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Commodities’ rally push growth

According to the World Bank Africa Report, Pulse, growth in Sub-Saharan Africa is forecast to pick up to 2.6 percent in 2017, rising to 3.2 percent in 2018 and 3.5 percent in 2019. The turnaround is predicated on the projected rise in commodity prices and policy actions to tackle still-large macroeconomic imbalances in several countries.


The report states that the forecasts are weaker than those in October, reflecting a more moderate recovery among metals exporters and a muted recovery in growth in South Africa. Non-resource-intensive countries are expected to continue to expand at a solid pace. Overall, growth is projected to rise only slightly above population growth, a pace that is largely insufficient for creating employment and supporting poverty reduction efforts in the region.


“Growth in South Africa is projected to recover to around 0.6 percent in 2017, rising to 1.1 percent in 2018 and 2 percent in 2019. Weaker growth of private consumption and investment is expected to offset a rebound in net to offset a rebound in net exports, as the sovereign rating downgrade to sub-investment level raises borrowing costs. For Nigeria, growth is projected to rise from 1.2 percent in 2017 to 2.5 percent in (2018-19),”reads the report.


The Pulse further states: The modest turnaround will be underpinned by a gradual rebound in oil production and an increase in fiscal spending. In Angola, growth is projected to increase from 1.2 percent in 2017 to 1.5 percent in 2019, spurred by a modest increase in oil production. In Nigeria and Angola, recovery in the non-oil sector will be constrained by foreign exchange restrictions and high inflation. The subdued outlook for Angola, Nigeria, and South Africa implies that per capita output will decline in these countries over the forecast horizon.


Growth will be weaker than previously projected in the CEMAC area, as oil production increases at a slower pace than previously projected, due to maturing oil fields in several countries, and fiscal adjustment reduces public investment. In metals exporters, high inflation and tight fiscal policy will be a greater drag on activity than previously expected in several countries.


Indications are that growth in non-resource-intensive countries should remain robust, based on infrastructure investments, buoyant services sectors, and the recovery of agricultural production. Ethiopia and Tanzania in East Africa, and Côte d’Ivoire and Senegal in WAEMU will expand at a solid pace, although some of these countries may not reach the high growth rates of the recent past. Growth is projected to strengthen in Ghana, as increased oil production boosts exports.


PROJECTED RISKS


The economic outlook for the region is subject to significant downside risks, including the following on the external front: In Sub-Saharan Africa, sovereign bond issuance has become a key financing strategy in recent years, as countries have looked to global financial markets to facilitate domestic investment. Higher global interest rates could narrow the scope for this financing.

 

Sustained increases in global interest rates could reduce the ability of governments in the region to raise this level of finance; Weakening of growth in advanced economies or emerging markets could reduce demand for exports, depress commodity prices, and curtail foreign direct investment in mining and infrastructure. Oil and metals exporters are particularly vulnerable to this risk, given their less diversified economies;

 

The change in government in the United States following the elections in November 2016 is not expected to have major effects in the region. However, there is a risk that the United States will cut back official development assistance. This will hurt the region’s smaller economies and fragile states, which have strong economic ties with the United States.


Risks on the domestic front include the following:  In countries where significant fiscal adjustments are needed, especially in CEMAC countries, failure to implement appropriate policies could weaken macroeconomic stability and slow the recovery; Worsening security, drought conditions, or political uncertainty ahead of key elections pose risks to the outlook for some countries, including Kenya, Nigeria, and South Africa.


CHALLENGES


The region faces a myriad of challenges to regaining the momentum on growth. Addressing these challenges will require deep reforms to improve institutions for private sector growth, develop local capital markets, improve the quantity and quality of public infrastructure, enhance the efficiency of utilities, and strengthen domestic resource mobilization. In this report, we spotlight a few pressing challenges that several African countries are facing: a slowdown in investment, still high trade logistics costs that impede competitiveness and export diversification, and rising debt levels.


2016 RECORDED DECELERATION


Economic activity decelerated sharply in Sub-Saharan Africa in 2016 to an estimated 1.3 percent growth, its worst outcome in more than two decades. This low growth rate was driven mainly by unfavourable external developments, with commodity prices remaining low, and difficult domestic conditions.


Angola, Nigeria, and South Africa experienced a marked slowdown in economic activity. A decline in oil production halted economic growth in Angola. In Nigeria, gross domestic product (GDP) contracted by 1.5 percent amid tight liquidity conditions, budget implementation delays, and militant attacks on oil pipelines. Growth in South Africa weakened to 0.3 percent, reflecting contractions in the mining and manufacturing sectors and the effects of the drought on agriculture. Excluding these three countries, growth in the region was estimated to be 4.1 percent in 2016.


