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Open borders see diamonds sparkle in the gloomy trade imbalance economy

diamonds

During the first quarter of 2020 the dark era of Botswana’s perpetual trade deficit – because the local economy depends only on diamond exports or has less to sell but more to buy outside borders- light was seen flickering at the end of the tunnel as January saw Botswana recording a surplus.

That light came with a sparkle of heavy diamond exports as Botswana posted a surplus of P3.34 billion after a dark spell of seven months. Botswana’s last trade surplus was June 2019 when exports swelled 8.2 percent, boasted by glittering diamond sales by 7 percent.

Albeit Botswana still in a dark hole of trade deficit, investment manager Kgori Capital, this week, in its market watch demonstrated that diamonds helped in a “slowdown in trade balance deterioration.” Kgori Capital further acknowledged that the easing of trade balance weakening was “due to pick up in diamond activity.”

Trade deficit narrowed by almost 39 percent from August to September and this was because of a proverbial shine of diamond exports with 93.0 percent contribution of total exports, P6.36 billion in monetary terms. As lockdowns were eased across economies in the world, diamond sales have been improving, just last month diamond exports helped shrink the dogging trade deficit moving from P1.9 billion in July to P2.12 billion in August.

Machinery & Electrical Equipment are the second after diamonds when it comes to raking money into Botswana; it accounted 2.5 percent of total export which is P1.72 billion. According to Statistics Botswana trade statistics released recently, Botswana’s overall exports amounted to P6. 83 billion, a rise of more than 100 percent (P3, 650.2 million) compared to the revised August 2020 value of P3, 181.6 million.

Destination of Botswana’s exports was mostly to Asia, with a market share of 54.7 percent according to the period under review. Botswana’s money in the account came from the United Arab Emirates (UAE) with India receiving exports representing 26.4 percent and 22.2 percent of Botswana’s exports respectively, during the month under review.

India was the biggest spender of Botswana diamonds. UAE trade deals with Botswana were in regard to diamonds only. Belgium received 27.5 percent of exports which also were mainly diamonds from Botswana mines.
Air transport mode was mostly used to transport exports which were predominantly diamonds. Exports transported by air accounted for 94.5 percent of total exports while those by road and rail represented 5.4 percent and 0.2 percent respectively.

While rough diamonds mined in Botswana boosts this country’s exports, they mostly end up in other countries, then returned as imports for cutting and polishing. This could be the reason why diamonds are pulling down both the export and import simultaneously. This appears to be the diamond aggregation activity which was moved from London to Gaborone few years ago, but this is mostly missing in the national statistics according to observers.

When total imports were valued at P8, 037.9 million in September, an increase of 39.5 percent (P2.28 billion) compared to the revised August 2020 import figure of P5.76, the increase in diamond imports was over 100 percent (P2, 114.1 million). This shows Botswana is predominantly a diamond economy, contributing 100 percent pull in weight from both the import and export scales.

Professor Roman Grynberg explained this phenomena in 2013: “The reason is that we import diamonds for cutting and polishing here in Botswana and it is now the country’s biggest manufacturing export activity by far; although it is not adequately recorded in national statistics. What also has happened is that Botswana signed a Marketing Agreement with De Beers, which sees the diamond aggregation activity brought from London to Gaborone. This started in the middle of last year and is to be fully implemented by the end of 2013. What this means is that Botswana now imports rough diamonds from Namibia, South Africa, Canada and the EU.”

Diamonds contributed the most to total imports at 47.9 percent (P3, 848.5 million), followed by Food, Beverages & Tobacco with 11.3 percent (P908.1 million). South Africa is a major contributor of Botswana imports with a contribution of 46.7 percent to the country’s total imports. South Africa fed Botswana Food, Beverages & Tobacco which contributed 22.6 percent (P8.50 billion) while Fuel, Machinery & Electrical Equipment and Chemicals & Rubber Products contributed 14.0 percent (P5.25.0 million), 13.4 percent (P503.3 million) and 13.3 percent (P500.7 million), of total imports from the country, respectively.

SACU supplied 48.6 percent (P3, 906.7 million) of Botswana’s total imports during September according to Stats Bots. The top most imported commodity group from the SACU region was Food, Beverages & Tobacco, with a contribution of 22.3 percent (P869.5 million) of total imports from the region. Fuel, Chemicals & Rubber Products and Machinery & Electrical Equipment followed with contributions of 15.5 percent (P607.5 million), 13.4 percent (P521.7 million) and 12.9 percent (P505.8 million), respectively.

Namibia contributes P108.7 million or 1.4 percent of this country’s imports with 75.8 percent (P82.4 million) of that total attributable to Fuel imports. As part of diamond transaction UAE and Belgium are mentioned in Botswana’s import bill having contributed 21.3 percent and 14.8 percent respectively, to total imports during September. Regionally SACU was the major source of imports in September with a contribution of 48.6 percent followed by Asia and the EU accounted for 33.0 percent and 16.6 percent respectively.

