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Botswana’s economy catches flu from corona heavily hit markets

Corona Virus which broke out in China, in the city of Wuhan in December 2019 has spread globally; killing thousands of people every day, restricting international travel, shaking global financial markets and eroding business sentiments across world economies.

The World Health Organization (WHO) has since declared the virus a global pandemic. This week the organisation announced that COVID19 is now a serious threat to humanity. Reports from Europe indicate British junior Minister of Health, Nadine Dorries has tested positive for the virus. As part of remedies to contain the virus, countries have redistricted travels to China, the world‘s second largest economy, with heavily hit city, Wuhan itself put on lockdown by Chinese authorities.

 Ever since the spread of the virus intensified in February, global financial markets have been on fluctuating plummet and surge, responding to various business and investor sentiments. In Africa the virus has hit the continent‘s largest economies, including Botswana‘s neighbour and the country’s largest trading partner, South Africa, the region’s most industrialised economy.

Whereas the virus has not arrived in Botswana , with only suspected cases at play, the country is already catching flu from the fast spreading pandemic in the areas of trade and business. Two of the Botswana‘s largest economic sectors and biggest industries by both contribution to GDP and foreign exchange earnings are feeling the pinch.

DIAMOND INDUSTRY

Some of the largest consumers of rough diamonds being the United States and India have been heavily affected by the virus; Chinese market is the second largest buyer of Botswana rough diamonds after the US, while India is home to some of the largest diamond cutting and polishing operations in the world. Reports from Mumbai, India indicate that the corona virus coupled with sluggish global demands have badly hit the second biggest cutting and polishing country in the world.

The Indian cutting and polishing industry is yet to fully recover from the 2019 US-China Trade war. About 40 per cent of the country's diamond sales are to Hong Kong, where imports were halted on 15 January and have yet to resume. Speaking to Indian media Subodh Rai, Senior Director, Crisil Ratings said Exports would continue to fall in the closing quarter of the 2020 fiscal year which typically accounts for roughly a third of India's exports to the South-East Asian region.

 "Given extended holidays in the region and shutdown of markets in the aftermath of the COVID19, exports worth over $1 billion may be lost in this quarter alone," he said. During the month of February alone as COVID19 spread intensified, in Antwerp Belgium, home to one of the world’s largest polished diamond industry, business slowed down significantly. Reports from Antwerp say the closure of eastern markets due to the virus has caused great uncertainty across the global diamond trade subsequently depressing manufacturing in Antwerp

According to Antwerp World Diamond Centre (AWDC), the hardest hit is its category of polished-diamond exports, the year-over-year value of which was halved due to the postponement of the Hong Kong International Diamond, Gem & Pearl Show and the Hong Kong International Jewellery Show, which are the key selling events at the beginning of the year. However, this year the stocks of diamonds were not sold, as trade with Hong Kong – Antwerp’s second largest market for polished goods, fell by nearly 94 percent.

During the first two months of the year, Antwerp’s exports of rough goods fell by 7 percent to 16.7 million carats, while their value has declined 12 percent to $1.4 billion. However, the trade still expresses concern about the impact the new coronavirus may have on the industry. Rough purchases from miners may be postponed and deferred further in the coming sale cycles as slowdown is anticipated in manufacturing in India as consumer sentiment continues to crash in China  and other key markets, Creating havoc to public life and economic markets across the globe, COVID19 rapid growth in Iran has countries across the Gulf region becoming increasingly concerned.


From United Arab Emirate (UAE), one of significant markets for Botswana diamonds especially rare finds reports indicate that authorities have called on residents to avoid cross-border travel and has imposed quarantine restrictions to limit the spread of the deadly virus.
This has been observed by the Financial Times as “a blow to the state’s position as a global business hub.” The Dubai Health Authority recently released a travel advisory, while several diamond traders in Antwerp with interests in Dubai restricted their travel to the UAE,

DE BEERS CYCLE 2 SALES DROWNED BY 36%

De Beers Botswana’s partner in diamond mining has during its second sales cycle received significant blow in rough-diamond sales, crashing January optimistic positive year start. Sales reported by De Beers Global Sightholder Sales which happened by in large in Botswana declined 28 percent year on year to $355 million in February as the COVID19 hit demand. Many Sightholders took up the mining behemoth‘s offer to delay buying goods destined for China, sources in the rough diamond market reveals.

According to Rapaport News, De Beers allowed its clients to reject certain 1- to 2-carat rough diamonds and reschedule those purchases for later in the year. According to rough diamonds global reports the Virus  has shut down retail in China, leaving manufacturers reluctant to buy goods they can’t sell. Proceeds from the second sales cycle of the year were 36 percent lower than January’s $551 million, which was the highest tally since April 2019. The total includes the February sight in Botswana, as well as the company’s auction sales.

“Following an improvement in demand for rough diamonds during the first sales cycle of 2020, we recognized the impact of COVID-19 coronavirus on customers focused on supplying the Chinese market, and put in place additional targeted flexibility to enable customers to defer allocations of the relevant rough diamonds,” said De Beers CEO Bruce Cleaver last week

TOURISM

After the diamond industry, Botswana’s economy is also pivoted by the tourism industry with the sector contributing meaningfully  to the country’s  Gross Domestic Product , hiring over 25 000 people , supporting other value chain industries and bringing the country a lot of money in foreign income earnings. However since the outbreak of COVID 19, sentiment has slowly gone down in the tourism industry especially the safari and wilderness business.  Most tourists who visit Botswana are from South Africa.

 The country has confirmed 8 cases of corona virus infections this week, with the likelihood of more during the month. Other key consumers of Botswana tourism sector are United States, Germany and the United Kingdom, all of which are world’s major economies and some of the highest hit countries after China, Italy and Iran.

Last week SafariBookings.com, an elites booking site servicing Africa’s key tourists attraction places including Botswana, conducted a survey among 361 safari tour operators and after a careful analysis of the findings have concluded that more than 86% of operators are experiencing a significant decline in bookings due to fears of the COVID19 outbreak. Common amongst the comments from safari operators was “Coronavirus is affecting our safari business. We are experiencing fewer bookings as some clients are putting their bookings on hold while others have cancelled” said SafariBookings.com

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

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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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