Reports reaching this publication alleges that the De Beers’ recent sight viewings which was moved from Gaborone to Antwerp, Belgium, had low sales with diamond dealers snubbing the giant miner rough prices in favour of less priced from smaller producers.
This was also confirmed by a recent report from leading diamond publication Rapaport News who according to sources, big miners high rough prices are rejected in favour of cheaper goods from smaller suppliers.
“[The major miners] want to hold on to prices, so people don’t see any [incentive] to buy because it’s difficult to sell and make money,” Rapaport News quoted a sightholder who further added that,“[Manufacturers and dealers] are already sitting on large inventories of polished and rough.”
According to a client of a big diamond company, leading diamond producers have maintained their prices at pre-coronavirus levels, while other miners holding tenders in Antwerp have sold at prices 15 percent to 25 percent lower than in February, the diamond news publisher recorded this observation this week. Efforts to solicit a comment from De Beers Botswana were futile before going for press.
Once that recovery has gained pace, rough sales in 2021 will rise by 20 percent to 25 percent for a total of P100 billion, assuming there is no second virus wave leading to further lockdowns, it predicted.
Last month Moody’s Investors Service said rough-diamond sales will drop by 30 percent to 40 percent this year due to Covid-19 restrictions global supply chain shut down. Hope comes with the recovery or rise of 20 percent to 25 percent of rough sales in 2021, provided there are no further cases of a global pandemic like Covid-19.
Gaborone to wait a little longer as July viewings will be outside Botswana again
In May Botswana Government and its diamond partner De Beers took a decision to temporarily move viewings to places closer to international diamond centres as this country closed borders and entered into lockdown. A decision was made to carry diamond sales to Antwerp while Gaborone borders remained shut.
Due to Botswana travel restrictions, De Beers is forced to ship diamonds from Gaborone to other locations like Antwerp so that diamond lovers will see them in person.
De Beers encouraged online viewing and buying but this cannot satisfy most diamond dealers’ fetishes, they prefer touching and feeling the precious stones, according to the company spokesperson.
The July viewings are expected to be in Dubai or Hong Kong as they are regarded as “places closer to international diamond centres or markets.” De Beers Executive Vice President, Diamond Trading, Paul Rowley is quoted in the international media saying: “If we can move our product closer to them it would give us the flexibility to restart sales as soon as the markets reopen.”
Gaborone has always been De Beers’ sightholder-sales hub since the operations were moved to Botswana’s capital city from London in 2013. This decade long arrangement is elapsing this year. Botswana diamonds contributes 70 percent to De Beers’ production and 90 percent of the giant miner precious stones have been sold in Gaborone since 2013.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
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”