Since 2008 Debswana mining company like other corporations has operated in an environment characterised by volatility, uncertainty, complexity and ambiguity.
But Managing Director Balisi Bonyongo remains firm that Debswana has moved from production levels of over 30 million carats to a range of 23 to 26 million carats annually.
These production levels are in tandem with Debswana’s long-term strategy dubbed the ‘Resource Development Plan’. The plan forecasts that the company will continue to produce diamonds up to the year 2050.
Remarkably, in the next five years Debswana envisages to undertake major diamond production projects at both Jwaneng and Orapa mines. The projects are going to be larger than Jwaneng’s current P24 billion-Cut 8 Project.
Bonyongo is pleased to announce that the projects without any shadow of doubt will offer Botswana’s private sector opportunities to grow and help accelerate the country’s economic diversification programme.
“The growth of the private sector offers the greatest potential for sustainable economic diversification for this country, so Debswana recognise this potential and remain committed to support the growth of private sector in Botswana,” he says with a great sense of satisfaction.
It is underscored that on average, 75 percent of Debswana’s total annual expenditure goes to local suppliers. Bonyongo, however, explained that of the amount only 17 percent represents citizen-owned businesses. Although this is reported to show growth every year, Debswana still realises that there is still more that the company needs to do in order to continue helping grow the local economy.
The Managing Director predicts that demand for diamonds is expected to show positive real growth over the next coming decade, explaining that Debswana is looking at growth of between four percent and five percent of polished diamonds this year, up from three percent last year.
“It is pleasing that we managed to meet the call from De Beers for extra carats earlier this year. Also our colleagues at DTC Botswana were able to implement a considerable shorting of that pipeline to release extra carats to fill a gap presented by other third party suppliers.”
Bonyongo also happily informs the nation that they forecast a significant pick-up in demand of rough diamonds approaching the end of 2014. He explains that the rough diamonds continue to be well received. Overall demand for diamond jewellery from consumers around the globe also continues to be positive.
Meanwhile, Bonyongo has advised that Botswana seeks new engines of growth in a very challenging global economic environment, highlighting that the country’s efforts to diversify the economy as regards its exports have achieved limited success.
“Our exports are dominated by mining, specifically diamonds, but this is very risky with respect to our foreign exchange reserves. We would only truly have reduced our dependency on a single export product when we have a diversified-range of exports, and that comes with inflow of foreign direct investments (FDIs) and the growth of the private sector in this country,” he says.
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”