The coronavirus (COVID-19) comes at a time when the world economy was expecting an improvement in economic growth in 2020 as compared to 2019, with a similar upturn expected in Botswana.
As the virus has spread around the world over the past two months, it has become apparent that there will be a very large negative economic impact, both globally and in Botswana. Many countries, including Botswana, have introduced restrictions on travel, population movement and social interaction with the aim of suppressing the spread of the virus.
These restrictions have a negative impact on economic activity, in addition to the direct impact of the health system crisis arising in many countries1.
Governments are, therefore, implementing a variety of measures to mitigate the negative impact of COVID-19. The impact of the COVID-19 shock is particularly acute in specific sectors, and best-practice interventions include a range of targeted fiscal, monetary and financial market measures to help affected households and businesses.
The COVID-19 Economic Advisory Committee has been evaluating the potential economic impact on Botswana, and has prepared a package of interventions designed to mitigate that impact and provide some support to businesses and households, consistent with available fiscal space. The fiscal interventions identified by the Economic Advisory Committee are attached as Annexure 1. Annexure 2 contains sectors which will not be covered by the support programme.
ECONOMIC RESPONSE – PRINCIPLES AND OBJECTIVES
In terms of the mitigating actions being implemented around the world, the objectives are generally to minimise the adverse short-term impact of the COVID-19 recession on firms and households, and to ensure that economy is well placed for recovery when conditions improve.
The latter requires that, as far as possible, firms that are fundamentally sound survive the crisis – if firms disappear, then recovery will be much slower and the permanent impact deeper. During the recession, many firms will have short-term cash-flow problems that could lead to bankruptcy, due to insufficient revenues to meet immediate commitments, even if they are not fundamentally uncompetitive or insolvent. Appropriate action should therefore be taken to help them to contain or reduce costs and defer financial commitments until cash-flow improves.
Similarly, at the household level, for people who lose their jobs or are temporarily laid off, or lose income-earning opportunities (e.g. small-scale traders), action should help to soften the blow of lost income and help them to meet financial commitments.
However, it is important that, as far as possible, interventions are targeted on sectors, firms and households that have suffered the greatest adverse impact. Widespread, untargeted, interventions will be unaffordable, and less effective. Nevertheless, targeting must be practical and implementable in a relatively short time period.
As a general principle, interventions should be flexible and time-limited. The impact of the corona virus is likely to be variable over time, hopefully short-lived, but with the possibility that there may be flare-ups of infections and restrictions at some point in the future. Governments need to avoid getting locked into unsustainable long-term financial commitments, and be able to scale back rapidly when the need for support declines.
There is a general consensus that fiscal interventions are more effective than general monetary policy interventions (such as interest rate reductions) in these circumstances. Fiscal interventions inject money into the economy, directly in the hands of the firms and households that need it. Generalised monetary policies such as reducing interest rates may be useful as a signalling device to support confidence, but are unlikely to stimulate spending and aggregate demand.
In Botswana, as a response to the COVID –19, Government developed an economic response plan with a view to address the following strategic objectives: Support to workers ; Stabilisation of businesses; Ensuring availability of strategic reserves, and Promotion of opportunities for economic diversification.
As part of the comprehensive national response to the threat of COVID-19 Pandemic (Corona Virus), the Ministry of Finance and Economic Development (MFED) established a Special Fund, known as the “COVID-19 Pandemic (Corona Virus) Relief Fund”.
The Fund provides financial resources to cater for the procurement of national relief supplies; evacuation cost for citizens outside Botswana; national publicity outreach programmes; relief of selected industries or sectors; public counselling centres or facilities; additional staff to support health professionals and an economic stimulus package post COVID-19 Pandemic.
Presidential Directive CAB 9(A)/2020 dated 25 March 2020, directed the Ministry of Finance and Economic Development to urgently mobilise P2 000 000 000 (Two Billion Pula) through transfers from Special Funds and appropriation from the Consolidated Fund and that the funds be paid into the COVID- 19 Pandemic (Corona Virus) Relief Fund. More funding is also being mobilized through the private sector, civil society organizations, development partners and the community at large.
3.0 SCOPE OF THE FISCAL INTERVENTIONS
3.1 The proposed fiscal interventions for Botswana fall into a number of categories, as follows:
a) Wage subsidies
b) Loan guarantees
c) Build-up of Strategic Reserves such as Grain (maize, Sorghum, pulses); Water (bowsers, trucks, water tanks); and Medical supply/equipment
d) Psycho-social support e.g counselling
f) The evacuation cost of citizens who are currently outside Botswana
g) The national publicity outreach programme
h) Additional staff to support health professionals
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.