An economy under siege

Prospects for 2023 are mixed, with lower growth and a deterioration in the trade balance anticipated as diamond exports slow, an economic think tank has warned. Econsult shows in its Q1 2023 report that the international market for rough diamonds experienced a rough start to 2023, with De Beers’ Global Sightholder Sales (DBGSS) recording lower sales in the first three sales cycles of the year.[ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="1" ] Compared to the previous year, author of the report Sethunya Kegakgametse found that total sales in the first three cycles of 2023 were 20.6 percent lower than they were in 2022. She says this reflects subdued global demand for diamonds and diamond jewellery from the world’s two biggest markets, China and the USA. Diamonds sales agreement delays The Econsult economist notes that the economy is also weighed down by a number of uncertainties, top of the list being delays in concluding negotiations between the Government of Botwana and De Beers on a suite of critically-important diamond marketing and mining agreements. Diamonds are the backbone of Botswana’s economy, averaging nearly 90 percent of total exports. Statistics Botswana has shown that total diamond exports recorded an increase of 20.4 percent y-o-y in 2022, however, on a quarter-on-quarter basis, total exports fell by 35.2 percent between Q3 and Q4 2022. Diamond exports increased for all categories of exports except for re-exports. Botswana rough and polished exports increased by 48.3 percent and 91.8 percent respectively while decreasing for re-exports by 44.9 percent between 2022 and 2021. But the revenue stream that Botswana has enjoyed over the past years lies in limbo, with Botswana threating to end its public-private partnership with De Beers of their 50/50 jointly owned Debswana. A Rapaport Research Report notes that the marketing agreement has garnered more attention as it facilitates the country’s beneficiation programme – the process of adding value to its mining operations by enabling services further along the supply chain such as manufacturing and trading. President Mokgweetsi Masisi has demanded a higher share of diamond output for its own sales and is known to have threatened to walk away from the 54-year relationship if his demands are not acceded to. Masisi told a Botswana Democratic Party rally in his native Moshopa that Botswana stands ready to walk should the outcome of the discussions not be what the government wants. This is because, as the President said, Botswana is not getting enough out of its diamonds. “The agreement that we have with our partners is not working as expected,” he said. “We are currently deep in negotiations to get a better deal and we will get it. We will support Minister Lefoko Moagi to ensure that Botswana gets better returns from these diamonds that we mine.” Botswana owns a 15 percent stake in De Beers Group with Anglo American holding the remaining 85 percent. The government and De Beers are in a 50/50 joint ownership of Debswana, which houses the Jwaneng, Orapa, Letlhakanane and Damtshaa mines, as well as in Diamond Trading Company Botswana (DTCB). DTCB sorts and values for distribution to De Beers Global Sightholder Sales (75 percent) and the government’s Okavango Diamond Company (25 percent). It is understood that Botswana would like the ODC portion raised to 50 percent. Dividends, employment compromise Rapaport reports that government earns dividends from DTCB’s sales to De Beers Global Sightholder Sales and, as a 15 percent owner of De Beers, would be compromising its potential revenue there. Furthermore, the report notes that De Beers Global Sightholder Sales employs 234 people, of which 220 are Batswana, arguing that reducing its activity would put these jobs on the line. Reports suggest that “today there are 48 cutting and polishing companies operating in Botswana, with employment in the sector nearly doubling in the past year to 4,001 workers as of January 15, 2023”. However, industry experts say while Botswana may get a better deal on paper by cutting ties with De Beers, the country should be wary of the indisputable fact that De Beers knows the intricacies of the diamond industry value chain like no other player. Enter HB Antwerp While its long-term relationship with De Beers remains in limbo, the government has announced that it has bought a 24 percent stake in the Belgian manufacturer HB Antwerp. “Together (with HB) we have created an entirely new business model for mineral infrastructure, radically upending the narrative on how extractive industries can work with and for countries of origin to bring greater shared economic development and prosperity,” Masisi was quoted saying by the media. “Once we decided that it was time to change course, we knew we needed to fundamentally alter our way of working and find partners who shared this vision.” Observers argue that HB is little known hence cannot match De Beers. Sheila Khama, former CEO of De Beers Botswana, wrote on Twitter account: Has Botswana “just injected cash into a 3year old entity with no track record from Belgium so same company has cash to buy our best [diamonds]?” Import bans Kegakgametse of Econsult has also highlighted the threats of further import bans, which would be in conflict with Botswana’s commitments under the Southern African Customs Union (SACU) Agreement and the African Continental Free Trade Area (AfCFTA) agreement that it recently signed. The World Bank has also warned Botswana to desist from relying too much on restricting importation of goods into the country. Over the past few years, the country has imposed a ban on importation of water, vegetables, fertilisers and has threatened to ban more goods in an effort to boost local production. In its latest Macro Poverty Outlook for Botswana, the World Bank is clear that this is not quite the path to follow because “it put(s) pressure on domestic prices”. “Excessive reliance on import substitution and restrictions to promote industrialisation should be avoided,” says the Bretton Woods institution. “Import restrictions to promote local industries put pressure on domestic prices.” Food inflation While the rise in inflation has been due to