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Economy sinks 27 % in Q2 2020

Botswana’s economy significantly slowed down in the second quarter of 2020 owing to adverse impacts of the COVID-19 pandemic.

The novel virus which broke out in Wuhan China, late 2019 curtailed trade, restricted movements of both goods and people, soiled productivity due to social distancing and eroded business sentiments.

Official statistics released by Statistics Botswana show that the nominal Gross Domestic Product (GDP) for the second quarter of 2020 was P36.863.5 billion compared to P50.7 billion registered during the previous quarter. This represents a quarterly decrease of 27.3 percent between the two periods.

During the quarter under review, General Government became the major contributor to GDP for the first time in many years, by 19.7 percent, followed by Finance & Business Services, Trade, Hotels & Restaurants and Mining & Quarrying by 16.7, 16.5 and 8.1 percent respectively.

The contribution of other sectors was below 7.0 percent, with Water & Electricity being the lowest at 1.6 percent.

Real Gross Domestic Product for the second quarter of 2020 decreased by 24.0 percent. The deep contraction was attributed to the huge decline in real value added of Mining & Quarrying and Trade, Hotels & Restaurants industries by 60.2 and 40.3 percent respectively.

Real GDP at constant 2006 prices for the second quarter of 2020 was P18.8 billion compared to the revised P25 billion recorded in the first quarter of 2020. The steep reduction in the domestic economy was observed across all sectors except Government, Agriculture and Water & Electricity.

Statistics Botswana says poor performance of the economy was mainly due to the impact of measures that were put in place to combat the spread of the COVID-19 pandemic.

The General Government industry increased by 2.1 percent in real value added compared to 4.2 percent during the corresponding quarter of 2019. In response to the global COVID-19 pandemic, many governments implemented a wide range of support measures to mitigate its impact on the economy and society.

Botswana Government instigated robust fiscal policy responses in order to influence macroeconomic conditions, including aggregate demand of goods and services, employment, inflation and economic growth.

The Agriculture industry increased by 3.0 percent in real value added during the second quarter of 2020, relative to a narrow contraction of 0.5 percent registered during the same quarter of 2019.

The main driver of the improved performance stems from an increase in real value added of Livestock, Crops and Horticulture farming sub-industries, which posted growth of 1.6, 2.1 and 3.1 percent respectively.

The exceptional performance in the crops sub-industry arose from favorable rainfall experienced during the 2019/20 rainy season, resulting in a bumper crop harvest. Water and Electricity.

Water and Electricity value added at constant 2006 prices for the second quarter of 2020 was P257.8 million compared to P 257.0 million registered in the same quarter of 2019, recording an increase of 0.3 percent.

Even though the industry recorded the positive growth, its contribution to the economy still remained the lowest. In the second quarter of 2020, Electricity recorded a positive value added of P32.0 million compared to P18.9 million registered in the same quarter of 2019, leading to a significant growth of 69.5 percent.

The local electricity production decreased slightly by 0.9 percent while imports of Electricity went down by 13.1 percent during the quarter under review hence increase in real value added.

The water industry recorded a positive value added of P227.7 million compared to P240.2 million registered in the same quarter of the previous year, registering a decline of 5.2 percent.

The main contributor to poor performance of the economy was Mining and Quarryin. The sector registered a decrease in the real value by 60.2 percent mainly influenced by Diamond and Coal real value added.

Diamond production in carats went down by 67.0 percent while Coal production in tonnes decreased by 40.7 percent. Trade, Hotels and Restaurants real value added went down by 40.3 percent in the second quarter of 2020 compared to an increase of 5.1 percent registered in the same quarter of the previous year.

The high reduction is attributed to a decrease in real value added of Hotels & Restaurants, Wholesalers and Vehicle dealer’s sub industries by 61.7, 54.7 and 38.4 percent, respectively.

The suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering the borders of the country and hence affecting the output of Hotels and Restaurants industry.

The negative growth in the Wholesalers value added is due to the unfavorable performance of downstream diamond industries during the quarter under review. The significant lower sales were driven by the COVID-19 pandemic, negatively impacting activity in key markets.

The Manufacturing industry recorded a decline of 31.3 percent in real value added during the second quarter of 2020, compared to a growth of 3.5 percent registered in the corresponding quarter of 2019. The Construction industry recorded a decline of 36.0 percent as compared to 3.0 percent realized in the corresponding quarter in 2019.

This industry comprises of buildings construction, civil engineering and specialized construction activities. All these activities were affected by COVID-19 restriction measures imposed during the second quarter of 2020.

The Transport and Communications value added decreased by 16.9 percent in the second quarter of 2020, compared to 5.4 percent recorded in the same quarter of the previous year.

The negative performance of the industry was mainly attributed to the decline in real value added of all the sub-industries except Post and Communications with a positive growth of 2.6 percent.

