Growth in Sub-Saharan Africa is projected to recover to 2.6 percent in 2017 from the sharp deceleration to 1.3 percent in 2016, and to strengthen somewhat in 2018. The upturn reflects recovering global commodity prices and improvements in domestic conditions.
Most of the rebound will come from Angola and Nigeria—the largest oil exporters. However, investment is expected to recover only very gradually, reflecting still tight foreign exchange liquidity conditions in oil exporters and low investor confidence in South Africa. Fiscal consolidation will slow the pace of recovery in metals exporters.
Growth is expected to remain solid among non-resource-intensive countries. External downside risks to the outlook include stronger-than-expected tightening of global financing conditions, weaker-than-envisioned improvements in commodity prices, and the threat of protectionism. A key domestic risk is the lack of implementation of reforms that are needed to maintain durable macroeconomic stability and sustain growth.
After slowing sharply in 2016, growth in Sub-Saharan Africa (SSA) is recovering, supported by modestly rising commodity prices, strengthening external demand, and the end of drought in several countries. Despite recent declines, oil prices are 10 percent higher than their average levels in 2016.
Metals prices have strengthened more than expected. Meanwhile, above-average rainfalls are boosting agricultural production and electricity generation in countries that were hit earlier by El Niño-related droughts (e.g., South Africa, Zambia). Security threats subsided in several countries. In Nigeria, militants’ attacks on oil pipelines decreased.
The economic recession in Nigeria is receding. In the first quarter of 2017, GDP fell by 0.5 percent (y/y), compared with a 1.7 percent contraction in the fourth quarter of 2016. The Purchasing Managers’ Index for manufacturers returned to expansionary territory in April, indicating growth in the sector after contraction in the first quarter. Non-resource-intensive countries, including those in the West African Economic and Monetary Union (WAEMU), have been expanding at a solid pace.
Several factors are preventing a more vigorous recovery. In Angola and Nigeria, foreign exchange controls are distorting the foreign exchange market, thereby constraining activity in the non-oil sector. In South Africa, political uncertainty and low business confidence are weighing on investment. The previously delayed fiscal adjustment to lower oil revenues in the Central
African Economic and Monetary Community (CEMAC) has started, restraining domestic demand. In Mozambique, the government’s default in January and heavy debt burden are deterring investment. In contrast to oil and metals prices, world cocoa prices dropped, reducing exports and fiscal revenues in cocoa producers (e.g., Côte d’Ivoire, Ghana).
In many countries, banks are seeking to limit credit risk by tightening lending standards and reducing credit to the private sector. Lastly, the drought in East Africa, which reduced agricultural production at the end of 2016, continued into 2017, adversely affecting activity in some countries (e.g., Kenya, Uganda), and contributing to famine in others (e.g., Somalia, South Sudan). Current account deficits of oil and metals exporters are narrowing, helped by the pickup in commodity prices.
Oil exports are rebounding in Nigeria on the back of an uptick in oil production from fields previously damaged by militants’ attacks. Mining companies across the region are resuming production and exports. In contrast, current account balances have remained under pressure in a number of non-resource-intensive countries.
In these countries, capital goods imports have been strong, reflecting ambitious public investment programs. Capital inflows in the region are rebounding from their low level in 2016. Nigeria tapped the Eurobond market twice in the first quarter of 2017, followed by Senegal in May. Sovereign spreads have declined across the region from their November 2016 peak, with the notable exception of Ghana where they rose due to concerns about fiscal policy slippages. This trend reflects low financial market volatility, and a broader rebound in investor risk appetite for emerging market and developing economies (EMDE) assets.
Regional inflation is gradually decelerating from its high level in 2016. Although a process of disinflation has started in Angola and Nigeria, inflation in both countries remains elevated, owing to a highly depreciated parallel market exchange rate. Inflation eased in metals exporters, reflecting stabilizing currencies after sharp depreciations, and lower food prices due to improved weather conditions (e.g., South Africa, Zambia).
An exception is Mozambique, where inflation was still above 21 percent (y/y) in April, reflecting continued depreciation. Inflationary pressures increased in non-resource-intensive countries. In East Africa, drought led to a spike in food prices, notably in Kenya. However, in countries where the drought has been less severe, inflation has remained within central banks’ targets. Low inflation in Tanzania, Uganda, and Zambia, and steadily falling inflation in Ghana allowed central banks to cut interest rates in early 2017.
Fiscal deficits remain elevated across the region. Oil and metals exporters are still running sizable fiscal deficits. Fiscal balances have deteriorated in several non-resource-intensive countries, reflecting a continued expansion in public infrastructure. Large fiscal deficits and, in some cases, steep exchange rate depreciations, have resulted in rising public debt ratios in the region (Box 2.6.1). A number of countries have embarked on fiscal consolidation to stabilize government debt (e.g., Chad, South Africa). In early April, S&P Global Ratings and Fitch downgraded South Africa’s sovereign credit rating to sub-investment status on account of heightened political uncertainty.
Growth in SSA is forecast to pick up to 2.6 percent in 2017, and average 3.4 percent in 2018-19, slightly above population growth. The recovery is predicated on moderately rising commodity prices and reforms to tackle macroeconomic imbalances. The forecasts are below those in January, reflecting a slower-than-anticipated recovery in several oil and metals exporters.
Per capita output growth—which is projected to increase from -0.1 percent in 2017 to 0.7 percent in 2018-19—will remain insufficient to achieve poverty reduction goals in the region if the constraints to more vigorous growth persist (Bhorat and Tarp 2016).
Growth in South Africa is projected to recover from 0.6 percent in 2017 to 1.5 percent in 2018-19. A rebound in net exports is expected to only partially offset weaker than previously forecast growth of private consumption and investment, as borrowing costs rise following the sovereign rating downgrade to sub-investment level. For Nigeria, growth is expected to rise from 1.2 percent in 2017 to 2.5 percent in 2018-19, helped by a rebound in oil production, as security in the oil-producing region improves, and by an increase in fiscal spending.
In Angola, growth is projected to increase from 1.2 percent in 2017 to 1.5 percent in 2019, reflecting a slight pickup of activity in the industrial sector as energy supplies improve. The subdued recovery in the region’s largest economies reflects the slower-than-expected adjustment to low commodity prices in Angola and Nigeria, and higher-than-anticipated policy uncertainty in South Africa. In other oil exporters, growth is expected to strengthen in Ghana as increased oil and gas production boosts exports and domestic electricity production.
Growth will be weaker than previously projected in CEMAC, as larger-than-envisioned fiscal adjustment reduces public investment. In several metals exporters, high inflation and tight fiscal policy will be a greater drag on activity than previously expected. Growth in non-resource-intensive countries should remain solid, on the basis of infrastructure investment, resilient services sectors, and the recovery of agricultural production.
Meanwhile the World Bank forecasts that global economic growth will strengthen to 2.7 percent in 2017 as a pickup in manufacturing and trade, rising market confidence, and stabilizing commodity prices allow growth to resume in commodity-exporting emerging market and developing economies. Growth in advanced economies is expected to accelerate to 1.9 percent in 2017, a benefit to their trading partners.
Amid favorable global financing conditions and stabilizing commodity prices, growth in emerging market and developing economies as a whole will pick up to 4.1 percent this year from 3.5 percent in 2016. Nevertheless, substantial risks cloud the outlook. These include the possibility of greater trade restriction, uncertainty about trade, fiscal and monetary policy, and, over the longer term, persistently weak productivity and investment growth. Global growth is projected to strengthen to 2.7 percent in 2017, as expected. Emerging market and developing economies are anticipated to grow 4.1 percent – faster than advanced economies.
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.