Anglo American hints anxiety in talks such as Renewal of Vows with Botswana
President Mokgweetsi Masisi has coined the De Beers 50/50 partnership with Botswana Government as a “marriage” and at the last Diamond Conference he spoke of “renewal of vows” referring to talks between the two parties.
The Botswana-De Beers diamond sales deal was renewed into a 10 year union in 2010, it lapses this year in September. However there is a widespread concern that ever since the ongoing talks began, the talks have been taking place in secrecy in Gaborone and London boardrooms. But a lot of public curiosity is about the two parties publicly appearing to be diplomatic about their negotiations and promoting an unbreakable five decade bond.
Masisi borrowed all the metaphors of a long standing and flourishing love or romantic relationship while De Beers group CEO Bruce Cleaver last year, brandishing a huge smile before reporters at the Diamond Conference, spoke of not even dreaming of “any better partner than Botswana.” Antagonist see this with an eye of scepticism, some just sense a lot of flattery by lovers who would not talk about what happens when alone in private, in bedroom. Some observers or the opposition see this as just sweet nothings on public display, while a lot is happening behind closed doors.
Owner of De Beers, Anglo American, has recently indirectly released a hint red flagging on how dicey it is for the company to be in a business partnership with governments, like the deal with Botswana through their subsidiary. Anglo American owns 85 percent of De Beers while the Government of the Republic of Botswana owns the remaining 15 percent. On the other hand De Beers has a 50/50 venture with Botswana government which resulted in the birth of Debswana.
Another offspring of the partnership is Diamond Trading Company Botswana (DTCB), also a 50 -50 venture, DTCB avails 85 percent of their sorted and valued diamonds to De Beers Global Sight holder Sales (DBGSS) and 15 percent to Okavango Diamond Company (ODC) which is wholly owned by Botswana Government. In its recently released annual financial report and notice of AGM, Anglo American hinted that in a deal with Botswana through De Beers there could be, “uncertainty over future business conditions leads to a lack of confidence in making investment decisions, which can influence future financial performance.”
Anglo American wanted to highlight “principal risks” that come with the company’s business and political and regulatory concerns were in the basket, with a worry that a deal with government may bring unexpected and uncalculated future changes. There could be, “uncertainty and adverse changes to mining industry regulation, legislation or tax rates can occur in any country in which we operate.”
“The Group has no control over political acts, actions of regulators, or changes in local tax rates. Our licence to operate through mining rights is dependent on a number of factors, including compliance with regulations,” said Anglo American. Anglo American will be watching the De Beers-Botswana talks with hope that it does not end up in what many predict as “to bring shocking changes.” Masisi has told journalist last year that he wants more for Botswana in this deal, sitting next to Cleaver who maintained a diplomatic PR esque grin.
What is reported by those who eavesdropped the De Beers-Botswana talks from a distance are saying there has been a possibility to discuss the issue of Botswana being ripped off along the way as the stones leave Debswana operations crossing borders to diamond trading centres around the globe. Another issue expected inside the talks is the increase in percentage volume of ODC‘s uptake from DTCB. The argument has always been that Botswana as one of the largest diamond producers in the world has the capacity and ability to develop its own price book through its own independent window outside De Beers’ channels. It has been said that currently ODC rakes in sales in the region of $500 Million annually (approximately P5 billion).
The 2011 negotiations were seen to have brought the positive being the relocation of DBGSS from London to Gaborone, transferring De Beers’ operations consolidated rough diamond sales into Gaborone, bringing alongside professionals, skills, and the world’s biggest rough diamond transactions to Africa. The year 2011 also gave life to ODC which found its feet to move a year later in 2012.
Debswana is also expected to start investing in other sectors outside its core business of mining diamonds. Some see Masisi to be playing hard-ball on the deal despite his diplomatic talks with Bloomberg in May 2018 of, “we have had a wonderful relationship with De Beers and we expect that relationship to be even more cemented, there is a way of actually achieving a win-win for both, we want to participate more on cutting, polishing and retail.”
