According to the De Beers Group of companies 2015 Diamond Insight Report, the diamond industry is likely to continue to experience increased sales and price volatility. Organisations across the value chain will need to improve the way they forecast and plan to navigate this trend successfully.
The report suggests that consumer demand growth will continue to be generated from Asia, particularly China and India, driven by higher household income over the next 10 years, and the US, the world’s largest market.
Millennials in all main markets are set to become the most important cohort for diamond jewellery purchases.
“Continued innovation by retail in general, and competitive sectors in particular, will generate strong competition from other luxury and experiential categories; investment will be needed to safeguard and nurture the diamond dream and capture the opportunity presented by the growth potential in Asia, the US, and globally, by Millennials.
The midstream will continue to come under pressure periodically; financially robust and transparent diamantaires with scale, differentiated business models, and/or strong collaborations with downstream players are most likely to thrive,” reads the report.
Further, the De Beers Diamond Insight report reveals that beneficiation will continue to be a key driver in the geographic shift of the midstream to countries and regions where diamonds are mined.
It says the upstream will need continued focus on cost reduction and productivity improvements; innovation as well as strong, collaborative relationships with governments and other stakeholders will be increasingly important.
In addition, diamond production will likely increase slightly in the short term and decline slowly after 2020, with large, economically viable new discoveries unlikely.
While consumer demand is currently negligible, the Insight report says the capacity to produce synthetics for gem applications will continue to expand and, over time, the cost and value of synthetic production will fall.
“Across the value chain, innovation will remain critical – to strengthen the diamond dream and motivate sales, to develop new business models in the midstream, and to counter cost pressures in the upstream.”
In the two years that have passed since the publication of De Beers’ 2014 Diamond Insight Report, new global and regional trends have been identified. The latest report indicates that the main changes relate to macro-economic trends in emerging economies, especially in China and India, as well as volatility in world economic growth forecasts.
These developments will demand that diamond industry participants strengthen their competitive capabilities even more through better planning and more investment in innovation and marketing.
A MORE VOLATILE FUTURE
Since 2014, the world has experienced moderate annual global growth at 2.5 per cent, although this has been uneven across markets and is, in some regions, characterised by political uncertainty. The 2015 Diamond Insight report says ultimately, consumer demand for diamond jewellery has remained strong; indeed, it has been higher over the past three years than in any other three-year period.
“But there have also been industry challenges. While consumer demand for diamonds is still growing in the US, growth has slowed in China and declined in India. Midstream players faced fresh pressure in 2015, when inventory indigestion led diamantaires to destock, impacting rough diamond sales. Furthermore, diamond producers face increasing cost pressures as production comes from ever deeper mines.”
The report captures that the volatility is here to stay as global markets are likely to continue to fluctuate, potentially increasing the diamond industry’s inherent volatility.
“Consumer preferences will continue to evolve, and innovation by global luxury brands and new online propositions will generate strong competition for the industry. The midstream will be required to continue its process of professionalisation, and the upstream will continue to face cost challenges.”
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at 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. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”