The world leader in the sale of precious stones that dominates most luxury industries, De Beers, is also affected by the current Corona Virus phobia.
Currently, De Beers is in the Corona Virus scare like the rest of the world, albeit with all the fear it has, De Beers is willing to push through its fear and still brace the Asian markets, this comes after the reliable Asian demand markets continue to sneeze uncertainty on the global diamond business.
This week De Beers Chief Financial Officer Sussanne Swaniker-Tettery told the local media that recent brand sales at Asia fell by 30 to 40 percent, this could also include huge diamond sales fall, and this big plunge coincides with the outbreak of Corona Virus. She said people are no longer going shopping because of fear of the virus, hence a big setback is expected on diamond sales in Asia.
The Asian demand market is one of the biggest in the world after the US markets. The Asian markets where diamond sales are at its peak are; China, Macao and Hong Kong, these markets however have also been hit the hardest by the Corona Virus. The current outbreak of coronavirus disease (COVID-19) was first reported from Wuhan, China, on 31st December 2019, according to World Health Organization (WHO).
China consumers are no longer going to shop for jewellery, a huge “destruction” to the economy of China according to Swaniker-Tettery as the world also is shunning anything that comes from China or Asia due to fear of catching corona. De Beers is on the side of Asia as she battles COVID-19, as the diamond giant waits on China to heal her economy after she defeats the virus. De Beers is on the bedside of China sympathetically hoping that all gets well soon, as diamonds are no longer bought because people are now looking for health not luxury.
Swaniker-Tettery was hopeful that the USD 2 trillion which the Chinese government promised after the fall of the stock market would jumpstart the country’s economy hence recovery of the diamond demand. However she remains uncertain of what the future holds for the Chinese market, telling reporters “it is too early to know.” According to Swaniker-Tettery, it is premature for the diamond producer to calculate the effect of corona outbreak on diamond sales.
There is no direct translation of the economic effects of the corona virus to diamonds or Botswana stones, according to Swaniker-Tettery, but major retailers and brands have closed shop as a result of the outbreak of the currently feared virus. She said even banks are already shy to fund those in the diamond industry. The De Beers Chief Finance Officer gave a scenario that in the time of the SARS outbreak, the Chinese economy went into a sharp decline before the control of the disease which led to the economy going up again.
She sounded like she is waiting for China to heal, so the demand for diamonds can also heal. Another problem coming from the Chinese or Asian markets, and adding to the corona virus woes, is the latest fall of China’s currency, the Yuan and the impending China-US trade talks. This is not enough for the affliction of the diamond demands, Hong Kong is also going through political unrest adding another blow from the Asian demand pool. There is also the latest risk in the diamond business. The increase of in online purchasing which causes additional retailer destocking.
“Throughout the course of 2019, the midstream inventory position was under further pressure due to the closure of some US 'bricks and mortar' retail outlets, an increase in online purchasing (where inventory levels are lower), and retailers increasing their stock held on consignment. Tighter financing also affected the midstream’s ability to hold stock, all of which resulted in lower demand for rough diamonds,” Swaniker-Tettery read De Beers’ woes before the press this week.
De Beers fights on with huge marketing expenditure
Last year November, De Beers announced that its marketing spend in the entire 2019 will be totalling to $180 million (around P1.9 billion) the group Chief Executive Officer, Bruce Cleaver told BusinessPost that the dispatch was the largest marketing spend in 10 years. Swaniker-Tettery told journalists on Thursday that De Beers has survived all the winds against the diamond industry by marketing. She explained how they captured China markets which used to be a market not commonly infatuated by diamonds and the sentimentalism that comes with the precious stones. Right now De Beers is able to reach out to the middle class in China and India, not only the wealthy like in the past, said Swaniker-Tettery. She said this is because marketing developed the culture of diamonds as a big luxury.
Botswana’s EBITDA is currently at P3.90 billion. In all what De Beers makes, according to the company Chief Finance Officer, Botswana will take away 80.2 percent of all the takings either profit, dividends or taxes. In Botswana, overall production was 4 percent lower at 23.3 million carats (2018: 24.1 million carats). This is despite production at Jwaneng increasing by 5 percent to 12.5 million carats (2018: 11.9 million carats) as throughput rose to partly offset a 12 percent decrease at Orapa to10.8 million carats (2018: 12.2 million carats), owing to a delay in an infrastructure project and expected lower grades.
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.