An Economist at private economic consultancy – eConsult, Bogolo Kenewendo
Low priced oil has brought joy for oil net importer countries like Botswana, reducing inflation to unprecedented lows and a boost for balance of payments.
However, for exporter countries especially, whose economies are directly linked to oil exports such Nigeria and Russia, this has been a blow to their net exports, weakening the strength of their currencies.
But for Botswana, the low oil price also brings a dark side with low Inflation and Interest rates keeping commodity prices low as well, making mining unprofitable and leading to possible job losses.
At a meeting, this week to discuss the impacts and implications of low oil prices and on the local and global economies, which was hosted by asset management firm Afena Capital, Bogolo Kenewendo, an economist at private economic consultancy, eConsult, said that the low oil prices have hurt some commodity prices globally.
Latest data suggests weak demand with growing US stock while production levels have been maintained.
Kenewendo said that global growth forecasts have been cut while high cost producers are likely to fall away in the medium term as prices are maintained below cost of production.
“Oil prices will be reduced almost everywhere hence lowering inflation globally,” said Kenewendo.
Locally, the weight of fuel costs on the consumer price index is as high as 10.92 percent, dragging down local inflation to just 2.8 percent in Feb 2015.
“Inflation expected to remain below 3 percent for the rest of the year,” she added.
She said that Oil and commodity prices to rebound in medium term albeit with price levels unlikely to reach level of $100 per barrel.
Kenewendo said that low commodity prices, which are currently prevailing, will render the development of the Trans Kalahari Railway line unfeasible.
“The construction of TKR is increasingly unlikely with current price levels (of coal) prohibitive, narrowing the window of opportunity,” said Kenewendo.
She said that coal prices have a six year cycle and that “by the time prices rebound, it would be too late”.
The 1477 kilometers railway line, whose total capital costs are estimated at USD14.2 billion (P140 bilion), will run from Mmamabula through six coal producing regions in Botswana, to Walvis Bay, Namibia. The railway line is expected to unlock the monetisation of Botswana’s coal resources, which are seen as a way to augment the depleting diamond resources that have been the mainstay of the country’s economy.
Global oil prices have fallen sharply over the past seven months, leading to significant revenue shortfalls in many energy exporting nations, while consumers in many importing countries are likely to have to pay less to heat their homes or drive their cars.
From 2010 until mid-2014, world oil prices had been fairly stable, at around $110 a barrel. But since June prices have more than halved. Brent crude oil has now dipped below $50 a barrel for the first time since May 2009 and US crude is down to below $48 a barrel.
The reasons for this change are twofold – weak demand in many countries due to subdued economic growth, coupled with surging United States production.
But some observers, Kenewendo points out, have put the finger of blame for the falling on Saudi Arabian producers who are trying to push out the shale oil producers from the markets by making the oil industry unprofitable, by over producing and keeping prices low.
Though US shale oil producers have far higher costs than conventional rivals in the Oil producing countries, it is reported that many need to carry on pumping to generate at least some revenue stream to pay off debts and other costs.
Kenewendo said that while Botswana is lucky in that diamond prices behave differently from other commodities, other exports such as copper are likely to be hurt by falling commodity prices due to low inflation.
The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.
Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.
According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.
The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.
Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.
Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.
Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana. The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.
African heads of state and global CEOs at the World Economic Forum Annual Meeting backed the launch of the first of its kind report on how public-private partnerships can support the implementation of the African Continental Free Trade Area (AfCFTA).
AfCFTA: A New Era for Global Business and Investment in Africa outlines high-potential sectors, initiatives to support business and investment, operational tools to facilitate the AfCFTA, and illustrative examples from successful businesses in Africa to guide businesses in entering and expanding in this area.
The report aims to provide a pathway for global businesses and investors to understand the biggest trends, opportunities and strategies to successfully invest and achieve high returns in Africa, developing local, sub-regional and continental value chains and accelerating industrialization, all of which go hand in hand with the success of the AfCFTA.
The AfCFTA is the largest free trade area in the world, by area and number of participating countries. Once fully implemented, it will be the fifth-largest economy in the world, with the potential to have a combined GDP of more than $3.4 trillion. Conceived in 2018, it now has 54 national economies in Africa, could attract billions in foreign investment, and boost overseas exports by a third, double intra-continental trade, raise incomes by 8% and lift 50 million people out of poverty.
To ease the pain of transition to its new single market, Africa has learned from trade liberalization in North America and Europe. “Our wide range of partners and experience can help anticipate and mitigate potential disruptions in business and production dynamics,” said Børge Brende, President, and World Economic Forum. “The Forum’s initiatives will help to ease physical, capital and digital flows in Africa through stakeholder collaboration, private-public collaboration and information-sharing.”
Given the continent’s historically low foreign direct investment relative to other regions, the report highlights the sense of excitement as the AfCFTA lowers or removes barriers to trade and competitiveness. “The promising gains from an integrated African market should be a signal to investors around the world that the continent is ripe for business creation, integration and expansion,” said Chido Munyati, Head of Regional Agenda, Africa, World Economic Forum.
The report focuses on four key sectors that have a combined worth of $130 billion and represent high-potential opportunities for companies looking to invest in Africa: automotive; agriculture and agroprocessing; pharmaceuticals; and transport and logistics.
“Macro trends in the four key sectors and across Africa’s growth potential reveal tremendous opportunities for business expansion as population, income and connectivity are on the rise,” said Wamkele Mene, Secretary-General, AfCFTA Secretariat.
“These projections reveal an unprecedented opportunity for local and global businesses to invest in African countries and play a vital role in the development of crucial local and regional value chains on the continent,” said Landry Signé, Executive Director and Professor, Thunderbird School of Global Management and Co-Chair, World Economic Forum Regional Action Group for Africa.
The Forum is actively working towards implementing trade and investment tools through initiatives, such as Friends of the Africa Continental Free Trade Area, to align with the negotiation process of the AfCFTA. It identifies areas where public-private collaboration can help reduce barriers and facilitate investment from international firms.
About the World Economic Forum Annual Meeting 2023
The World Economic Forum Annual Meeting 2023 convenes the world’s foremost leaders under the theme, Cooperation in a Fragmented World. It calls on world leaders to address immediate economic, energy and food crises while laying the groundwork for a more sustainable, resilient world. For further information,