Veil of secrecy
Tax Justice Network -a tax watchdog- in its 2020 report portrays Botswana as too secretive and the country’s dealing with De Beers was attributed as “highly secretive.” Tax Justice Network quoted a recent Open Society Initiative for Southern Africa (OSISA) study titled ‘Botswana’s Diamond Deception’ which says, “Botswana’s paper success does not translate to the kinds of gains the country should be receiving. Disclosure of key information and removal of De Beers’ monopoly would liberate the economy and its democracy.”
The study said initially Botswana held a 15 percent share, but several years later when exceptional diamonds were unearthed, Botswana’s share was increased to 50 percent. “De Beers wanted to ensure it could keep its monopoly and control production so this find would not disrupt market prices. Then in 2004, Botswana acquired a 15 percent share in De Beers itself, an unprecedented entangling of a sovereign country with a single private company.”
According to the OSISA paper, the exact structure of this deal between Botswana and De Beers is complex and confidential in a few key places, but it promises Botswana continued revenue while handing power of the diamond industry to De Beers. OSISA study alleges De Beers has “a relationship with the ruling BDP. “De Beers and the BDP have knit the political and corporate structures together in such a way that they undermine accountability and regulatory systems with a culture of secrecy (framed by De Beers as “confidentiality”).
As a private entity, De Beers’ dealings are largely protected from scrutiny. Unlike the EU and U.S., where governments once banned or prosecuted De Beers for price-fixing and other anti-competitive activities, Botswana’s government and its ruling party have been direct collaborators.”
Anglo American further uncertainties in politics staining a sparkling diamond business
In last year’s divisive national polls this country could have been dragged into what looked like a civil shake up with the former President fighting with his successor, the diamond industry was watching with crossed fingers. Anglo American in its recent annual financial report says: “Political instability can also result in civil unrest and nullification or nonrenewal of existing agreements, mining permits, sales agreements or leases. These may adversely affect the Group’s operations or performance of those operations.”
In the run-up to elections Botswana opposition was also posing serious threat, with an influential figure like the former President throwing his weight behind the block, this could have scared De Beers mother Anglo American as her child (De Beers) is only used to the red interior designs of the ruling BDP 53 year old walls. Opposition could have painted the walls with a different colour and worse enough chased away Anglo American’s De Beers. A new party might change laws and policies to be closer to its political ideology.
Anglo American in that situation envisage possible change in laws which might be unfavourable like; increased costs can be incurred through additional regulations or resource taxes, while the ability to execute strategic initiatives that reduce costs or divest assets may also be restricted, all of which may reduce profitability and affect future performance. This could lead to, “uncertainty over future business conditions leads to a lack of confidence in making investment decisions, which can influence future financial performance.”
Anglo American also explained of a scenario where global economic conditions can have a significant impact on countries whose economies are exposed to commodities, placing greater pressure on governments to find alternative means of raising revenues, and increasing the risk of social and labour unrest. These factors could increase the political risks faced by the Group, says Anglo American
According to the mining giant, as mitigation to deal with political uncertainties that may hamper the company’s progress, Anglo American has an active engagement strategy with governments, regulators and other stakeholders within the countries in which we operate, or plan to operate, as well as at an international level.
Business
PROTECT YOUR FINANCES THIS HOLIDAY SEASON: A GUIDE TO FRAUD PREVENTION
November marks Fraud Awareness Month across the world and Bank Gaborone has a dedicated mission to inform the public of evolving threats. The holiday season is a time for celebration, togetherness, and giving. However, it’s also a time when the risk of financial fraud increases.
Common Types of Financial Fraud During the Holidays
- Online Shopping Scams: With the rise of online shopping, scammers often create fake e-commerce websites to steal your money and personal information.
- Sim Swap: Fraudsters may try to gain control of your phone number by swapping your SIM card, which can lead to unauthorized access to your accounts.
- Application Fraud: Be cautious when downloading apps, as some may be malicious and designed to steal your data.
- Travel Scams: Planning a holiday trip? Watch out for fake travel deals and websites that can lead to disappointment and financial loss.
- Identity Theft: Protect your personal information, as identity theft can have far-reaching consequences, both financially and emotionally.
- Phishing and Email Scams: Scammers often send deceptive emails and messages, trying to trick you into revealing sensitive information or making payments.
