Botswana’s potential benefits from diamond beneficiation are under threat as most diamond factories are driving defensive strategies of liquidation, downsizing and retrenching.
Botswana Diamond Hub executive, Mmetla Masire said, “we have a situation where the margin has diminished and it has become very tough for cutters and polishers to make any money.”
Already two diamond cutting and polishing factories have closed, that is Motiganz and Teemane Manufacturing Company and half of them have had to retrench and downsize.
Of late the cutting and polishing segment globally has become the least profitable realising the lowest profit margins with some companies earning as little as 1-2%, while by comparison, upstream mining and exploration and downstream end of the value chain enjoy the highest profits margins of 16-20% and 11% to 14% respectively.
Diamond manufacturers have been screaming since December when sales slumped. De Beers has been increasing prices of rough diamonds thereby squeezing the margins of the cutting and polishing firms. In such instances, Botswana’s diamond beneficiation hub had been left with a larger diamond inventory than anticipated.
Masire said the diamond-cutting industry has also fallen victim worldwide to the limiting of bank credit to the industry, which has made it even more difficult to operate. “Credit facilities had tightened, financial liquidity had reduced and the conclusion had been reached that none of the three key participants the Botswana government, diamond sightholders and De Beers could achieve success alone but had to synergise and work together”.
“It’s not us and them anymore because we’re in this together,” said Masire. As a result, gross margins are falling in the cutting industry, and diamond manufacturers are closing their highest-cost operations in Southern Africa.
He said the 20 remaining cutting-and-polishing factories were processing $1-billion worth of diamonds a year and the government was considering both integration and diversification to improve the situation. Experts have long warned that Botswana’s potential benefits for diamond beneficiation will be permanently lost to India because production costs by far surpass those of India.
De Beers in its 2014 Insight Report has said that the cost of cutting in 2013 ranged from $60-120 per carat in Botswana, while in India the range varied from $10-50 per carat. In other words, in the smaller diamonds, Botswana is six times more expensive than India.
Comparatively higher labour costs were aggravating the issue of depressed polished prices set against high rough prices and it is understood that some local sightholders import rough and end up beneficiating non-Botswana rough.
Masire added that using the number of people employed as the measure of success had been abandoned and it was now acknowledged that many other factors had to be taken into account as well.
“While the country had always tracked the price of rough diamonds, it now also needed to track the price of polished diamonds and a big picture approach had to be adopted and global challenges mitigated,” he said.
He acknowledged that Botswana had not fully appreciated the complexities of beneficiation and the inflexibility the government exercised at the outset has now given way to greater flexibility. “We have a responsibility to ensure that diamonds are processed in Botswana but also have a responsibility to ensure that those processing them are profitable,” Masire added.
Despite steady recovery of the global economic growth, the price of diamonds has been oscillating from year-to-year for some time. For instance, the price of polished diamond was low in the early months of 2013 due to the slow economic growth in China and India. Liquidity in the cutter and dealer markets remained tight, profit margins were low and banks have reduced their credit for rough purchases in the manufacturing sector.
A UNDP – Botswana report on the Macroeconomic Analysis and implication of the Diamond Industry in Botswana indicates that for the past four decades the mining sector accounted for roughly 70 – 80% of foreign exchange earnings, 33% of government revenue and 40% of GDP.
“The Botswana government and De Beers signed a 10-year agreement in September 2011 that will see De Beers’ sales and sorting operations move to Botswana from London. The deal also provides for the government to market a portion of Debswana’s production independently, which it uses to kick start plans to establish Gaborone as a diversified diamond center. The transfer of activities from London has been completed in 2013 and Debswana has already started its operation in Gaborone,” reads the report.
Lucrative and highly anticipated national lottery tender that saw several Batswana businessmen partnering to form a gambling consortium to pit against their South African counterparts, culminates into a big power gamble.
WeekendPost has had a chance to watch lottery showcase even before the anticipated and impending national lottery set-up launches. A lot has been a big gamble from the bidding process which is now set for the courts next year January following a marathon legal brawl involving the interest of the gambling fraternity in Botswana and South Africa.
Households representing more than half of Botswana’s population-mostly residing in rural areas- do not know where their next meal will come from, but neither do they take into consideration the quality and/or quantity of the food they consume.
This is according to the latest Prevalence of Food Insecurity in Botswana report which was done for the 2018/19 period and represents the state of food insecurity data even to this time. The Prevalence of Food Insecurity was released by Statistics Botswana and it released results with findings that the results show that at national level 50.8 percent of the population in Botswana was affected by moderate to severe food insecurity in 2018/19, while 22.2 percent of the population was affected by severe food insecurity only.
According to the report, this translates to 27 percent of the population being food secure that is to say having adequate access to food in both quality and quantity. According to Statistician General, Burton Mguni, when explaining how the food data was compiled, Food and Agriculture Organization of the United Nations (FAO), is custodian of the “Prevalence of Undernourishment (PoU)” and “Prevalence of moderate or severe food insecurity in the population based on the Food Insecurity Experience Scale (FIES)” SDG indicators, for leading FIES data analysis and the resultant capacity building.
“The FIES measures the extent of food insecurity at the household or individual level. The indicator provides internationally comparable estimates of the proportion of the population facing moderate to severe difficulties in accessing food. The FIES consists of eight brief questions regarding access to adequate food, and the questions are answered directly with a yes/no response. It (FIES) complements the existing food and nutrition security indicators such as Prevalence of Undernourishment.
