The precipitous drop in commodity prices will most likely cause a budget deficit, this is according to Econsult, a local consultancy firm. In their quarterly economic review, they point to struggling emerging markets, particularly China, Brazil and Russia, which are experiencing sluggish economic growth as the cause of the problems. The negative impacts will be largely felt by resource based economies such as Botswana, which has failed to diversify its diamond led economy.
The weak demand for diamonds has resulted in DeBeers reducing prices as much as 10% to stimulate demand, which proved to be a futile move as manufacturers have already enough in their inventories. The slump in diamond sales is expected to persist until 2016, putting pressure on government revenues due to lowered mineral exports.
“Lower exports and government mineral revenues will most likely lead to balance of payments and fiscal deficits in the second half of the year, perhaps extending into 2016,” read part of the review, before adding that “As a result, our revised forecast for real GDP growth for 2015 is now only 1%, lower than the revised projection of 2.6% released by the Ministry of Finance and Development Planning in its Budget Strategy Paper in September.”
Despite the slump in diamond sales, the economy has noted growth in non-mining private sectors which impressed at a robust growth rate of 5%. The pula remained strong compared to its neighbouring countries which have seen their currencies tumbling on the face of falling commodity prices. This has provided relief as it put aside any fears of immediate crisis.
The Econsult review warns that the fall in commodity prices is not the only problem policymakers in Botswana should be concerned with. Instead they point to a series of maladies which continue to cast a dark shadow on the economic prospects of the country.
These include, the water and electricity crisis, lack of transparency in immigration, slow progress in implementing promised reforms to improve business climate, slow progress in establishing a framework for public private partnerships and no implementation of privatisation commitments. “All of these add up to an environment of increasing economic uncertainty, which is a deterrent to investment both local and foreign, and job creation,” warned the consultancy firm.
The Econsult quarterly economic report has indicated that the government’s effort to stimulate the economy through the Economic Stimulus Package would have a two pronged outcome. In the short term it will boost economic activity and some job creation, particularly in the construction sector. In the long term “it seems unlikely that the stimulus package will address underlying constraints or help move the economy onto a higher long-term growth path. The real causes of slowing growth are not a lack of government spending, but a lack of competitiveness,” noted Econsult.
The consultancy firm further noted that the stimulus package should be met with caution as it could make things worse. They pointed out that the package will move the budget to larger deficits, therefore government spending should be efficient and accompanied by proper project management that will ensure money is invested in projects that could justify the financial investment through high returns.
“A rush to implement projects under the stimulus package is unlikely to see these fundamental issues addressed. It is essential that a focus on additional short-term spending does not distract attention from the need for fundamental structural reforms that will addresses competitiveness and productivity issues, which are essential for sustainable long-term growth and job creation,” advised Econsult.
In another report that corroborates Econsult’s dim view on Botswana’s growth prospects, the International Monetary Fund (IMF) has painted a gloomy picture of weaker growth in Sub Saharan countries, including Botswana. Through their latest Regional Economic Outlook, titled Dealing with the Gathering Clouds, the IMF said growth in Sub-Saharan Africa has weakened markedly, and is now expected at 3.75 percent this year and 4.25 percent in 2016, from 5 percent in 2014.
“Of the three factors that have underpinned the region’s solid performance of the last decade or so—a much improved business and macroeconomic environment, high commodity prices, and highly accommodative global financial conditions — the latter two have become far less supportive. As a result, while activity remains more solid than in many other developing and emerging regions of the world, the strong growth momentum evident in the region in recent years has dissipated,” read part of the report.
The report goes on to note considerable variations across the region, with the region’s low-income countries experiencing growth due to ongoing infrastructure investment and solid private consumption. In contrast, the hardest hit has been on the region’s eight oil exporters — which together account for about half of the region’s GDP and include the largest producers, Nigeria and Angola — as falling export incomes and resulting sharp fiscal adjustments is taking their toll on activity.
The IMF warns that the situation could get worse before it gets better therefore a need for some fiscal and monetary policy adjustments. On the fiscal policy side, some countries might find it difficult to manoeuvre as they try to stimulate economy due to lack of access to cheaper capital. On the monetary policy front, IMF suggests that countries whose currency is not pegged should allow for the exchange rate depreciation to absorb the shock caused by decline in trade.
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.