Connect with us
Advertisement

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.

Continue Reading

Business

Inflation will bounce back to objective range in 2022- BoB

25th October 2021
Moses Pelaelo

The Monetary Policy Committee (MPC) of the Bank of Botswana decided to maintain the Bank Rate at 3.75 percent at a meeting held on October 21, 2021.  Briefing members of the media moments after the meeting Bank of Botswana Governor Moses Pelaelo explained that Inflation decreased from 8.8 percent in August to 8.4 percent in September 2021, although remaining above the upper bound of the Bank’s medium-term objective range of 3 – 6 percent.

He said Inflation is projected to revert to within the objective range in the second quarter of 2022, mainly on account of the dissipating impact of the recent upward adjustment in value added tax (VAT) and administered prices from the inflation calculation; which altogether contributed 5.2 percentage points to the current level of inflation.  Overall, risks to the inflation outlook are assessed to be skewed to the upside.

These risks include the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production; possible maintenance of travel restrictions and lockdowns due to the COVID-19 pandemic; domestic risk factors relating to regular annual price adjustments; as well as second-round effects of the recent increases in administered prices and inflation expectations that could lead to generalised higher price adjustments.

Furthermore, aggressive action by governments (for example, the Economic Recovery and Transformation Plan (ERTP)) and major central banks to bolster aggregate demand, as well as the successful rollout of the COVID-19 vaccination programmes, could add pressure to inflation.  These risks are, however, moderated by the possibility of weak domestic and global economic activity, with a likely further dampening effect on productivity due to periodic lockdowns and other forms of restrictions in response to the emergence of new COVID-19 variants.

A slow rollout of vaccines, resulting in the continuance of weak economic activity and the possible decline in international commodity prices could also result in lower inflation, as would capacity constraints in implementing the ERTP initiatives. Real Gross Domestic Product (GDP) for Botswana grew by 4.9 percent in the twelve months to June 2021, compared to a contraction of 5.1 percent in the corresponding period in 2020.

The increase in output is attributable to the expansion in production of both the mining and non-mining sectors, resulting from an improved performance of the economy from a low base in the corresponding period in the previous year. Mining output increased by 3 percent in the year to June 2021, because of a 3.2 percent increase in diamond mining output, compared to a contraction of 19.3 percent in 2020. Similarly, non-mining GDP grew by 5.4 percent in the twelve-month period ending June 2021, compared to a decrease of 0.7 percent in the corresponding period in 2020.

The increase in non-mining GDP was mainly due to expansion in output for construction, diamond traders, transport and storage, wholesale and retail and real estate.  Projections by the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) suggest a rebound in economic growth for Botswana in 2021. The Ministry projects a growth rate of 9.7 percent in 2021, moderating to a growth of 4.3 percent in 2022.  On the other hand, the IMF forecasts the domestic economy to grow by 9.2 percent in 2021; and this is expected to moderate to a growth of 4.7 percent in 2022. The growth outcome will partly depend on success of the vaccine rollout.

According to the October 2021 World Economic Outlook (WEO), global output growth is forecast at 5.9 percent in 2021, 0.1 percentage point lower than in the July 2021 WEO update.  The downward revision reflects downgrades for advanced economies mainly due to supply disruptions, while the growth forecast for low-income countries was lowered as the slow rollout of COVID-19 vaccines weigh down on economic recovery.  Meanwhile, global output growth is anticipated to moderate to 4.9 percent in 2022, as some economies return to their pre-COVID-19 growth levels.

The South African Reserve Bank, for its part, projects that the South African GDP will grow by 5.3 percent in 2021, and slow to 1.7 percent in 2022.  The MPC notes that the short-term adverse developments in the domestic economy occur against a growth-enhancing environment.  These include accommodative monetary conditions, improvements in water and electricity supply, reforms to further improve the business environment and government interventions against COVID-19, including the vaccination rollout programme.

