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Diamond cutting, polishing firms ruin non-mining GDP growth

In 2019 the diamond industry, which is Botswana‘s economic nucleus, suffered a blow, much of which was heightened by global uncertainty and weaker sentiment — weighing down on rough diamonds demand.

The ripple effect of reduced growth in Mining GDP spilled over into other sectors of the economy. According to information contained in Bank of Botswana‘s Monetary Policy Statement released this week, non-mining GDP grew by 4 percent during the 12 month period ended September 2019 from 5.1 percent in the corresponding period in 2018.

This lower growth in non-mining GDP according to the Central Bank was largely due to slower expansion in the trade, hotels and restaurants sector, mainly attributable to a contraction of 9.2 percent in the wholesale sub-sector, associated with weaker performance of the diamond cutting and polishing firms in Botswana. Botswana’s emerging diamond cutting and polishing firms have for years struggled against constrained access to credit facilities, high production costs and a shortage of skilled workers.

In 2018 Botswana Finance LLC, a subsidiary of Lazare Kaplan International (LKI) signed a $125 million loan guaranty with Stanbic Bank Botswana, a member of Standard Bank Group and the Overseas Private Investment Corporation (OPIC), a United States Government’s development finance institution. The loan guaranty was dispatched to encourage and support lending to diamond manufacturers and polishing companies while allowing the organisations to share credit risk. This was following a similar loan guaranty with then Barclays Bank Botswana (now Absa Bank Botswana) dispatched 2016.

With the support of OPIC financing, the loan guaranty was dispatched as a key instrument necessary to keep the value-adding process of the diamond supply chain in Botswana, promoting local job creation, diversifying economic growth, and bringing global trade opportunities.  This week De Beers Group Chief Executive Officer, Bruce Cleaver officially opened Finestar Jewellery & Diamonds operation in Botswana. The Company is a market leader in manufacturing of Solitaire diamonds. Finestar achieved the status of Sight holders of De Beers Group in 2018.

Globally slower sales and stretched working capital continues to be a challenge in the sector’s profitability. On average, operating margins in the cutting and polishing segment contracted 2 percent to 3 percent in 2019 compared with 2018. To sustain profitability, the midstream companies cut excess capacity and shifted their focus to melee diamond production to maintain factory utilisation and minimise working capital.


The decline of rough diamond prices exacerbated the situation, leading to stock devaluation and, in some cases, affecting financing options. Experts say in the midterm, the segment will continue to operate with significant pressure on the bottom line. Interest rates, maturity and availability of financing continued to challenge the midstream segment in 2019. Interest rates increased to match rising default risk. In 2019, cutting and polishing players needed longer-maturity loans for two reasons: growth in consignment practices increased the number of days for receivables to turn over, and inventory turnover days increased because of lower demand among certain assortment groups.

According to Brain & Company, a cutting & polishing think tank in Antwerp Belgium, said short-term pressure on the midstream could lead to long overdue restructuring and consolidation within the segment. However on a positive note, experts say even in the current situation, some companies are making money. Successful players have shifted from a supply-driven mind-set to a demand-driven model in which they make purchasing decisions in line with downstream demand. These companies also offer greater transparency, which is attractive to financing institutions and banks.

In the overall aside subdued performance of  cutting and polishing firms, growth in  Botswana’s non-mining sector during the 12 month period ended September 2019, was supported by transport and communications which registered 5.9 percent upswing and finance and business services which  closed the period at 5.6 percent growth. However during the last quarter of the year 2019 Non Mining GDP growth was 3.1 percent significantly lower than the output growth of 4.1 percent recorded in the corresponding period in 2018.

Real GDP in Botswana grew by 3.7 percent in the twelve months to September 2019, compared to a faster expansion of 5 percent in the year to September 2018. The lower increase in output is mainly attributable to a significant deceleration in output growth of the mining sector.
Mining output grew by 1.6 percent in the year to September 2019, compared to an increase of 4.1 percent in the corresponding period in 2018 as diamond output increased at a slower rate of 2.1 percent compared to 3.2 percent in the previous year.

2020 PROSPECTS

Bank of Botswana says Botswana’s GDP is projected to expand by 4.4 percent in 2020, driven mainly by the expected recovery of mining activity and anticipated improvement in global output. The non-mining sectors are also anticipated to improve, underpinned by, among others, the accommodative monetary conditions in the domestic economy, improvements in electricity and water supply, as well as the reforms to further improve the business environment.

Non-mining GDP is expected to increase by 4.5 percent in 2020, thus below trend and weighed down mainly by the modest expansion of economic activity in major trading partners. However, risks to global economic activity are skewed to the downside and could result in a fall in global demand and commodity prices, especially for rough diamonds, dampening the domestic economic outlook.

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Gambling Authority tender dangles as a jittery lottery quandary

30th November 2020
SEFALANA MD: CHANDRA CHAUHAN

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.

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The uncertainty of getting the next meal in Botswana

30th November 2020
uncertainty of getting the next meal

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.

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Solid demand for diamonds towards the ‘gift’ season

30th November 2020
Diamonds

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.

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