Government wholly owned diamond marketer, Okavango Diamond Company (ODC) has been tasked with the mammoth task of ensuring Botswana’s participation in the midstream and downstream of the multibillion pula lucrative industry increases significantly.
This was revealed by Minister of Mineral Resources, Green Technology & Energy Security, Lefoko Maxwell Moagi on Tuesday. Okavango Diamond was established in 2012 as a 100 % state owned company mandated with spreading Botswana’s wings in the diamond business through marketing and selling 15 % Debswana rough produce.
Debswana, which produces in the region of 24 million carats annually operates four (4) mines being Jwaneng, Orapa, and Letlhakane & Damtshaa Mines. The diamond mining behemoth which has propelled Botswana’s upstream muscle to global glory for decades makes all its produce to Diamond Trading Company Botswana(DTCB) for sorting and valuing.
DTCB is the world’s largest and most sophisticated rough diamond sorting and valuing operation. Both DTCB and Debswana are 50-50 joint ventures of Botswana Government and global diamond business giant De Beers Group.
After DTCB, sorted and valued rough diamonds are then taken to De Beers Global Sight holder Sales and Okavango Diamonds, the latter receives 15 % while the former, a De Beers wholly owned midstream operation, receives the remaining 85 %.
ODC was established to test the waters and develop Botswana’s capacity and ability to sell its own diamonds outside De Beers channels and price Book. Botswana alone through Debswana produces over 65 % of De Beers’ global output.
ODC has since inception delivered its mandated satisfactorily that government even hinted desires to have the company take more goods from DTCB. Currently ODC rakes in sales in the region of $500 Million annually (approximately P5 billion).
Minister Moagi said through its 5 year strategy Okavango Diamonds will now develop frameworks and deliberate pursuits intended at further spreading Botswana‘s wings across the value chain.
“ODC has developed a strategy that will propel Botswana into unprecedented participation and presence across the value chain, the cutting and polishing, jewelry making and retail has been incorporated in this strategy,” he said.
Moagi explained that the ambition and roadmap goes beyond 5 years strategy because some projects intended at positioning Botswana in the downstream segment of diamond industry are long term.
“We have brought the aggregation of De Beers diamonds here, now we are in talks with relevant stakeholders to say massive cutting and polishing has to be done in Botswana.” The Minister further added that other players outside De Beers Group are coming onboard.
“Lucara which is our other producing company locally has bought into this dream, it is helping us cajole its customers to forge partnerships so that the manufacturing, cutting, polishing of their diamonds can be done in Botswana,” he said.
In terms of developing the Human Capital Moagi revealed that the Oodi technical college in partnership with French experts will accelerate training of Batswana and equipping them with serious skills in the space of cutting & polishing and jewelry making.
“Through ODC we are in talks with leading cutting and polishing firms globally for strategic partnerships, we want them to assist us with technologically advanced machines, while we still developing our own so that we build local capacity for massive industrialization in that space of cutting & polishing,” said Moagi.
The Minister further highlighted that Government will significantly invest in serious research and development to inform the country‘s pursuits and ambitions in diamond beneficiation and more participation down the value chain.
After assuming power in April 2018 , President Mokgweetsi Masisi said it was time for Botswana to increase participation in the diamond business, sentiments constantly reiterated by his Minister.
Botswana and its partner in the diamond business De Beers Group are currently under negations to renew sales agreement into another 10 year span. The last agreement which commenced in 2011 and delivered amongst others relocation of De Beers’s global aggregation and sales operation from London to Gaborone.
“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,” Masisi said when talking to Bloomberg in May 2018.
De Beers Group’s other worldwide interest spans into the lucrative midstream and downstream space with businesses such as Forevermark, the Group’s jewelry retail outfit, ElementSix, the industrial technology and manufacturing company , as well as LightBox the newly established synthetic diamonds brand operating from United States. Botswana Government directly owns 15 % of De Beers Group, the remaining 85 % is owned by Anglo American PLC.
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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.
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”