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De Beers opens door for non Sightholders

Accredited Buyers will access ad hoc buying from 2015

The 2015 year will see De Beers making diamonds available for sale to non Sight holders. The category of Accredited Buyer will kick off in May 2015 and will be at liberty to buy up volumes of diamonds produced that exceeded expectations.

De Beers recently commenced the 2015 – 2018 Global Sightholder Sales (GSS) contracts and the updated GSS customer list will be published for the first Sight of the 2015 – 2018 supply agreement, which will take place May 4-8, 2015.

De Beers is changing the way it sells most of its diamonds, introducing tougher rules for companies wanting to join as coveted Sightholders, according to reports.

Under the new rules, sightholders will have to present their accounts according to international standards, and hold a specified proportion of equity in their businesses, making them less reliant on bank borrowing.

The new contract period requires that Sightholders submit unqualified audited financials that comply with International Financial Reporting Standards (IFRS). The Sightholders will also be required to maintain maximum debt to equity ratios.

According to the company, about a quarter of Sightholders are compliant with international accounting rules but De Beers believes the majority of those which are not will need to make only minor adjustments to adhere to the rules. De Beers said any Sightholders that are unwilling or unable to do so will lose the coveted Sightholder status.

An updated sightholder list for 2015-2016 selling period, with 84 Sightholders and two Accredited Buyers will be revealed with the commencement of at the first sight of the period on which takes place on the week of 4th to 8th May, 2015. Sightholders qualify for term contract supply, while Accredited Buyers have the opportunity to purchase rough diamonds on a more ad hoc basis via ‘ex-plan’ availability, which Sightholders can also purchase.

According to the company, the updated qualification process aims to increase third party confidence in GSS customers’ corporate transparency and financial robustness.

Phillipe Mellier, the chief executive of De Beers is quoted as saying: “The diamond industry is approaching a period of great opportunity and businesses need to be strategically well positioned if they are to make the most of it.”
He added the new approach will lend great credibility to businesses that are Sightholders in the eyes of third parties, who are interested in their financial transparency and robustness.

Over the years, De Beers had two types of rough diamond clients: Sightholders – regular clients that got 90 percent of the goods, and tender bidders – De Beers Auction Sales, formerly Diamdel – that are in a way occasional buyers of the remaining 10 percent.

As part of an overhaul of its sales operations, De Beers has simplified the Sightholder application process; Sight applicants had to go through in previous contracts, the new contract will involve a simplified, compliance-based customer qualification process.

This includes abiding by De Beers’ Best Practice Principles (BPP), having a certain volume of business, proving a certain level of equity-to-debt ratio so a financial buffer exists and, of course, having good corporate governance with adequate financial transparency. Once past the gating criteria, candidates apply for a supply based on their needs.

De Beers then divides the cake: each Sightholder gets a certain percentage of some of the goods by category of size and quality.

Established in 1888, De Beers is a member of the Anglo American group of companies and is the biggest producer of diamonds in the world by value, operating mines in Botswana, South Africa, Namibia and Canada.

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

21st September 2020

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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