several factors that include persistent increase in fuel and food prices, Econsult previously found that that was made worse by the ban on importation of many vegetable items. “This has, in turn, had a negative impact on households, especially low-income households, who are already struggling with rising prices,” economists at Econsult, wrote in the report. “It has also led to shortages, and, as should have been expected, smuggling of basic items such as onions into the country,” they observed. This was after government banned tomatoes, carrots, beetroots, potatoes, cabbage, lettuce, garlic, onions, ginger, turmeric, chili peppers and butternuts with effect from New Year’s Day last year. Danger of protectionism During an economic forum last year, government senior policy advisor, Dr. Keith Jefferis also added his voice to this view, saying there is a danger that too much emphasis on protectionism is inconsistent with global integration. While there is an argument in some cases for supporting local activities, Jefferis argued that it has to be done carefully and cautiously because export-led growth is about regional and global integration. “That refers to open borders and that’s a fact,” he said. Botswana has ambitions to become a high-income country by 2036 (although the consensus is that this is unattainable) with an export-led economy based on diversification, inclusive and sustainable growth, and high productivity. “We have to be cautious in the extent to which we impose border restrictions that may make trade difficult and expensive rather than easier,” Jefferis said. Absa economist, Ridle Markus, saw things this way: “If we cannot do it more efficiently and cheaper than the next market, there is no point of doing it. That is going to be costly.” HATAB confronts Molao At its annual conference last year, the Hotel and Tourism Association of Botswana (HATAB) questioned the lack of planning to ensure that the policy would not impact on hospitality operators or consumers in terms of skyrocketing prices. Lily Rakorong, the CEO of HATAB, asked the minister of Agriculture whether there was any regulatory impact assessment done and whether it was tested. Her concern was that government should have had a plan to minimise the impact. In answering, Minister of Agriculture, Fidelis Molao, was non-committal and not much forthcoming about what the government had done before implementing the policy. Pressed further on assessments, Molao’s response was a mince of words. “Not really,” he said. “We are working on that to see where we are.” There are so many questions that Absa’s Markus said need to be considered: “You don’t suddenly close the market for imports and say we must produce for ourselves,” he said. “Do we have the capacity? Do we have the skills? Do we have the knowledge?” In February this year, Assistant Minister of Agriculture, Molebatsi Molebatsi, told Parliament that thus far no research or review was undertaken on the vegetable import ban to see if it has indeed influenced the country’s balance of trade or whether local horticultural farmers are up to the task. “We should note that the imposition of restrictions on importation of vegetables is only 12 months into the 24 months allocated to it,” Molebatis said in Parliament. “It is still too early to judge its success and come to any conclusions.” Kegakgametse suggests that uncertainties need to be removed if there is to be sufficient private sector investment, including foreign direct investment (FDI), to underpin competitiveness, export-led growth, and job creation. No net increase in employment Like inflation, she said, unemployment remained worryingly high. Notwithstanding the generally positive economic developments, Kegakgametse is worried that the slow pace of employment creation and continued high rate of unemployment remains the economy’s Achille’s heel. The unemployment rate has regrettably risen during NDP 11 from 17.5 percent of the labour force in 2015 to 22.2 percent in 2019 and further to 26 percent in 2021, according to finance minister Peggy Serame. She attributes the increase in particular to the impact of COVID-19 even though unemployment had been rising before then. “I am pleased to note that, however, according to preliminary data released by Statistics Botswana in January 2023, unemployment declined slightly to 25.4 percent in the fourth quarter of 2022,” finance minister Serame said in her budget speech this year. While this is a small change, she said, it is encouraging that the unemployment rate is moving in the right direction. However, according to Kegakgametse, this decline was mainly due to a shrinkage in the estimated labour force rather than jobs being created, as the employed population remained largely unchanged over this 12-month period. “The fact that economic growth of almost 6 percent did not lead to any net increase in employment is disappointing,” she says. Economy prints annual GDP decrease Econsult has indicated that the economy in 2022 showed a decrease in annual GDP growth to 5.8 percent. Kegakgamtse notes that this was broadly in line with expectations but was sharply lower than the 11.9 percent growth recorded in the previous year. “However, the two years cannot be directly compared,” she says. “This is because 2021 was an exceptional year, with the economy experiencing a robust recovery from the COVID-19 pandemic as a result of a surge in diamond sales and increased economic activity that had been suppressed by COVID-related restrictions around the world,” Kegakgamtse explained. She points out that economic performance in 2022 is attributable to a decrease in mining sector growth, which fell to (a still strong) 7.5 percent from 29.8 percent in 2021. Non-mining private sector growth also fell during the period to 5.5 percent from 8.8 percent. “Overall growth in 2022 was in line with expectations of lower growth during the year but fell below projections of 6.7 percent by Ministry of Finance and 6.4 percent by the IMF,” Kegakgametse says, adding that this partly reflected downward revisions to the published national accounts data for the first three quarters of 2022 upon which the earlier estimates for the year as a whole had been based. [/ihc-hide-content]

