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Diamond production up in Q1

Anglo American has ramped up diamond production by 8 percent in the first quarter of the year, with the bulk of the production coming from Botswana based operations. The miner revealed this week that the increase in production was in response to improved trading conditions.


The production report shows that Anglo American’s subsidiary, De Beers, increased rough diamond production by 8 percent to 7.4 million carats. Anglo is the main shareholder in De Beers with an 85 percent stake while the Botswana Government owns 15 percent of De Beers. Furthermore, De Beers and Botswana own Debswana in a 50 percent joint venture.


The report shows that Debswana’s production decreased marginally to 5.2 million carats, a 3 percent reduction from 2016’s first quarter and also 4 percent lower than figures for the 2016 fourth quarter. Debswana operates the Jwaneng, Orapa, Letlhakane and Damtshaa diamond mines. Jwaneng, the leading mine by value and the second largest mine in the world, was the biggest contributor in terms of carats mined although production decreased by 8 percent due to expected lower grades. However this was partly offset by Orapa and Letlhakane mines, which increased by 5 percent and 4 percent. On the other hand, production at Damtshaa mine is still on hold after the mine was put under care and maintenance in January last year.


Production at Namdeb Holdings, another joint venture between the Namibian government and De Beers, increased by 6 percent to 0.5 million carats due to marginally higher grade at Namdeb. In DBCM (South Africa), production increased by 19% to 1.1 million carats largely as a result of higher grades at Venetia. Production in Canada increased by 290 percent to 0.6 million carats due to the contribution of Gahcho Kué, which reached commercial production on 2 March 2017.


The report also revealed that total rough diamond sales volumes in the first quarter of the year were 14.1 million carats (13.7 million carats on a consolidated basis) from three Sights, compared with 8.1 million carats (7.6 million carats on a consolidated basis) from two Sights in Q1 2016. Consolidated sales volumes exclude De Beers’ JV partners’ 50 percent proportionate share of sales to entities outside the De Bees Group of Companies from the Diamond Trading Company Botswana and the Namibia Diamond Trading Company, which are included in total sales volume.


The mining giant holds ten Global Sightholder Sales and Auction Sales every year in Gaborone and the sights or auction sales are restricted to the top 85 customers who buy the diamond packages at a price determined by De Beers. In 2016, the diamond behemoth sold as much as $4.9 billion worth of diamonds in its ten Sightholder sales. In the first quarter of this year, De Beers’ value of rough diamond sales amount to $1.86 billion, following strong opening to the year.


The world’s biggest diamond producer by value sold $720 million in its first sale of the year, a 70 percent increase from the last sale in December. The January figures are also 32 percent higher than the previous corresponding period when it sold $545 million. The surge in the value of diamonds sold in the first circle of the year was helped in part by a longer period between the final sight of 2016 and the first sight of the year.


De Beers then followed with a second sales cycle of 2017, amounting to $553 million, a lower figure compared with the $617 million value of the corresponding cycle of 2016. The provisional figures for the third cycle sales of the year show that De Beers sold rough diamonds worth $580 million, 12.9 percent lower than 2016’s third cycle sales.


Anglo American has added that their diamond production forecast for 2017 remains unchanged at 31-33 million carats, subject to trading conditions. In 2016, total rough diamond sales volumes increased by 55 percent to 32.0 million carats, as a result of the improved trading conditions from those experienced in 2015. However, the average realised price of $187 per carat was 10 percent lower than in 2015, reflecting the lower average rough price index, which was down 13 percent, partially offset by a stronger sales mix.


Meanwhile, on Tuesday at the annual Debswana stakeholder engagement session, it was announced that production has now begun from the Cut-8 project, an extension of the Jwaneng mine that was made at an investment of P24 billion. According to De Beers records, Cut-8 will become the main source of ore for Botswana’s Jwaneng mine in 2018 and extend the life of one of the world’s richest diamond mines by value to at least 2035.


It is called Cut-8 because it is the eighth cut, or expansion, of the mine. It will increase the depth of the mine from 400 metres to 650 metres, making the pit 2.7km long and 1.8km wide. The expansion will catapult Jwaneng mine to ‘super-pit’ status, becoming one of the largest open pit mines in the world.

 

The new mine will provide access to an estimated 93 million carats of mainly high-quality diamonds from about 84 million tonnes of ore mined. But before a single diamond can be found, about 500 million tonnes of rock surrounding the diamond-bearing ore must be removed. Debswana Managing Director Balisi Bonyongo said 88 percent of an estimated 500 million tonnes of waste above diamond bearing ore had been stripped away by the end of March.

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Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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