Botswana‘s economic future is persistently put in doubt by some international commentators. As far as national income generation and provision of sustainable jobs are concerned, there are no guarantees.
Currently the mixed structured open economy is largely dependent on mineral revenue mainly from the diamond sector for foreign income generation and the government dominates, coordinates and regulates almost every sector of the middle income economy that Botswana is. This current setup in which the diamond sector alone is responsible for a quarter of the national treasury and is the largest single private sector employer is constantly viewed as an economic danger looming.
This sentiments were echoed again recently at a discussion hosted by the World Bank Group where they also released Botswana Mining Investment & Governance Review report. According to reports from the gathering it was emphasized that Botswana needed to move with speed and unearth other sources of revenue and income generation to breathe life into an economy that could otherwise be lifeless in a decade or two to come.
Specially Elected Member of Parliament, Ms Bogolo Kenewendo weighed on the same, urging that plans for a Botswana beyond Mining need to unfold as soon as yesterday. “We need to plan for a future that has a broader and diverse economy with a variety of sectors contributing significantly to the country‘s revenue pot,” she said. Kenewendo, a shrewd economic expert was also quoted saying that it was no longer a matter of choice to diversify the economy but an obligation.
“We need to find ways for mining revenue to trickle down to the rest of the citizenry and also increase the impact of mining revenues on areas where mines in Botswana are situated. Business linkages and cluster developments need to show evidence at rich mineral areas,” she said.
According to the youngest legislator in parliament, Botswana needs to devise ways in which mining revenues would benefit the rest of citizenry apart from free basic service, she said that would be archived by sharing national wealth with its people and wealth creation at an ordinary individual level.
Though mineral revenue increased by 63 % in 2016 financial year, with government pocketing tens of billions from mineral tax, dividends and mining royalties and recent figures presenting a positive outlook for most companies and stable profitability for Botswana’s largest mining company Debswana, fluctuating market commodity prices and closure of some mining companies raise concern over an uncertain future for Botswana’s economy.
2016 saw liquidation and shut down of some mining companies especially copper and nickel companies due to low commodity prices. BCL Mine, Tati Nickel, Mowana are some of the victims. Meanwhile some have been reported to be on the brink of reopening soon. Debswana’s Damtshaa Mine has been put under care and maintenance. Debswana also reported a fortnight ago that their Letlhakane Mine, popularly known as DK 1, has reached the end of its lifespan with tailings project to take the operations not beyond 20 years to come.
Already prospected kimberlitic and precious deposits at the world’s largest diamond mine by value, Jwaneng Mine place the mine not beyond 2034 (Cut 8). All these factors and others which experts term unforeseen economic circumstances, expose Botswana to be vulnerable to a possible economic crush in a few decades to come unless something major is done to transform the economy and diversify national revenue sources.
At the Mining Investment & Governance Review report, Kenewendo observed that the World Bank Group’s Botswana Mining Investment and Governance Review report was expected to help government improve the sector’s performance and to attract further investment. According to the review by the world economic think tank, even the Mining sector itself is poorly managed here in Botswana.
It was pointed out that ordinary Batswana citizens and remote area settlers were just spectators in the Mining industry wealth creation symposium. The World Bank observes that Mining contractors and big money business partnerships in the mining sector are largely enjoyed by foreign owned enterprises which collect millions and invest them across borders or in their native countries.
The review indicates that Botswana Government regulations and policies are not structured in a way that locals benefit from doing business with mining companies especially in areas of procurement, supplies, as well as human resource as foreign national continues to enjoy preference in highly technical and skilled areas of mining human resource.
Permanent Secretary in the Ministry of Mineral Resources, Green Technology and Energy Security, Mr Kgomotso Abi agreed with the sentiments adding that Botswana needs to strengthen performance and address issues of concern to investors. “We need to build an environment that will stimulate more investment in mineral extraction,” he said.
World Bank Country Representative, Ms Elene Imnadze said even though the mining sector immensely contributed to the development of Botswana, more still needs to be done to ensure mineral beneficiation, as well as secure a future for Botswana beyond mining. “Other mines, more especially the copper ones, have had to close down due to low commodity prices. The copper mines, including BCL which is under provisional liquidation, remain closed even though base metal prices are beginning to increase slightly,” she continued.
According to the expert, government has to find ways of diversifying the economy and the capital generated from the mining sector should be invested into sectors that would be sustained beyond mining. She said this could be done by employing more people, building local suppliers and strengthening small and medium enterprises. Botswana’s Mining Investment and Governance Review was compiled to help strengthen the mining sector’s governance, investment, environment and development impact in Botswana.
It reviewed sector performance from the perspective of three main stakeholder groups -government, investors in the mining value chain, and civil society and it identifies gaps between declared and actual government policy and practice. In 2015 Government of Botswana established the Mineral Development Company as a wholly state owned independent company to manage Botswana is multibillion Pula mining sector portfolio.
The company which is still undergoing full setting up, resourcing its personnel and defining its area of business is expected to manage all government shares in the mining sector and also transform the sector to fully benefit Batswana and the economy. Since establishment MDCB has being facing challenges of formative obstacles especially in the area of securing prominent personnel for the sensitive mandate it’s geared to deliver. Recently MDCB was reported to have licked out its controversial CEO Paul Smith who is constantly blamed for liquidating Botswana’s oldest copper mining giant BCL Mine.
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.