Other oil exporters struggled to cope with a large terms-of-trade shock, as activity contracted sharply. Metals exporters fared relatively better, as they benefitted from the large drop in oil prices. Nonetheless, output levels and investments in the mining sector were also hit hard and budgetary revenues fell. Average growth among the non-resource-intensive countries remained high in 2016, reflecting their more diversified economies. Growth in these countries was partly supported by scaled-up public infrastructure investment.


Sub-Saharan Africa is seeing a recovery of growth in 2017. Rising commodity prices, strengthening external demand, and the end of the drought in several countries are among the factors contributing to the rebound. Prices of most commodities continued to rise in early 2017, from their lows in early 2016.

The oil price increase in 2017Q1 reflects steady demand growth and the agreement between some OPEC and non-OPEC oil producers to limit output. However, persistently high global oil inventories along with an improved supply outlook by the in the U.S. shale oil sector, impose constraints in the longer term price outlook of oil prices. Metals prices are strengthening, partly reflecting increased demand from China. Meanwhile, above-average rainfalls are boosting agricultural production in countries that were hit by the El Niño–related drought in 2016 (South Africa, Malawi).


Security threats subsided in several countries. In Nigeria, the decline in militants’ attacks on oil pipelines has helped oil production to rebound. The slowdown in Angola, Nigeria, and South Africa—the region’s three largest economies— appears to have bottomed out toward the end of 2016. Nonresource-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 rigorous recovery in the region. In Angola and Nigeria, restrictions on access to foreign exchange continue. Although the Central Bank of Nigeria and the National Bank of Angola have recently increased the sales of foreign exchange in the interbank markets, foreign exchange liquidity conditions remain tight, and are holding back activity in the non-oil sectors. The manufacturing and services sectors remain particularly weak in both countries.

 

In South Africa, policy uncertainty and low business confidence continue to constrain investment. Unemployment remains very high. The recent (April 2017) downgrade of the country’s credit rating to sub-investment level by Standard and Poor’s and Fitch is likely to weigh on the country’s economic prospects. Elsewhere in the region, several oil exporters in the Central African Economic and Monetary Community (CEMAC) are facing difficult economic conditions. The contraction of activity that began in the oil sector in Chad, Equatorial Guinea, and the Republic of Congo has spread to the rest of the economy.


Although the economies of Cameroon and Gabon have not contracted—due in part to their relatively more diversified exports—activity has slowed notably and oil production continues to decline. Having delayed the adjustment to lower oil revenues, CEMAC countries are now embarking on fiscal tightening to stabilize their economies. In Chad, the ongoing fiscal adjustment has entailed significant reductions in recurrent and capital expenditures, which weakened domestic demand. Elsewhere, in Mozambique, the recent government default and debt burden are deterring investment.

 

The drought in East Africa, which reduced agricultural production at the end of 2016, has continued into 2017, adversely affecting activity in some countries (for example, Kenya) and contributing to food insecurity in others (Somalia, South Sudan) (Current Account Deficits and Financing The current account balances of oil exporters are improving, helped by the pickup in commodity prices.

 

Oil exports are rebounding in Nigeria on the back of an uptick in oil production. In metal exporters, the positive impact of an improvement in metals prices is being offset by a rise in investment related imports. Current account deficits remain high in several non-resource-rich countries (including Rwanda and Uganda). In these countries, capital goods imports have also been strong, reflecting ambitious public investment agendas. Capital inflows in the region are rebounding from their low level in 2016, which saw foreign direct investment fall and Eurobond issuance decline.


A strengthening of cross-border flows this year should help finance the still-elevated current account deficits. Gross foreign direct investment in Nigeria edged up in the fourth quarter of 2016, after declining in the first three quarters. Nigeria was able to tap the Eurobond market twice at the start of the year, reflecting improved investors’ sentiment.


More broadly, in a global environment characterized by low financial market volatility and increased investor risk appetite, sovereign spreads have generally narrowed across the region, with the notable exception of Ghana, where spreads rose because of concerns about fiscal policy slippages (figure 1.4). Sovereign spreads widened on South African debt in the wake of recent political developments and credit rating downgrade. Exchange Rates and Inflation The rebound in commodity prices and improved growth prospects in some countries have helped stabilize commodity exporter currencies.