- Mobile Network Fraud: Be cautious about unsolicited calls or messages requesting personal information or payments.
How You Can Identify Potential Fraud
To protect yourself from financial fraud, keep an eye out for the following signs:
- Unexpected Transactions: Check your account statements regularly for any transactions, withdrawals, or purchases that you didn’t initiate.
- Unauthorized Account Activity: Pay attention to notifications of login attempts or changes to your account details that you didn’t initiate.
- Phishing Attempts: Be cautious about emails, calls, or messages requesting sensitive information or payments, especially from unknown or suspicious sources.
Security Measures
At Bank Gaborone, we are committed to ensuring the security of your finances. Our Bank Gaborone 360 initiative encompasses several security features:
- 3D Secure Cards: All our cards are equipped with 3D secure technology, which means that an OTP (One-Time Password) is sent with every purchase for your approval, adding an extra layer of security.
- 24/7 Call Centre: Our round-the-clock customer centre is ready to assist you at any time. If you have questions, concerns, or need assistance related to your account’s security, simply give us a call 3158681 at any hour of the day.
- Secure Online Mobile app: To enhance security and ease of access, you can use your biometric authentication to log in to the app and authenticate transaction. An additional layer of protection is provided through two-factor authentication.
Security tips for customers
- Avoid sharing personal information – the Bank will never ask for login credentials, personal details, card numbers, or OTPs.
- Exercise caution when receiving unexpected links or messages.
- Ensure your device is protected with a screen lock and refrain from storing passwords on the device or in the cloud.
- Promptly report lost or stolen devices to the bank for immediate action.
What to Do If You Fall Victim to Fraud
If you suspect that you have fallen victim to a fraud attempt, it’s essential to act quickly:
- Report the incident to the bank immediately.
- Block your card.
- Contact the customer centre at 3158681 for assistance and guidance.
As you enjoy the holiday season, we urge you to stay vigilant and prioritise the security of your finances. Safeguarding your assets is a shared responsibility, and Bank Gaborone is committed to supporting you in this effort. Remember that you are not alone in this journey. Your bank is here to protect your financial interests and guide you through any challenges you may face. By being proactive and following the tips and security measures outlined in this article, you can ensure that your holidays are joyful, secure, and free from financial fraud.
Business
Challenging times as GROWTH IS EXPECTED TO SLOW DOWN IN 2023
The third quarter of 2023 has been characterised by a worsening of global economic conditions, with global growth forecasts revised downwards by the IMF, rising fuel prices, and the expectation that interest rates will remain “high for longer”. This has impacted on the global diamond market, which has experienced a persistent weakening of demand through the year. Domestically, annual GDP growth has fallen, but remains in line with expectations. Inflation has risen, also as expected, and is likely to rise further in the coming months, driven mainly by global factors.
Economic Growth
The IMF released its new World Economic Outlook (WEO) in early October, just after the end of the quarter. The IMF predicts a slowdown in global growth to 3.0% in 2023, down from 3.5% in 2022. Growth is projected to fall slightly further, to 2.9%, in 2024. Current and projected global GDP growth rates remain well below historical averages. The IMF notes that three factors are driving the slowdown in growth.
One is the tailing off of the post-COVID economic recovery, particularly following the very strong 2022 recovery in travel and tourism. The second is the consequence of the tighter monetary policy implemented in most countries to bring inflation down, with tightening of credit conditions impacting on aggregate demand. Third, the impact of the commodity price shock following Russia’s invasion of Ukraine persists, notably through higher energy prices, reducing real incomes in energy importing countries and of consumers generally. To what extent have these factors had an impact on Botswana? Certainly economic growth is tailing off, with annual GDP growth down to 5.0% in Q2 2023, with a projected further decline to 3.8% for the year as a whole.
However, the slowdown appears to be having a greater impact on sectors that have a domestic focus (such as agriculture, food manufacturing, wholesale and retail, and other domestic services). The main outward-facing sector that has experienced a severe slowdown is diamond trading (discussed more below). With regard to monetary policy tightening, Botswana is feeling the impact of global developments, but there has been no real domestic impact given that the Bank of Botswana has hardly tightened monetary policy while many other central banks have raised policy rates significantly. But Botswana has felt the impact of higher energy prices, which remain elevated despite some easing earlier in 2023, and there has been a squeeze on real incomes and living standards as a result.
