The second quarter of 2016 has seen some gradual improvement in the overall macro-economic situation in Botswana. According to the Econsult Economic Review, after a dismal performance of the diamond sector in the second half of 2015, the recovery in sales of rough that started in the first quarter of 2016 continued through the second quarter. The review further stated that the reduction of rough supplies in 2015 had the desired effect of unblocking the diamond pipeline and the downstream diamond traders, cutters, polishers and jewellery retailers and restored demand for rough.
“This recovery provided a major boost for export earnings and government revenues, such that the large balance of trade and fiscal deficits experienced towards the end of 2015 should have been eliminated, or at least significantly reduced,” reads the review.
The review also highlighted that consumer demand for jewellery remains weak, especially in China, meaning that even a restored flow of diamonds through the pipeline is at lower levels than in recent years. The Econsult review stated that the ability of mid-stream players to hold diamond stocks is also under pressure, especially with the announcement by Standard Chartered Bank that it is withdrawing financing of diamond firms, which will take around $2 billion out of the global industry.
“Even though the market has stabilised, major producers are being extremely cautious, and Debswana has no plans at present to increase production above the revised target of 20 million carats for 2016,” reads the economic review.
The review further indicated that other signs of weakness are reflected in the decision by one of Botswana’s smaller diamond producers, Gem Diamonds, to reduce production at the Ghagoo mine. Meanwhile, the review stated that the global market for diamonds in the second quarter of the year has been generally stable, with demand for rough diamonds and corresponding rough prices reflecting demand from consumers and diamond cutting and polishing firms.
Sales by De Beers Global Sightholder Sales (DBGSS) in Q2 improved when compared to the same period in 2015, from USD1,520 million to USD1,856 million. De Beers’ fifth sightholder and auction sale was successful and rejections were made only on lower quality goods. “Sales at the fourth and fifth sights of the year were slightly below those of the third sight, and the industry remains cautious of market developments,” reads part of the review.