Botswana Karate Team Reflects on World Cup Journey

UDC govt prioritises school sports, athlete welfare – Kelebeng

Coaches shape youth life skills, personal growth

Kesitilwe aims to lead BFL into a new era

BOKA Appeals to UFAK Over Withdrawal from Hosting Championships

BFA promises accountability as league kicks off

Trending Tags

Botswana Karate Team Reflects on World Cup Journey

UDC govt prioritises school sports, athlete welfare – Kelebeng

Coaches shape youth life skills, personal growth

Kesitilwe aims to lead BFL into a new era

BOKA Appeals to UFAK Over Withdrawal from Hosting Championships

BFA promises accountability as league kicks off

Trending Tags

An economy under siege

Botswana being a primarily mono-culture economy, slowing diamond exports mean slowing growth at a time when negotiations for a new deal with giant global diamond miner, jeweller and retailer De Beers are running out of time with little progress thus far indicated

Navigation

Recent News

Site

Welcome Back!

Retrieve your password

Are you sure want to unlock this post?

Are you sure want to cancel subscription?

Trending Tags

Trending Tags

An economy under siege

Botswana being a primarily mono-culture economy, slowing diamond exports mean slowing growth at a time when negotiations for a new deal with giant global diamond miner, jeweller and retailer De Beers are running out of time with little progress thus far indicated

This content is locked

Navigation

Recent News

Site

Welcome Back!

Retrieve your password

Are you sure want to unlock this post?

Are you sure want to cancel subscription?