Diamond Market
The major impact of adverse global conditions has been experienced in the diamond market. This has not yet fed through to diamond mining which, perhaps surprisingly, was up 7.1% in the 12 months to June 2023. This may just be “the calm before the storm”, however. Diamond sales through DBGSS are down 31% over the first eight sales cycles of 2023 compared to the same period last year, and Okavango Diamond Company is experiencing similar pressures. It will not be possible to continue expanding mining with sales contracting, as the required stockpiling becomes increasingly expensive. The global diamond market has been buffeted by multiple adverse factors during the year. Restrained consumer demand in the US, notwithstanding some resilience in the US economy, has been one factor, compounded by weak post-COVID recovery in China. Recent demand may have been impacted by a sharp increase in diamond prices in 2022, when demand was strong, but the industry is now paying the price. Synthetic diamonds are taking increasing market share, at much lower prices than natural diamonds. With slowing demand, downstream participants in the diamond value chain (cutters and polishers, traders, jewellery manufacturers and retailers) have all cut back on purchases as their stocks have risen, impacting rough diamond demand. As a result, De Beers have announced that sightholders would be permitted to defer up to 100% of their contracted purchases for the remainder of 2023 while Okavango Diamond Company cancelled its planned November auction.
Inflation and interest rates
After the sharp drop in inflation from its peak of 14.6% in August 2022 to 1.2% a year later, the increase to 3,2% in September was not unexpected. Fuel prices have been the main driver of changes in inflation over the past two years, in part because international oil prices have been so volatile, combined with their very high weight in the Botswana Consumer Price Index (CPI) basket. After the upsurge in oil prices caused by Russia’s invasion of Ukraine, to over US$110 per barrel in June 2022, prices fell to just over $70 a barrel in March this year. The decline enabled pump prices to be reduced, leading to the dramatic fall inflation as the previous year’s increases dropped out of the annual inflation calculation. In recent months, however, the deliberate actions by OPEC+ member states to restrict production and supply have pushed prices back over $90 per barrel, a selfish move seemingly calculated to put further pressure on households across the world who have already been badly impacted by the cost-of living crisis. In Botswana, regulated pump prices – which are determined under a highly politicised adjustment mechanism – have lagged the increase in global prices. For instance, the price increase in late October came about a month after the relevant increases in global prices. Following this increase, we expect inflation to continue to rise through to the end of 2023 and into 2024, when it is likely to temporarily go above the upper end of the BoB’s 3-6% inflation objective range. This means that there is unlikely to be any reduction in the BoB’s monetary policy rate (MoPR) in the near future.
Fiscal Developments
The Ministry of Finance’s draft Budget Strategy Paper (BSP) was released in September, and provided updated information on the outturn of the 2022-23 budget, revisions to the current year (2023-24) budget, and the medium-term fiscal framework out to 2026-27. The fiscal data shows a continuation of recent trends, with an (unplanned) balanced budget for 2022-23; a (planned) deficit budget for 2023-24 and 2024-25, and a (planned) balanced or surplus budget for the outer years of the projections, which would mark the beginning of the NDP 12 period. There is a consistent story in the BSP which relates to the need for fiscal consolidation (discussed further in our special feature). In a parallel with Saint Augustine’s famous prayer (“Lord, make me chaste, but not yet”), fiscal consolidation – in the form of a balanced or surplus budget – is always a year or two away. For instance, the BSP released in September 2022 projected a balanced budget from 2023/24 onwards. However, the September 2023 BSP now indicates a balanced budget two years later, from 2025/26 onwards. This largely reflects the dramatic increase in development spending first proposed in the 2023 Budget for 2023/24 and set to be continued in subsequent years. That relates to planned budgets. Outturns are quite different. In both 2021/22 and 2022/23 large projected deficits did not materialise, and in both years, budgets were broadly balanced, due mainly to significant underspending on the development budget, along with higher-than-expected mineral revenues. Notwithstanding a large (47%) planned increase in development spending in the current fiscal year, it seems quite possible that, as in the last two years, the development budget will be underspent and the budget will end up being broadly balanced – although there may be risks on the revenue side if the diamond market continues to deteriorate. Even though the outcomes are good (balanced budgets), the fact that these are unplanned reflects negatively on the quality of fiscal planning and budgetary control.