Apart from importing diamonds, weighing 47.9 of the imports, Food, Beverages and Tobacco were also the things that were imported to Botswana in September with contributions to the import bill of 47.9 percent and 11.3 percent. As goods came from Namibia and South Africa they were mostly transported by road and the imports accounted for 44 percent of all commodities brought to this country. Some good entering the country were flown by airplanes (34.percent of the goods) and some which were in large quantities, in the same SADC, were transported by rail transport.

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South Afrincan 501. V2 curfew blinds 2021 prospects

20th January 2021
Machines

Lockdown is back, but now with less stringent measure of curfew restrictions, and will affect the economy whose bounce back was expected to be this year.

Economic projections saw 2021 with glimmer of hope, where all the past Covid-19 ruins will be offset by things going back to normal. An anomaly of curfew has since come to this country’s shores after the discovery of a new Covid-19 variant.

Some Botswana’s trade partners are on complete lockdown ever since the beginning of the festive season when the new variant was reported to be spreading rapidly and uncontrollably.

Measures were since put in place to tame the new high spreading and uncontrollable coronavirus variant called South African 501. V2 which was discovered in Botswana’s neighbor South Africa and the similar variant also known as E484K discovered in the UK.

After South Africa put in a curfew restriction following a response to a second wave of infections driven by a new Covid-19 variant, also called 20C/501Y.V2

President Mokgweetsi Masisi announced on national television Botswana’s first restrictions which was a curfew from 7pm to 4am from 24 December 2020 to 4 January 2021.

This month curfew regulations were extended from 8pm to 4am until end of January and many business operations were either stopped or closed earlier, hence slowing of economic activity in Botswana.

Latest data showing how business operations are being affected is not yet available. But many businesses are already crying foul and showing frustrations.

Lining of economic data with Covid-19 measures shows that at a time when there were lockdowns the economy slumped by 24 percent.

The GDP data of the second quarter of 2020, a time when Botswana got into its first lockdown amid national panic, shows that the real Gross Domestic Product contracted by 24 percent “due to the impact of measures that were put in place to combat the spread of the Covid-19 pandemic.”

But Botswana expected a 7.7 percent rebound and growth in 2021 from the 8.9 percent contraction forecast of last year.

This was pinned on expected improved sentiment in the global diamond industry and overall improved economic activity when the domestic economy goes back to normal.

Bank of Botswana’s Monetary Policy Committee in December last year also projected that inflation will go back to within the objective range in the second quarter of 2021.

Initially, in October last year, the central bank projected that inflation will be within 3-6 percent by the third quarter of 2021.

Two months later Bank of Botswana projections changed with the reversion to the objective range now expected to come earlier than the previous forecast as the domestic and the international economies were opening.

“Overall, risks to the inflation outlook are assessed to be balanced. Upside risks relate to the potential increase in international commodity prices beyond current forecasts, aggressive action by governments and major central banks to bolster demand, as well as possible supply constraints due to travel restrictions and lockdowns, though abating,” said Bank of Botswana last month.

When the meeting of Monetary Policy Committee which was held on 3 December 2020 decided to maintain the Bank Rate at 3.75 percent inflation had increased from 1.8 percent in September to 2.2 percent in October 2020 and remained below the lower bound of the Bank’s objective range of 3 – 6percent.

With the curfew which is place this whole month, spending or economic activity is expected to slow down and inflation will remain below the lower bound of the Bank’s objective range.

According to the last Monetary Policy Statement, the real GDP contracted by 4.2 percent in the 12 months to June 2020 compared to a growth of 3.9 percent in the corresponding period in 2019.

Mining and non-mining sectors registered a steep decline in output and this is blamed on Covid-19 containment measures.

The curfew regulation, despite being of a lesser sting than total lockdown, will have a slight or nominal impact on the domestic economy which is also affected by lockdowns in some of Botswana‘s trading partners.

Uncertainty looms on Botswana as reports continue that the 501. V2 seems to be uncontrollable and is spreading quickly in Botswana population.

While the country is on curfew restrictions, a possible lockdown looms if the disease continue to spread with this much prevalence, according to sources at government enclave.

This means the economic recovery, a rebound or leap in 2021, could remain a big pipeline dream.

The International Monetary Fund (IMF) had forecast the domestic economy to contract by 9.6 percent in 2020 compared to 5.4 percent in the April 2020 World Economic Outlook.

While the domestic eyes projected the economic to rebound to a growth of 7.7 percent, IMF had higher lenses of a growth of 8.6 percent in 2021. But the expected growth is set to be offset by the new elephant in the room, South African 501. V2.

