The Chief Executive Officer (CEO) of First National Bank Botswana (FNBB), the country’s largest commercial bank by market share and profitability, Steven Bogatsu says post COVID-19, Botswana must intensify her economic diversification efforts or else face the catastrophic effects of global uncertainties and world economic shocks.
Botswana’s economy is largely dependent on the diamond industry as the largest single foreign income earner and biggest contributor to GDP. Botswana’s flagship diamond business, Debswana is alone, by far the largest single private sector employer.
The diamond industry is however one of the most vulnerable industries in the world. When uncertainties engulf global economies the diamond industry is always one of the first to catch flu, resulting in serious cash flow disruptions.
This vulnerability of Botswana’s economic engine according to FNBB CEO call for serious transformation of the economy. Speaking at press briefing addressed by the banking industry this week Bagatsu said the economy has to generate other sources of revenue and income.
“It is apparent now that diversification is going to be very key, given the slowing down of diamonds sales, that is obviously going to have negative impact on mineral revenue, and subsequently the entire economy,” said Bogatsu.
During 2008/09 global financial crisis the diamond industry was heavily hit, so much that Botswana went for a month without sale of a single diamond.
Miner Debswana had to halt operations for three (3) months. In 2019, nearly a decade later in the wake of heightened geo-political tensions between the world’s two biggest economies, the industry received a heavy blow, suppressing sales by 25 %.
The economic uncertainty generated by unstable geopolitical climate arising from this Washington –Beijing tensions led to widespread uncertainty triggering a global downturn in the industry during the first half of 2019 spilling over to the entire year.
This emanated from an increased sense of caution among the banks that finance the trade, as well as diamond brokers and consumers of luxury goods, leading to significant decline in commerce across all segments.
During the last quarter of 2019, the industry showed signs of slight recovery with holiday season in China and United States thanksgiving opening up the market a bit. Positive sentiment and upward trajectory bolstered first sales of the year 2020, with leading producers, Alrosa and De Beers registering an impressive upswing.
But that was short lived, thanks to outbreak of Corona virus in December 2019 which intensified in February this year. De Beers’ second sight fell by about 36 % from the first sales of the year and 25 % when gauged against the same sight in 2019.
Other sights were cancelled due to travel restrictions and global lockdown which halted trade activity and operations across the value chain worldwide. This was mainly due to slow business in China where corona virus broke in the city of Wuhan. After the United States, most of De Beers’s rough diamonds end up in China.
At the Press briefing Bogatsu said COVID-19 has presented Botswana with a clear opportunity to develop other industries “Some of the industries that we are going to start see emerging after this crisis are health and pharmaceutical industry as well the technology industry,” he said.
Bogatsu added that some of the positives of COVID-19 are increased uptake and use of technology across industries. “In the banking industry we are seeing more of our customers using more of our technology services and offerings ,not only in the banking ,the insurance and other industries as well , so we are going to need people who are going to support this digital transformation from technology perspective to occasion this transformation,” he said.
Owing to the steep downturn in the diamond market during the 2008/09 Global financial crises mineral revenue accounted for only 30 % of Government revenue in the 2009/10 financial year with SACU revenue accounting for about 26 % and Non mineral economic sectors revenue going in at 19% while VAT contributed in 13 %.
Against all efforts to diversify the economy the Mineral revenue rose through the years to account for about 37 % of government total budget in 2015 until dropping down a bit to just over 35 % for 2019/20 financial year.
However total revenues and grants for the 2019/2020 Financial Year were revised to P60.71 billion with the main revenue contributor being Mineral revenue at P18.43 billion; Customs and Excise at P13.79 billion; and VAT at P7.92 billion. This still placed mineral revenue at just above 30 % of total revenue and grants.
Experts say as long as Mineral revenue still accounts for over 30 % of Botswana’s total revenue, zigzagging up and down through the years to over 35 %, the country’s revenue profile presents a serious risk. Botswana customs and excise revenue has remained below 25 % for some time signaling trade stagnancy and little improvement on the export sector.
Within the Foreign income earning basket Mineral revenue controls the channel, sitting at almost 90 %.In Africa Botswana and Angola’s foreign earnings are single commodity anchored with Angola relying on Oil and Botswana pivoted by diamonds, this according to experts signals that Botswana ‘s diversification efforts have failed to bear fruits over the years.
For his part Chief Executive Officer of Banc ABC, Kgotso Bannabotlhe reiterated Bogatsu’s sentiment, citing projections by International Monetary Fund (IMF) that undiversified and resource based economies like Botswana will be heavily affected by COVID-19 pandemic.
“We may see some layoffs in the economy because our government has been running at a deficit, so this calls for intensified efforts on economic diversification and citizen economic drive , we need to start developing local industries and creating massive and sustainable jobs locally,” said Bannabotlhe.
Chinaâ€™s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.
The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The countryâ€™s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.
In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.
Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.
China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.
Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.
On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.
According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.
The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.
Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.
According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.
The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.
Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.
Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the companyâ€™s market capitalization.
Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana. Â The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.