 

However, with the Nigerian naira and Angolan kwanza remaining fixed against the U.S. dollar, the imbalance in the foreign exchange market remains substantial in both countries. Among metals exporters, the Congolese franc depreciated sharply against the U.S. dollar in the second half of 2016, with weakness continuing in 2017, reflecting heightened political uncertainty as well as loss of foreign reserves in the Democratic Republic of Congo. A debt crisis in Mozambique sharply lowered the value of the metical against the U.S. dollar in the second half of 2016, and the currency remains weak. Annex 1B explores foreign exchange market pressures in Sub-Saharan Africa.


Inflation in the region is gradually decelerating from its high level in 2016, but remains elevated. Although a process of disinflation has started in Angola and Nigeria, inflation in both countries remains high, driven by a highly depreciated parallel market exchange rate. Inflation eased in metals exporters, because of greater currency stability and lower food prices due to improved weather conditions (Namibia, Zambia). In Mozambique, inflation was in high double digits in February.

 

In nonresource-intensive countries, inflationary pressures have picked up in East Africa, as the drought led to an increase in food prices—notably in Kenya. However, in countries where the drought has been less severe, inflation has remained within the central banks’ targets. Inflation continues to be low in most CEMAC and WAEMU countries, reflecting the stable peg to the euro. The low inflation environment in Tanzania, Uganda, and Zambia allowed their central banks to cut interest rates at the start of the year. Bank of Ghana also cut its policy rate. Although inflation in Ghana remains in double digits, it has narrowed from over 19 percent in 2016, to around 13 percent in January.

 

Fiscal Positions Countries across the region face the need for fiscal consolidation to narrow fiscal deficits and stabilize government debt. Although commodity prices have recovered some ground, commodity exporters (especially oil exporters, such as Angola and Equatorial Guinea) are still running sizable fiscal deficits. The fiscal balances of non-resource-intensive countries worsened in 2016, reflecting elevated investment spending levels.

 

Widening fiscal deficits and, in some cases, sizable exchange rate depreciations have resulted in rising public debt levels in the region. Large non-concessional borrowing for infrastructure development has led to high debt servicing costs in several countries. South Africa’s 2017/18 budget reaffirms the government’s commitment to fiscal consolidation, with the introduction of a new personal income tax bracket to mobilize additional revenue. It remains to be seen whether the stance of fiscal policy will be affected by political developments.

 

Among oil exporters, Angola’s 2017 budget targets a stable fiscal deficit, but the risks of large expenditure overruns in the run-up to the election this year remain high. In Nigeria, the government plans to increase infrastructure spending, financed in part through borrowing. Elsewhere, Ghana’s 2017 budget signaled a slowdown in fiscal consolidation, which could increase fiscal risks, given limited fiscal space. Mozambique’s budget points to a moderate increase in spending. Reflecting the continued weakness of fiscal balances, caused by the fall in commodity prices and the continued upward trend in government debt, the region’s rating outlook in 2017 remains negative.


FINANCIAL RISKS


Banking sector vulnerabilities remain elevated in the region, including in Angola, CEMAC countries, the Democratic Republic of Congo, and Nigeria. Foreign exchange restrictions, policy uncertainty, and weak growth have affected the soundness of the banking sector. Non-performing loans have increased, and profitability and capital buffers have decreased. Several proactive measures have been introduced to contain risks to financial stability, including through increased provisioning and by intensifying the monitoring and supervision of banks. While banking system resilience needs to be strengthened, steps by banks to limit credit risks, by tightening lending standards and reducing credit to the private sector while continuing to invest in government securities, are contributing to the slow recovery in economic activity.


(Adopted from World Bank Africa report, Pulse)

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The  Bulb World CEO selected for Africa’s prestigious award

22nd July 2021

The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.

Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.

Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.

The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.

Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.

The finalists will compete for a share of US $1.5 million in grant money.

The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.

The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.

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Mining production down 12 % IN Q1 2021

14th July 2021

During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.

The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.

The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.

The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.

Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.

Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.

On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.

Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.

A week later Lucara  announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.

In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.

Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.

Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.

Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.

Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.

Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.

Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.

The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.

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Gov’t awards mining licence for Gantsi Copper Mine

14th July 2021
Moagi

Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.

Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.

Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.

In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.

Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.

GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER

Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.

As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.

“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.

MINING CONTRACT

Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.

The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.

The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.

These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.

The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.

Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).

The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.

The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.

Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.

“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”

Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.

“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.

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