The Finance and Business Services industry registered a negative growth of 11.9 percent due to the decline in the real value added of Business Services and Real Estate by 24.4 and 17.8 percent respectively.

The resilient performance of the industry was reflected in both Banking and Insurance sub-industries that recorded positive growths of 4.4 percent and 1.9 percent in real value added respectively.

The Financial sector introduced accommodative (loose) monetary policy responses. Monetary policy involves changing the interest rate and influencing the money supply. The Non-mining GDP decreased by 20.7 percent in the second quarter of 2020 compared to a 4.3 percent.

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Business

Diamond industry crises not over yet – De Beers Chief

13th January 2021
De Beers Group Chief Executive Officer: Bruce Cleaver

Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry  started gaining  positive momentum towards the end of the year as key markets entered into  thanks giving and holiday season.

However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.

The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.

The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.

This halted movement of buyers and shipment of  the rough goods , resulting  in unprecedented decline of sales, in turn  ballooning stockpiles as the upstream  operations produced with little uptake by the midstream.

The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.

However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.

De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.

Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.

De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.

“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.

The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.

The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.

Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.

“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.

In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”

All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.

After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.

However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.

Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.

These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.

For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.

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Business

Gov’t coffers depleting to record low levels 

13th January 2021
Dr Matsheka

Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.

The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering  the year 2020 – a 12 months stretch of complete setback.

The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.

National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.

As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.

On the other hand the COVID-19 economic mess is  prevailing,  the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.

According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.

However reports indicate that the account could be currently holding just about P3 billion.  The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.

 

When the National Development Plan (NDP) 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at a 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.

Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.

Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.

Meanwhile  should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian  aids and international donors, because  foreign reserves are also on slow down.

During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.

The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020.  This was revealed by President Masisi during State of the Nation Address in November last year.

The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.

However latest statistics(October 2020)  from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with  government’s share of these funds significantly low.

Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.

Furthermore, Value Added Tax has been signaled to go up  from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.

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Business

Cresta signs lease agreement for Phakalane golf estate hotel. continues with growth agenda despite covid-19 impact

13th January 2021

Botswana Stock Exchange listed hotel group Cresta Marakanelo Limited (“CML” or “the Company”) announced the signing of a lease agreement for Phakalane Golf Estate Hotel & Convention Centre, which will see CML extend its footprint by adding the 4 star Gaborone property to its already impressive portfolio.  The agreement is subject to regulatory approvals therefore the effective date of the transaction is expected to be 1 February 2021.

 

CML brings a wealth of expertise to the lease and despite the difficult year for the tourism and hospitality industry, due to the impact of the COVID-19 pandemic, CML remains confident in the recovery of the sector and the need to invest in expanding the Company’s footprint.

CML Managing Director, Mr Mokwena Morulane commented: “Our continued efforts to improve our offerings, understand the market dynamics and modern day trends in the face of global challenges, means we are ready for the changing face of tourism and international travel, and this addition to the Cresta portfolio signals our confidence in the future.  

 

“Despite the headwinds faced in 2020, Management has continued to focus on projects that enhance CML’s product offering such as the refurbishments at Cresta Mowana Safari Resort & Spa in the tourism capital Kasane and the ongoing refurbishment of Cresta Marang Residency in Francistown. The signing of the lease for the 4 star Phakalane Golf Estate Hotel & Conference Centre is a great addition to the Cresta portfolio and will unlock shareholder value in the future.

 

“We remain vigilant to value-enhancing opportunities including acquisitions or leases, after having reconsidered our pipeline against current and expected market conditions.”  

 

Commenting on the lease agreement, the Chief Executive Officer, Mr S Parthiban, speaking on behalf of Phakalane  noted; “No hotel chain holds as much expertise in the region, understands our local culture and tastes and what hospitality is about better than Cresta Marakanelo Limited. We believe that the renovations done to the property has made Phakalane Hotel and Convention Centre a unique product in Botswana and at par with international facilities.  We believe that this lease will benefit not only us as Phakalane , but the market in general as Cresta has run hotels successfully in Botswana for over 30 years and is therefore expected to bring new offerings that appeal to the local and international markets as well as the residents and visitors to the Golf Estate. We look forward to a long mutually beneficial relationship with Cresta.” 

 

CML like the rest of the tourism and hospitality industry and the entire value chain was hard hit by lockdowns  with the surge of COVID-19. By investing during the low period, the company hopes to realise the future value of spending time in preparing for the new consumer dynamics and behaviour.  Despite business interruptions as a result of a six-month long state of emergency and several lock-down periods declared by the Government of Botswana to limit the spread of COVID-19, the Company is starting to record an increase in occupancies, which bodes well for the recovery of the industry and the Company’s future prospects.

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