The central bank and other international bodies have not ruled any chances of the pandemic remaining resilient or standing stubborn against countries, meaning possibility of future containment measures remains.

Now in Botswana a stubborn variant of the pandemic has caused panic and curfew regulations.

In December 2020, Monetary Policy Committee said: “Even with recovery in 2021, the contraction in 2020 equates, approximately, to a two-year loss of growth in output. The disparity in forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand.”

Q3:2020 GDP decrease eases, but still remains in the negatives

The data for Q4: 2020 is yet to be released. Economic data available is the recent Q3:2020 released last month showing that real GDP for the third quarter of 2020 decreased by 6.0 percent compared to a deep contraction of 24.0 percent registered in the previous quarter.

As mentioned by Bank of Botswana in the last Monetary Policy Committee meeting of 2020 which was held in December just few weeks before the release of the Q3:2020 GDP data, the economy was expected to have performed better in the third quarter of 2020 compared to the second quarter given the gradual easing of COVID-19.

In Q3:2020 the economy tried to jump up out of the dark hole, but could move up 18 times and still remain in the fringes of economic hell. Many saw this movement as the one towards the recovery of 2021.

According to Statistics Botswana, the improvement in the third quarter GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.

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Moody’s already gloomy SSA report not yet infected by 501.V2

20th January 2021
Diamond

The latest report on Sub Sahara Africa (SSA) by rating agency Moody’s was prepared before the global panic of a new coronavirus variant which has already been detected in Botswana following its discovery in South Africa, the country’s major trade partner. 

Latest reports are that the new variant, now christened South African 501.V2 or E484K, was detected from the local tourism hub of Maun, and the Covid-19 task team have borrowed credence from the high rate of infections prior to the festive season as vindication of the new virus mutation being in Botswana.

The local task team is not the only one missing on full scientific data of how this new corona virus variant is in Botswana and its carriers or patients — renowned rating agency released a report on Wednesday with absence of any mention of South African 501.V2.

Moody’s made a study on “2021 outlook negative as debt costs intensify amid limited institutional capacity to adjust post pandemic.”

However, the current affairs suggest that “post pandemic” there are mutations or new variants of the virus which should be dealt with, now forcing countries like Botswana, South Africa and some in Southern Africa into coming up with curfew regulations to curb the new form of Covid-19.

The Great Pandemic seems to be here to stay in the midst of humankind if reports coming from next door South Africa about Covid-19 taking new forms to survive vaccine hence spreading uncontrollably is anything to go by.

Optimism has been brought the vaccine which is currently being rolled out, but scientific theories being conducted suggest that the new variant of Covid-19 might prove to be more resistant to vaccination.

Moody’s released a report this week on the outlook of SSA creditworthiness in 2021 which is deemed to be negative. With the new variant sweeping across Botswana and its influential trade partner South Africa, curfew regulations that are currently in place in the two countries could lead to further economic injury.

That Moody’s expectation for the fundamental conditions that will drive sovereign credit over the next 12-18 months to be severe, could be less far-reaching and short sighted given the lack of the new variant factor on the latest report.

“We expect SSA sovereigns to face severe challenges in grappling with the fallout from the coronavirus shock as lower overall economic growth and revenue coupled with higher government expenditure will lead to wider fiscal deficits and higher debt,” said Moody’s on Wednesday.

Higher debt levels, weaker debt affordability (amid both lower revenue and higher interest payments) and low buffers will challenge SSA sovereigns’ institutional capacity to manage economies, public health, budget positions, financing strategies, reserves and social discontent, thus elevating event risk.”

According to Moody’s latest report on SSA, commodity producers and tourism-dependent countries like Botswana were hit particularly hard.

Currently no tourist can come to Botswana lest they want to brave the ‘new Covid-19’, incidentally borders have been closed save for goods transportation.

The change in outlook on Botswana (A2 negative) was driven by a fall in demand for diamonds, its principal export commodity, said Moody’s. This has affected Botswana’s GDP which on the third quarter of 2020 was -6 percent, moving from -24 percent in the second quarter which mirrored all the hallmarks of an economy down spiraled by Covid-19 negative ripple effects.

Moody’s furthered its report by picking on overall growth in the SSA region to be associated with lasting impact of the economic contraction, which the rating agency said it will be greater in 2021.

“The region’s long-term recovery is more precarious given that SSA sovereigns have little fiscal space to counter the pandemic’s negative impact on economic activity and preserve productive capacity, and given that structural factors are generally less conducive to fostering a rebound in SSA than in other Emerging Markets,” said Moody’s.

Moody’s said although favourable base effects will help the recovery, real GDP growth will remain lower than historical averages in most countries. Botswana was at last given a glimmer of hope by the Moody’s report, optimism was that non-energy exporters like this country will remain the most dynamic economies, with growth driven by domestic demand and high public investment rates, and a rebound in demand for non-energy commodities.