Outlook
The rest of 2023 and early 2024 looks likely to be an uncertain and somewhat challenging time for the economy. The main concern is the depressed state of the global diamond market, and the potential impact on economic growth, exports and government revenues – although it is important to note that no negative impact on these important economic indicators has yet been realised. The likelihood that inflation will rise in the coming months means that domestic interest rates are likely to be maintained – at levels that are low by international standards – for the foreseeable future. Projections of adverse climatic conditions in the coming months – with forecasts of higher temperatures and lower rainfall – are likely to have a negative impact on agriculture, water supplies and tourism, and illustrate the longer-term challenges posed by global climate change. Fortunately, Botswana’s critical financial buffers – in the form of the Government Investment Account at the BoB and the foreign exchange reserves – have been rising, assisting the ability of the economy to withstand possible shocks, at least in the short term.
(Adopted from Econsult Economic Review Q3)
Business
Thamane Launches AADFI Working Group on Climate Change to Support African DFIs
The Association of African Development Finance Institutions (AADFI) has taken a significant step towards addressing the pressing issue of climate change by launching a working group dedicated to this cause. The working group aims to support AADFI member institutions and the wider African DFI community in tackling the challenges posed by climate change.
The launch of the working group occurred on November 9, 2023, immediately following the opening ceremony of the AADFI 2023 Annual General Assembly in Egypt. The theme of the assembly was “The Role of African DFIs in Achieving Just Energy Transition,” highlighting the importance of sustainable energy practices in combating climate change.
Thabo Thamane, Chairman of AADFI and CEO of Citizen Entrepreneurial Development Agency (CEDA), announced the launch of the working group and introduced its members and objectives. The group was approved by the AADFI Board of Directors on August 28, 2023, following a resolution made at the previous annual general assembly.
The working group is chaired by the Development Bank of Southern Africa (DBSA), with Boitumelo Mosako, CEO of DBSA, leading the efforts. Mr. Olymous Manthata, Head of Climate Finance at DBSA, will coordinate the working group’s activities.
Comprised of member institutions dedicated to driving the climate agenda within their organizations and communities, the working group plays a crucial role in supporting AADFI member institutions and the wider African DFI community in addressing climate challenges. It serves as a strategic platform for generating ideas and actions that will enable the association and its members to remain relevant in the climate change agenda.
The working group has several key responsibilities. Firstly, it will support efforts to create a roadmap for African DFIs to accelerate their involvement in addressing climate challenges. This includes leading the effort in attracting technical assistance and support to build the skills and capacity of member DFIs in dealing with climate change.
Additionally, the working group will guide African national DFIs in mobilizing finance and identifying funding opportunities for green projects. It will also play a crucial role in raising green bonds and collaborating with the African Financial Alliance on Climate Change (AFAC) to represent the interests of AADFI members in the alliance. Furthermore, the working group will leverage support from partners such as the African Development Bank (AfDB), the Global Center on Adaptation, and the Green Climate Fund (GCF) to facilitate member DFIs’ actions on climate change.
The working group’s ultimate goal is to drive meaningful change and accelerate Africa’s just energy transition by collaborating with various stakeholders and partners. Thamane urged all member institutions to actively support the working group and participate in its activities. He expressed his gratitude to the DBSA for taking the lead role in the working group and expressed confidence in its ability to deliver on its mandate.
In conclusion, the launch of the AADFI working group on climate change marks a significant step towards addressing the challenges posed by climate change in Africa. By supporting member institutions and the wider African DFI community, the working group aims to drive meaningful change and accelerate Africa’s just energy transition. With the support of various stakeholders and partners, the working group has the potential to make a significant impact in combating climate change and ensuring a sustainable future for Africa.