global markets. In this vain, Zhao Yambo, the Chinese Republic's ambassador to Botswana recently encouraged Botswana to take advantage of China’s Belt and Road Initiative. This multi-billion dollar plan will see Chinese companies engaging in construction work in Africa and globally, on a scale never seen before.
The quest for jobs in Botswana, where the aspirations of Batswana youth are still not catered for by the employment market, has forged a deep desire by the Botswana government to play a more active role in diversifying the nation's economy. This is where the Chinese approach sometimes has its limits. Although China readily builds badly-needed infrastructure, they use their own financing, contractor firms, technology and even labour in some instances from end-to-end.
This deprives Batswana of meaningful stakes in projects or ownership of certain value chains and can fuel resentment and mistrust. There are many anecdotes about Chinese firms paying their employees offshore and sourcing goods and services from China. The extension of Sir Seretse Khama airport and Morupule B power station are two well-publicized examples of disaffection. While China has funded over 40 major projects in Botswana and is one of the country’s largest project contractors, Chinese companies have created 2,000 jobs in local communities- a small number given the scale of these projects.
Western companies generally have a better track record of working with local staff, including integrating them in key management positions. By being purposeful about skills, knowledge and technology transfer, and by asking African governments and companies what they need, then creating the right business models, products and services to achieve these goals, these companies will prosper. Only companies that exhibit these traits and deliver against them, should be granted access to African resources and markets, I believe.
Foreign companies wishing to succeed in African markets today must evolve their models of doing business from traditionally extractive ones, to ones that are additive. African governments that secure these terms of trade will take up their positions as a globally significant manufacturing hubs, consumer markets, talent pools and trading partners. With so much competition, it behoves African governments to establish clear visions for their economies and be selective when choosing their partners.
The stellar economic performance of Rwanda, Morocco and Ethiopia over the last decade did not happen by chance. It resulted from deliberate and concerted measures by their governments to pursue policies and strike agreements that opened new growth opportunities and export markets for their industries and their citizens.
About the authors:
Natalie Maule is a London-based Director at africapractice Group, a pan-African advisory firm headquartered in Botswana. Tigele Nlebesi is an Analyst at africapractice, based in Gaborone.
Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry started gaining positive momentum towards the end of the year as key markets entered into thanks giving and holiday season.
However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.
The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.
The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.
This halted movement of buyers and shipment of the rough goods , resulting in unprecedented decline of sales, in turn ballooning stockpiles as the upstream operations produced with little uptake by the midstream.
The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.
However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.
De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.
Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.
De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.
“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.
The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.
The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.
Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.
“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.
In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”
All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.
After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.
However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.
Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.
These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.
For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.
Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.
The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering the year 2020 – a 12 months stretch of complete setback.
The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.
National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.
As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.
On the other hand the COVID-19 economic mess is prevailing, the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.
According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.
However reports indicate that the account could be currently holding just about P3 billion. The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.
When the National Development Plan (NDP) 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at a 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.
Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.
Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.
Meanwhile should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian aids and international donors, because foreign reserves are also on slow down.
During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.
The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020. This was revealed by President Masisi during State of the Nation Address in November last year.
The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.
However latest statistics(October 2020) from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with government’s share of these funds significantly low.
Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.
Furthermore, Value Added Tax has been signaled to go up from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.
Botswana Stock Exchange listed hotel group Cresta Marakanelo Limited (“CML” or “the Company”) announced the signing of a lease agreement for Phakalane Golf Estate Hotel & Convention Centre, which will see CML extend its footprint by adding the 4 star Gaborone property to its already impressive portfolio. The agreement is subject to regulatory approvals therefore the effective date of the transaction is expected to be 1 February 2021.
CML brings a wealth of expertise to the lease and despite the difficult year for the tourism and hospitality industry, due to the impact of the COVID-19 pandemic, CML remains confident in the recovery of the sector and the need to invest in expanding the Company’s footprint.
CML Managing Director, Mr Mokwena Morulane commented: “Our continued efforts to improve our offerings, understand the market dynamics and modern day trends in the face of global challenges, means we are ready for the changing face of tourism and international travel, and this addition to the Cresta portfolio signals our confidence in the future.
“Despite the headwinds faced in 2020, Management has continued to focus on projects that enhance CML’s product offering such as the refurbishments at Cresta Mowana Safari Resort & Spa in the tourism capital Kasane and the ongoing refurbishment of Cresta Marang Residency in Francistown. The signing of the lease for the 4 star Phakalane Golf Estate Hotel & Conference Centre is a great addition to the Cresta portfolio and will unlock shareholder value in the future.
“We remain vigilant to value-enhancing opportunities including acquisitions or leases, after having reconsidered our pipeline against current and expected market conditions.”
Commenting on the lease agreement, the Chief Executive Officer, Mr S Parthiban, speaking on behalf of Phakalane noted; “No hotel chain holds as much expertise in the region, understands our local culture and tastes and what hospitality is about better than Cresta Marakanelo Limited. We believe that the renovations done to the property has made Phakalane Hotel and Convention Centre a unique product in Botswana and at par with international facilities. We believe that this lease will benefit not only us as Phakalane , but the market in general as Cresta has run hotels successfully in Botswana for over 30 years and is therefore expected to bring new offerings that appeal to the local and international markets as well as the residents and visitors to the Golf Estate. We look forward to a long mutually beneficial relationship with Cresta.”
CML like the rest of the tourism and hospitality industry and the entire value chain was hard hit by lockdowns with the surge of COVID-19. By investing during the low period, the company hopes to realise the future value of spending time in preparing for the new consumer dynamics and behaviour. Despite business interruptions as a result of a six-month long state of emergency and several lock-down periods declared by the Government of Botswana to limit the spread of COVID-19, the Company is starting to record an increase in occupancies, which bodes well for the recovery of the industry and the Company’s future prospects.