Motswedi Securities analysts have said the performance of the Botswana economy will largely continue to be affected by exogenous factors such as the performance of the global economy particularly developed markets which have a bearing on the diamond industry.
In their latest Economic Bulletin, the economic pundits at Motswedi say they expect continued growth from the agriculture, tourism and financial services sectors and they have decided to keep their 3.1% y/y GDP forecast by December 2017 – this is slightly lower from 4.1% projections from the Finance Minister.
But the analysts’s outlook partly draws inspiration from the recently released Bank of Botswana Business Expectations Survey which shares optimism among businesses strengthened in the first half of 2017 compared to the second half of 2016, and is expected to rise further in the survey horizon for both domestic market -oriented firms and exporters.
The encouraging growth from the non-mining sector is giving confidence to the economy. Motswedi Securities analysts see the brighter side of the non-mining sector because it expanded by 5.4% y/y from another growth of 3.3% y /y in Q4 2016. According to their Bulletin, the growth in the non-mining sector was led by growth in agriculture (1.5% y/y), Trade, Hotels and restaurants (18.7% y/y) and finance and business services. (5.4% y/y).
“It is pleasing to note that the Trade, Hotels and restaurants is now the biggest contributor to GDP (20.9%), overtaking mining (17.6%). This is largely attributed to the positive performance realised from downstream diamond industries. The resilient of the non-mining sector is encouraging as it shows that the economy is slowly diversifying away from the mining sector,” they state.
Modest growth in GDP during Q1 2017
The analysts point out that it was always expected that the closure of the BCL mine would have contagion effects on the economy at large and the latest GDP numbers which shows that the economy expanded at a smaller 0.8% y/y during Q1 2017 is not surprising.
They further state in the report that during Q4 2016 Botswana’s GDP expanded by 4.2% y/y. Furthermore, the mining sector was the biggest casualty contracting by -28.9% y/y during Q1 2017 from another contraction of -6.2% y/y in Q4 2016 as the closure of the BCL Mine in October 2016 filtered in. Although copper/nickel production contributes 8.6% towards the mining sector, it is the contagion effects that weighed on the sector and the economy at large.
Contagion effects from BCL closure
The Motswedi Securities Economic Bulletin for Q2 also reveals the closure of BCL not only reduced output from other mines such as the Morupule Coal Mine, but it also led to the reduction in output from the water and electricity sectors, redundancies amongst miners and a negative impact on suppliers.
It notes that BCL was one of the largest consumers of water and electricity as well as coal from the Morupule Coal Mine. Therefore, it further states, it is not surprising that the water and electricity sector contracted by -17.3% y/y, from a strong growth of 90.1% y/y the previous quarter. This is the first contraction since Q1 2016. According to the Bulletin, diamond value added decreased by 2.8% during the quarter under review due to weaker diamond prices on the international market and this led to a reduction in diamond production.
“This is worrisome if this trend is sustained as it may result in decline in diamond exports which will also impact on the country’s Balance of Payment position and government revenues. Soda Ash value added decreased by 41.5% due to low demand as some industries utilising the commodity were also affected by the low metal prices,” reads the Motswedi Securities Bulletin.
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.