“Public investment that addresses infrastructure gaps can raise growth both over the near and longer term. However, the impact of public investment on boosting long-term growth potential is determined in part by investment efficiency, which is generally weak in the region. Public investment efficiency is constrained by weak institutional quality, which affects project selection, appraisal and monitoring, as well as high rates of corruption, which can lead to rent-seeking and cost overruns,” said the rating agency.

Moody’s projected that Botswana will average economic growth of 6.5 percent in 2021 as a global growth recovery drives greater demand for coffee and diamonds. This is despite much uncertainty wearing on this country’s prospect of a big leap, the discovery of the new coronavirus variant believed to be at large in Botswana’s shores.

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Sefalana H2:2020 rocket high at P150 million

20th January 2021
Finance Director Mohamed Osman

FMCG sector top player Sefalana Finance Director Mohamed Osman started a year with bringing a smile on investors or shareholder’s face when he announced that Group’s profit before tax for the six month period ended 31 October 2020 will be between 21 percent to 23 percent (approximately P25 million to P28 million) higher than that reported for the comparative period ended 31 October 2019 which amounted to P121.1 million.

In the FMCG entity’s 2020 Annual Report Group managing director Chandra Chauhan said they managed to be resilient despite the winds of Covi-19 which affected most business operations across the continent. Sefalana Group operates in South Africa, Botswana, Zambia, Lesotho, Namibia and recently Australia. Sefalana will be publishing its consolidated financial results of the Group for the six month period ended 31 October 2020 by the end of January 2021.  The share price of Sefalana is at 9.34 thebe before closed period.

“Notwithstanding the difficult times, we have managed to close the year with a sterling performance. Last year we reported our best ever results and this year we have done it again, and are pleased to generate almost exactly the same profit despite the adverse impact of Covid-19,” said Chauhan in the Group’s 2020 Annual Report.

According to Chauhan what could have impacted the group’s impressive financial trail of more than three years would be Covid-19. He said the Group had made considerable progress in the first half of 2020, but then were negatively impacted by the pandemic when their stores were restricted in terms of permitted customer numbers, and when liquor sales were prohibited during lockdown.

For the yet to released second half of 2020 results which are slated for end of this month, Sefalana Group might have not been surprised by almost P150 million to be published because most of Covid-19 regulations were relaxed at the Group’s markets. Restrictions and lockdowns were relaxed toward the middle of the second quarter of 2020.

However Chauhan has a gloomy picture of H2:2020, he said the second half of the year was then impacted by the onset of the Covid-19 Pandemic and many businesses suffered as a consequence.

He said the uncertainty this caused resulted in a more cautious customer, initially forward buying in anticipation of the lock-down, and then reduced buying until after the lockdown had ended.  Chauhan the product mix also moved towards essentials and away from luxury high margin products and net margin mix therefore reduced as a result.

Mostly, Sefalana forfeited profits, approximately P10 million, as a result of the ban on liquor sales during the State of Emergency and lockdown and foreign exchange losses on forward contracts due to the weakening of the South African Rand over a short period of time straddling the year end.

Heavy Covid-19 impacts with regards to Sefalana trading operations disruptions were offset by the Group being used by donors when buying food hampers. Chauhan said they were a “preferred supplier” due to the “competitive prices.”

“We deliberately reduced margins on these orders to maximize the food being made available to those in need. As a consequence, our turnover increased but at very slim margins. Our advance planning enabled us to stock up on key lines and this enabled us to be in a position of having adequate stock of these lines when our competitors had run out,” said Chauhan in the last Annual Report.

For the year ended for the year ended 30 April 2020 the  Group achieved a turnover of P5.8 billion and generated a profit before tax of P259 million, this was despite the coronavirus scourge on businesses.

Move out of SACU to Australia

In its quest to move out of SACU, in April 2020 the Group entered into an agreement to purchase 40 percent of the share capital of an Australian business that operates in the Fast Moving Consumer Goods division at a tune of P70 million (AUD 9.9 million). Seasons Group, the name of the Australian entity, consists of a chain of 7 supermarkets in the Brisbane area.

The effective date of investment was 8 May 2020. This investment will be treated as an investment in an associate, in which Sefalana exerts significant influence, and therefore will be equity accounted. Sefalana entered into this agreement in order to pursue its Group strategy to diversify its income stream and foreign exchange exposure,” said the Sefalana board.

Morevere the Australian investment is expected to yield an additional EBITA of around P15 million for Sefalana for the year ending 30 April 2021. Sefalana intends on expanding its manufacturing business to include wheat milling and to establish our fruit juice and bottled water plant in early 2021.

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