The diamond mining company, De Beers says 2015 promises to be a tough one for the global diamond industry because of “indigestion” in the mine-to-market pipeline caused by excess inventories.
In its 2015 Diamond Insight Report, De Beers, the largest supplier of rough diamonds by value, making up 34% of international sales, outlined its views of supply, demand and the jewellery market for this year.
“This led to a period of ‘indigestion’ in the diamond value chain and as a result we expect 2015 as a whole to be a more challenging year,” De Beers CEO Philippe Mellier said.
Diamond jewellery demand was weaker than expected at the end of last year, a key buying period, because of unfavourable exchange rates and slowing emerging market economies, which meant excess inventory in the pipeline this year, it said.
“In 2015, while there may be growth in local currency in some markets, the continued strengthening of the US dollar against all major currencies, coupled with a slowdown in economic growth in China, is likely to lead to global diamond jewellery demand for the full year being relatively flat compared with 2014 levels,” he added.
Global diamond jewellery sales rose nearly 3% last year to a record $80bn despite a slow-down in the second half because of a firming dollar against the currencies of key diamond-consuming countries. Global diamond production volumes fell 3% last year to 142-million carats. But firmer prices last year meant this production was valued at more than $19bn, 6% higher than the previous year.
Rough diamond sales last year topped $20bn, a 12% rise compared to the previous year. “Less demand for polished diamonds was likely to have an impact on overall rough diamond production this year", the report said.
Meanwhile, De Beers has slowed output, adjusting to a weaker market and subdued prices this year. Johan Dippenaar, CEO of Petra Diamonds, said last week rough diamond prices were expected to remain under pressure and volatile for the balance of this year to end-December.
“From talking to our clients, we feel things will sort themselves out during these six months to December and we’ll see a more stable market in January to June. I don’t suggest it will roar away, but it will probably experience stability.”
De Beers expects diamond output to plateau by the end of this decade despite the start of two mines in Russia and one in Botswana last year and another built by Alrosa in Russia coming into production this year. There are two mines due to start production next year, with De Beers and its partner starting the 4.5-million carat a year Gahcho Kué mine in Canada.
The expectation is that output would flatten and then plateau from 2020 as production started falling at many existing mines, the report said. Woes caused by low diamond prices were echoed in a quarterly production report issued by Rockwell Diamonds on Monday, which said the average prices it sold at during its second financial quarter were 24% lower at $1,791/carat for stones from its company-owned mines than in the matching period last year.
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”