In addition, the successful implementation of ERTP should anchor the growth of exports and preservation of a sufficient buffer of foreign exchange reserves, which have recently fallen to an estimate of P47.9 billion (9.8 months of import cover) in September 2021.  Overall, it is projected that the economy will operate below full capacity in the short to medium term and, therefore, not creating any demand-driven inflationary pressures, going forward.

The projected increase in inflation in the short term is primarily due to transitory supply-side factors that, except for second-round effects and entrenched expectations (for example, through price adjustments by businesses, contractors, property owners and wage negotiations), do not normally attract monetary policy response. In this context, the MPC decided to continue with the accommodative monetary policy stance and maintain the Bank Rate at 3.75 percent.  Governor Moses Pelaelo noted that the Bank stands ready to respond appropriately as conditions warrant.

Continue Reading

Business

SEZA to boost investment through Mayors forum

25th October 2021
SEZA-CEO-Lonely-Mogara

The Special Economic Zones Authority (SEZA) recently launched the Mayor’s forum. The Authority will engage with local governments to improve ease of doing business, boost investment, and fast track the development of Botswana’s Special Economic Zones (SEZs).

The Mayors Forum was established to recognise the vital role that local authorities play in infrastructure development; as they approve applications for planning, building and occupation permits. Local authorities also grant approvals for industrial licenses for manufacturing companies.
SEZA Chief Executive Officer (CEO) Lonely Mogara explained that the Mayor’s Forum was conceptualised after the Authority identified local authorities as critical partners in achieving its mandate and improving the ease of doing business. SEZA intends to develop legal instructions for different Ministries to align relevant laws with the SEZ Act, which will enable the operationalisation of the SEZ incentives.

“Engaging with local government will bring about the much-needed transformation as our SEZs are located in municipalities. For us, a good working relationship with local authorities is the special ingredient required for the efficient facilitation of SEZ investors, which will lead to their competitiveness and ultimate growth,” Mogara stated.

The Mayors Forum will focus on the referral of investors for establishment in different localities, efficient facilitation of investors, infrastructure and property development, and joint monitoring and evaluation of the SEZ programme at the local level. SEZA believes that collaborating with local authorities will bring about much-needed transformation in the areas where SEZs are located and ultimately within the national economy. Against this background, the concept of hosting a Mayors Forum was birthed to identify and provide solutions to possible barriers inhibiting ease of doing business.

One of the key outcomes of the Mayors Forum is the free flow of information between SEZA and local authorities. Further, the two will work together to change the business environment and achieve efficiency and competitiveness within the SEZs. Francistown Mayor Godisang Rasesigo was elected as the founding Chairman of the Mayors Forum. The forum will also include the executive leadership of all city, town and district councils, among them Mayors, City or Council Chairpersons, Town Clerks and District Commissioners.

Mogara explained that initial efforts would engage the local government in areas that host SEZA’s eight SEZs: Gaborone, Lobatse, Selebi Phikwe, Palapye, Francistown, Pandamatenga and Tuli Block. Meanwhile, Mogara told WeekendPost that they are confident that a modest 150 000 jobs could be unleashed in the next two to five years through a partnership with other government entities. He is adamant that the jobs will come from all the nine designated economic zones.

This publication gathers that the Authority is currently sitting on about P30 billion worth of investment. The investment, it is suggested, could be said to be locked up in government bureaucracy, awaiting the proper signatures for projects to take off. Mogara informed this publication that the Authority onboard investors who are bringing P200 million and above. He pointed out that more are injecting P1 billion investments compared to the lower stratum of their drive.

SEZA’s mandate hinges on the nine Special Economic Zones – being Gaborone (SSKIA), whose focus is of Mixed-use (Diamond Beneficiation, Aviation); Gaborone (Fairgrounds) for Financial services, professional services and corporate HQ village; Lobatse for Beef, leather & biogas park; Pandamatenga designated for Agriculture (cereal production); Selibe Phikwe area which is also of a Mixed-Use (Base metal beneficiation & value addition), Tuli Block Integrated coal value addition, dry port logistics centre, coal power generation and export; Francistown is set aside for International Multimodal logistics hub/ Mixed Use (Mining, logistics and downstream value-adding hub); whilst Palapye is for Horticulture.

