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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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Diamond industry crises not over yet – De Beers Chief

13th January 2021
De Beers Group Chief Executive Officer: Bruce Cleaver

Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry  started gaining  positive momentum towards the end of the year as key markets entered into  thanks giving and holiday season.

However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.

The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.

The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.

This halted movement of buyers and shipment of  the rough goods , resulting  in unprecedented decline of sales, in turn  ballooning stockpiles as the upstream  operations produced with little uptake by the midstream.

The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.

However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.

De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.

Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.

De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.

“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.

The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.

The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.

Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.

“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.

In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”

All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.

After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.

However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.

Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.

These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.

For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.

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Gov’t coffers depleting to record low levels 

13th January 2021
Dr Matsheka

Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.

The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering  the year 2020 – a 12 months stretch of complete setback.

The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.

National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.

As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.

On the other hand the COVID-19 economic mess is  prevailing,  the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.

According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.

However reports indicate that the account could be currently holding just about P3 billion.  The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.

 

When the National Development Plan (NDP) 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at a 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.

Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.

Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.

Meanwhile  should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian  aids and international donors, because  foreign reserves are also on slow down.

During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.

The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020.  This was revealed by President Masisi during State of the Nation Address in November last year.

The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.

However latest statistics(October 2020)  from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with  government’s share of these funds significantly low.

Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.

Furthermore, Value Added Tax has been signaled to go up  from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.

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Business

Cresta signs lease agreement for Phakalane golf estate hotel. continues with growth agenda despite covid-19 impact

13th January 2021

Botswana Stock Exchange listed hotel group Cresta Marakanelo Limited (“CML” or “the Company”) announced the signing of a lease agreement for Phakalane Golf Estate Hotel & Convention Centre, which will see CML extend its footprint by adding the 4 star Gaborone property to its already impressive portfolio.  The agreement is subject to regulatory approvals therefore the effective date of the transaction is expected to be 1 February 2021.

 

CML brings a wealth of expertise to the lease and despite the difficult year for the tourism and hospitality industry, due to the impact of the COVID-19 pandemic, CML remains confident in the recovery of the sector and the need to invest in expanding the Company’s footprint.

CML Managing Director, Mr Mokwena Morulane commented: “Our continued efforts to improve our offerings, understand the market dynamics and modern day trends in the face of global challenges, means we are ready for the changing face of tourism and international travel, and this addition to the Cresta portfolio signals our confidence in the future.  

 

“Despite the headwinds faced in 2020, Management has continued to focus on projects that enhance CML’s product offering such as the refurbishments at Cresta Mowana Safari Resort & Spa in the tourism capital Kasane and the ongoing refurbishment of Cresta Marang Residency in Francistown. The signing of the lease for the 4 star Phakalane Golf Estate Hotel & Conference Centre is a great addition to the Cresta portfolio and will unlock shareholder value in the future.

 

“We remain vigilant to value-enhancing opportunities including acquisitions or leases, after having reconsidered our pipeline against current and expected market conditions.”  

 

Commenting on the lease agreement, the Chief Executive Officer, Mr S Parthiban, speaking on behalf of Phakalane  noted; “No hotel chain holds as much expertise in the region, understands our local culture and tastes and what hospitality is about better than Cresta Marakanelo Limited. We believe that the renovations done to the property has made Phakalane Hotel and Convention Centre a unique product in Botswana and at par with international facilities.  We believe that this lease will benefit not only us as Phakalane , but the market in general as Cresta has run hotels successfully in Botswana for over 30 years and is therefore expected to bring new offerings that appeal to the local and international markets as well as the residents and visitors to the Golf Estate. We look forward to a long mutually beneficial relationship with Cresta.” 

 

CML like the rest of the tourism and hospitality industry and the entire value chain was hard hit by lockdowns  with the surge of COVID-19. By investing during the low period, the company hopes to realise the future value of spending time in preparing for the new consumer dynamics and behaviour.  Despite business interruptions as a result of a six-month long state of emergency and several lock-down periods declared by the Government of Botswana to limit the spread of COVID-19, the Company is starting to record an increase in occupancies, which bodes well for the recovery of the industry and the Company’s future prospects.

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