According to the FIES, with increasing severity, the quantity of food consumed decreases as portion sizes are reduced and meals are skipped. At its most severe level, people are forced to go without eating for a day or more. The scale further reveals that the household’s experience of food insecurity may be characterized by uncertainty and anxiety regarding food access and compromising the quality of the diet and having a less balanced and more monotonous diet,” says Mguni.
The 50.8 percent of the population in Botswana which was affected by moderate to severe food insecurity are characterized as people experiencing moderate food insecurity and face uncertainties about their ability to obtain food. These people have been forced to compromise on the quality and/or quantity of the food they consume according to the report on food insecurity.
Those who experience severe food insecurity, the 22.2 percent of the population, are people who have typically run out of food and, at worst, gone a day (or days) without eating. According to the statistics, rural area population experienced moderate to severe food insecurity at 65 percent while urban villages were at 46.60 percent and cities/town were at 31.70 percent. Those experiencing the most extreme and severe insecurity were at rural areas making 33.10 percent while urban villages and towns were at 11.90 percent and 17.50 respectively.
According to a paper compiled by Sirak Bahta, Francis Wanyoike, Hikuepi Katjiuongua and Davis Marumo and published in December 2017, titled ‘Characterization of food security and consumption patterns among smallholder livestock farmers in Botswana,’ over 70 percent of Botswana’s population reside in rural areas, and majority (70%) relies on traditional/subsistence agriculture for their livelihoods.
The study set out to characterize the food security situation and food consumption patterns among livestock keepers in Botswana. “Despite the policy change, challenges still remain in ensuring that all persons and households have access to food at all times. For example, during an analysis of the impacts of rising international food prices for Botswana, BIDPA reported that food prices tended to be highest in the rural areas already disadvantaged by relatively low levels of income and high rates of unemployment,” said the study.
According to the paper, about 9 percent of households were found to be food insecure and this category of households included 6 percent of households that ranked poorly and 3 percent that were on the borderline according to the World Food Programme’s (WFP) definition of food security.
Media reports state that the World Bank has warned that disruption to production and supply chains could ‘spark a food security crisis’ in Africa, forecasting a fall in farm production of up to 7 percent, if there are restrictions to trade, and a 25 percent decline in food imports.
Food security in Botswana or food production was also attacked by the locust pandemic which swept out this country’s vegetation and plants. The locust is said to have contributed to 25 percent loss in production.
Global lockdown have been a thorn in diamonds having shiny sales, but a lot of optimism shows with the easing of Covid-19 restrictions, the precious stones will be bought with high volumes towards festive season. The diamond market is however warned of the resurgence of Covid-19 in key markets presents ongoing risks amid the presence and optimist about the new Covid-29 vaccines.
The latest findings published as De Beers Group’s latest Diamond Insight ‘Flash’ Report, which looks at the impact of the pandemic on relationships and engagements, has revealed that in the US that more couples than ever are buying diamond engagement rings. Bridal sales is mostly the primary source of diamond jewellery demand in recent months, De Beers said.
According to De Beers, interviews with independent jewellers around the US revealed that the rate of couples getting engaged has increased compared with the period when Covid-19 first had an impact in the US in the spring.
“In addition, despite challenging economic times, consumers were spending more than ever on diamond engagement rings – often upgrading in colour, cut and clarity, rather than size. Several jewellers speculated that with consumers spending less on elaborate weddings and/or honeymoons in the current environment, they had more to spend on choosing the perfect ring,” said De Beers.
According to De Beers, a national survey of 360 US women in serious relationships, undertaken in late October in collaboration with engagement and wedding website, The Knot. This survey is said to have found that the majority of respondents (54%) were thinking more about their engagement ring than the wedding itself (32%) or the honeymoon (15%), supporting jewellers’ hypothesis that engagement ring sales were benefiting from reduced wedding and travel budgets in light of Covid-19 restrictions.
When it came to researching engagement rings, online was by far the predominant channel for gaining ideas/inspiration at 86% of consumers surveyed, with 85% saying they had saved examples of styles they liked, according to De Beers. According to the survey, only a uarter of respondents said they had looked in-store at a physical location for design inspiration.
“For many couples, the pandemic has brought them even closer together, in some instances speeding up the path to engagement after forming a deeper connection while experiencing lockdown and its associated ups and downs as a partnership. Engagement rings are taking on even greater symbolism in this environment, with retailers reporting couples are prepared to invest more than usual, particularly due to budget reductions in other areas,” De Beers CEO Cleaver said.
According to De Beers Group, its Diamond Insight Flash Report series is focused on understanding the US consumer perspective in light of Covid-19 and monitoring how it evolves as the crisis evolves. Also, the company said, it is augmenting its existing research programme with additional consumer, retailer and supply chain touch-basis to understand the pain points and the opportunities for stakeholders across the diamond pipeline.
Demand for diamonds is as hard and resilient as the precious stone itself. De Beers pocketed US$ 450 million in its recently held ninth rough diamond sales cycle, and the company says it is more flexible approach to rough diamond sales during the ninth sales cycle of 2020, with the Sight event extended beyond its normal week-long duration.
“Steady demand for De Beers Group’s rough diamonds continued in the ninth sales cycle of the year, reflecting stable consumer demand for diamond jewellery at the retail level in the US and China, and expectations for reasonable demand to continue throughout the holiday season. However, the resurgence of Covid-19 infections in several consumer markets presents ongoing risks,” said De Beers CEO Bruce Cleaver recently.
High expectations are on diamonds being a sentimental gift for holiday season or as the most fetished gift. However the ninth cycle was lower than the eighth which registered US$ 467 million. For the last year period which corresponds with the current one, De Beers managed to raise US$ 400.