The knowledge economy buzz speaks to SEZA’s agenda, according to Mogara. The CEO is determined to ensure that SEZA gets the buy-in from the government, parastatals and the private sector to deliver Botswana to a high economic status. “This will ensure more jobs, less poverty, more investment, and indeed wealth for Batswana,” quipped the enthusiastic Mogara. SEZA was established through the SEZ Act of 2015 and mandated with establishing, developing and managing the country’s SEZs. The Authority was tasked with creating a conducive domestic and foreign direct investment, diversifying the economy and increasing exports to facilitate employment creation.

Continue Reading

Business

De Beers Q3 production up 28 %

25th October 2021
De-Beers

De Beers rough diamond production for the third quarter of 2021 increased by 28% to 9.2 million carats, reflecting planned higher Production to meet more robust demand for rough diamonds. In Botswana, Production increased by 33% to 6.4 million carats, primarily driven by the planned treatment of higher-grade ore at Jwaneng, partly offset by lower Production at Orapa due to the scheduled closure of Plant 1.

Namibia’s Production increased by 65% to 0.4 million carats, reflecting the marine fleet’s suspension during Q3 2020 as part of the response to lower demand at that time. South Africa production increased by 34% to 1.6 million carats due to the planned treatment of higher grade ore from the final cut of the Venetia open pit and an improvement in plant performance. Production in Canada decreased by 13% to 0.8 million carats due to lower grade ore being processed.

Demand for rough diamonds continued to be robust, with positive midstream sentiment reflecting strong demand for polished diamond jewellery, particularly in the key markets of the US and China. Rough diamond sales totalled 7.8 million carats (7.0 million carats on a consolidated basis) from two Sights, compared with 6.6 million carats (6.5 million carats on a consolidated basis) from three Sights in Q3 2020 and 7.3 million carats (6.5 million carats on consolidated basis) from two Sights in Q2 2021.

De Beers tightened Production guidance to 32 million carats (previously 32-33 million carats) due to continuing operational challenges, subject to the extent of any further Covid-19 related disruptions. Commenting on the production figures, Mark Cutifani, Chief Executive of De Beers parent company Anglo American, said: “Production is up 2%(1) compared to Q3 of last year, with our operating levels generally maintained at approximately 95%(2) of normal capacity.

The increase in Production is led by planned higher rough diamond production at De Beers, increased output from our Minas-Rio iron ore operation in Brazil, reflecting the planned pipeline maintenance in Q3 2020, and improved plant performance at our Kumba iron ore operations in South Africa. “We are broadly on track to deliver our full-year production guidance across all products while taking the opportunity to tighten up the guidance for diamonds, copper, and iron ore within our current range as we approach the end of the year.

“Our copper operations in Chile continue to work hard on mitigating the risk of water availability due to the challenges presented by the longest drought on record for the region, including sourcing water that is not suitable for use elsewhere and further increasing water recycling.”
On Wednesday, De Beers announced the value of rough diamond sales (Global Sightholder Sales and Auctions) for the eighth sales cycle of 2021. The company raked in US$ 490 million for the cycle, a slight improvement when compared to US$467 million recorded in 2020 cycle 8.

Owing to the restrictions on the movement of people and products in various jurisdictions around the globe, De Beers Group has continued to implement a more flexible approach to rough diamond sales during the eighth sales cycle of 2021, with the Sight event extended beyond its normal week-long duration.   As a result, the provisional rough diamond sales figure quoted for Cycle 8 represents the expected sales value from 4 October to 19 October. It remains subject to adjustment based on final completed sales.

Commenting on the cycle 8 sales De Beers Group Chief Executive Officer Bruce Cleaver said that: “As the diamond sector prepares for the key holiday season and US consumer demand for diamond jewellery continues to perform strongly, we saw further robust demand for rough diamonds in the eighth sales cycle of the year ahead of the Diwali holiday when demand for rough diamonds is likely to be affected by the closure of polishing factories in India.”

Continue Reading
Do NOT follow this link or you will be banned from the site!