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Depressed diamond prices paints gloomy economic outlook

Botswana’s future economic outlook is still uncertain as Diamond suppliers remained under pressure as polished prices fell further in September, based on Rapaport Monthly Report – October 2015.  The authoritative diamond U.S. demand is steady as the holiday season approaches but Chinese buyers are restrained due to a slowdown in economic growth in China and Hong Kong.


But such negative sentiments were downplayed by ALROSA CEO, Andrey Zharkov who this week told Bloomberg that his company expects rough diamond prices to stabilize by the end of the year after falling 15 percent. The company will continue to focus on diamond mining and may review diamond polishing to see if it is beneficial for the company’s value, according to the report.


The Rapaport Group is an international network of companies providing added-value services that support the development of fair, transparent, efficient, and competitive diamond and jewelry markets. Established in 1976, the Group has over 20,000 clients in 118 countries.

Group activities include Rapaport Information Services providing research, analysis and news; Rapaport Magazine, the leading print publication for the diamond industry; RapNet® – the world's largest online diamond trading network; Rapaport Laboratory Services providing GIA and HRD gemological services in India, Belgium and Israel; and Rapaport Trading and Auction Services specializing in recycled diamonds and jewelry.



The ALROSA boss said the company may also start talks with clients on diamond sales in rubles. Diamond prices have declined by about 15 per cent in 2015 but are still stronger than other commodities, Zharkov said the company may pay back $500 million of debt this year and may keep dividends at the 2014 level, Bloomberg reported.



Rough & Polished website reported October 7 that ALROSA’s supervisory board had approved the possibility to settle payments in rubles under new export contracts, but that these will not be available before 2018 and will not affect current clients. The value of diamonds will still be calculated using the exchange rate set by Russia’s Central Bank and market prices will be in US dollars, according to the report.


Elsewhere, Rapaport reports that Belgium’s polished diamond exports fell 12 percent year on year to $1.39 billion in September. By volume, polished imports decreased 14 percent to 610,853 carats, while the average price increased 2 percent to $2,193 per carat, according to the Antwerp World Diamond Centre.



Total polished imports to Belgium were also down 12 percent to $1.34 billion during the month as net polished exports, representing exports minus imports, fell 4 percent to positive $47.6 million.

Among Belgium’s main trading partners, polished exports to the U.S. fell 8 percent and to Hong Kong slipped 1 percent, while exports to Switzerland dropped 4 percent. 

Rough imports decreased 35 percent to $870.4 million and rough exports fell 38 percent to $884.5 million.

Net rough imports, representing imports minus exports, increased 81 percent to negative $14.06 million during the month.

Belgium’s net diamond account, representing total polished and rough imports less total exports, decreased 51 percent to reduce the deficit to $61.7 million.



During the first nine months of the year, polished exports decreased 7 percent to $10.22 million, while polished imports fell 6 percent to $10.18 billion. Rough imports fell 25 percent to $8.61 billion and rough exports dropped 27 percent to $8.74 billion.

Belgium’s net diamond account for the year to date went from a $10.27 billion deficit to a $167.11 million surplus.


The RapNet Diamond Index (RAPI™) for 1-carat, GIA-graded diamonds dropped 3 percent in September. RAPI for 0.30-carat diamonds declined 2.7 percent, while RAPI for 0.50-carat diamonds slipped 2.2 percent. RAPI for 3-carat diamonds fell 4.8 percent during the month.

The third quarter saw RAPI for 1-carat diamonds decline by 6.3 percent while the index on October 1 was down 13.9 percent from a year ago. 


© Copyright 2015, Martin Rapaport

The Rapaport Monthly Report demonstrates that polished trading activity improved after the July / August vacation period but is still well below 2014 levels.

The Hong Kong Jewelry and Gem Fair signaled that the recent Chinese stock market slump and the government’s anti-corruption campaign are having a lasting negative impact on discretionary spending. Jewelry retail sales during the National Day Golden Week that began on October 1 were weak and expectations are low for the important Chinese New Year in February.


Continuation of depressed global diamond prices do not augur the country’s intension to diversify the economy within and away from diamond mining and to lure jewelers to invest in Botswana.


“We want people to go as far down the value chain as possible and that’s why we want to  start a new conversation about how can we help bring jewelers to Botswana,” Mokaila told a  Rapaport Breakfast at the JCK Las Vegas show. “How can we have a relationship that can be meaningful to them? We will listen and do what is necessary to ensure that we diversify our economy.”


For Botswana, economic diversification remains a panacea because the country remains highly reliant upon the diamond industry and, more specifically, diamond mining. Through its partnerships with De Beers, royalties and taxes, approximately 80 percent of royalties from diamonds mined in Botswana go to the government. 30 percent of the country’s budget and about 80 percent of its export revenue comes from diamonds.


Still, experts maintain, diamond mining has its limits, even if the country’s diamond mining resource will extend to around 2050, as Mokaila told the meeting diamond life span will continue well beyond the initial 2030 projection.

Debswana, which is an equal partnership between De Beers and the Botswana government, has the bulk of production yielding about 22 million carats a year from its four mines – Orapa, Letlhakane, Damtshaa and Jwaneng. The Ghaghoo development, the country’s fifth mine, is being readied for production by Gem Diamonds later this year.


While the country’s diamond resource is celebrated, the government is also acutely aware of the need to diversify. The country has come a long way to move downstream in a short time.


In the past year and a half, De Beers relocated its sorting and sales operations from London to Gaborone, and the state-owned Okavango Diamond Company launched its own rough sales.

In addition, a number of new diamond manufacturing companies have begun operations, bringing the number of DTC Botswana sightholders to 20. Significantly, a number of auxiliary services such as brokers, banks, shipping companies and grading laboratories have set up shop in Gaborone.


Mokaila told Rapaport that he sees “the next step as bringing jewelers to the country and expanding Okavango’s role.”


Similarly, the government is cautious to ensure that Okavango’s operations are sustainable. The company currently has access to 14 percent of Debswana production – approximately 3 million carats – which it sells via auction.

Mokaila stressed that he wants to make Okavango a major competitor on the global market, which he hints might include introducing rough contract sales, polished tenders and gaining access to a greater chunk of Debswana production.


As a result, Okavango, along with the Diamond Hub – which has overseen the project from the start, is central to the government’s diversification program.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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