According to Moody’s growth forecasts for all African sovereigns’ downward in response to the coronavirus outbreak, Botswana whose real GDP was 10.9 percent in an adjustment from November 2019 forecasts plunged to 7 percent for June.
“We have significantly reduced our growth forecasts for the African sovereigns that we rate in response to the coronavirus crisis Botswana (A2 negative) face the sharpest declines in real GDP growth because the impact of domestic restrictions on economic activity and the impact of a fall in global demand in key sectors such as tourism and mining,” said Moody’s Investors Service recently.
Botswana in response to Covid-19 took measures to close its borders. This means no outside visit from Botswana diamond buyers. De Beers even broke its norm and moved its June sales sight viewings from Gaborone to Antwerp. The company is hinted to be taking its 27 July rough sales to Hong Kong and Dubai because Botswana borders are still closed.
Botswana will still get its big chunk of diamond profit despite sales moving out of its borders. According to Moody’s, on the positive, precious metal prices like gold and diamonds have performed better and have not fallen like most commodities. Oil producing countries are facing a down with the fall of prices amid OPEC+ Price War and the huge international demand.
“Weak global growth is weakening demand for diamonds, with production cuts to support prices resulting in a significant slowdown in Botswana’s diamond sector,” says Moody’s.
According to Moody’s international travel grinding to a halt is also weighing heavily on the tourism sector. The rating agency says in Sub-Saharan Africa, Mauritius is most vulnerable to a collapse in international travel given that the sector accounts for around 25 percent of its GDP.
The tourism sector still generates some economic activity for a number of African economies and the sector’s direct contribution of tourism in 2019 (% of GDP) for Botswana is 4.3 percent.
Moody’s says the crisis and its economic effects are also increasing social risks. Aside from the impact on health outcomes, the coronavirus is likely to lead to further increases in already high unemployment, in particular among the young. If not sustained, this could heighten social tensions. The shock will also stall any improvement in low incomes, aggravating income inequality, says Moody’s.
“Some governments have increased capital expenditure, as a means to provide stimulus to keeping infrastructure and other construction projects running during lockdowns. While this will support growth and continue expanding the provision of much-needed infrastructure in Africa, it will widen fiscal deficits and increase fiscal pressures.
At the same time, increases in health and social spending will be challenging to roll back once conditions normalise and combined with lower revenues will stress governments’ budgets,” says Moody’s researchers.
The rating agency further expects financial deficits will be widest in Mauritius, while South Africa, Zambia, Namibia, eSwatini, Botswana, and Egypt will also post significant deficits around 10 percent of nominal GDP.
According to Moody’s, the coronavirus shock has led to a financial squeeze in emerging markets and in particular frontier markets. The agency researchers said the effects of this change in conditions are worsened by the need to borrow even more than usual to finance growing fiscal deficits.
“Among our rated African sovereigns, seven will witness a greater than 5pps increase in gross borrowing requirements: Mauritius (14.4pps), Namibia (9.1pps), Gabon (7pps), Botswana (6.4 pps), Mozambique (5.9 pps), Republic of the Congo (5.4 pps),” says the researchers.
Moody’s reviewed all of its ratings last week Monday, when the credit profile of Botswana (issuer rating A2) reflects the country’s “ba2” economic strength balancing relatively high wealth levels against a small economy that is highly reliant on the diamond sector; its “baa1” institutions and governance strength balancing strong performance on the Worldwide Governance Indicators, robust monetary policy framework, and prudent fiscal policy against a mixed track record in terms of structural reform implementation; its “aa2” fiscal strength reflecting its low debt stock, strong debt affordability and a still strong government balance sheet despite weakening fiscal buffers; and its “a” susceptibility to event risk driven by its sound external position, modest government borrowing requirements, healthy banking system, and overall stable political system.
Moody’s normally conducts periodic reviews through portfolio reviews in which it reassesses the appropriateness of each outstanding rating in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers.
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.