Wednesday, May 27, 2020

Botswana economically vulnerable as global recession fears mount

In what has now come to be known in the international community as the Coronavirus Economy, Batswana are expected to join other human beings living across the globe in “washing hands” and “minimising contact” as one of the few means available to stop the spread of coronavirus. 

The coronavirus outbreak has triggered extreme fear in global financial markets as investors including pensioners in Botswana face up to an unsettling reality: The China-born pandemic could tip the world into a recession.  

Early indications are that for the four months since the first coronavirus case was reported, there has been an acute impact on a relatively narrow set of industries in Botswana. Boat cruise operators in tourism of Kasane are reeling. The country’s diamonds sales in China slowed. Offshore investments mainly made up of pensioners money (BPOPF’s offshore investment is estimated at over P34 billion) recorded a decline. Continuity in power supply in the country also remain uncertain. 

Following a string of deaths, some heart-stopping plunges in the global stock markets and the imminent global recession, Sunday Standard takes a snap-look at some of the key indicators that point out that Botswana remain economically vulnerable should the global economy slide into recession. 

POWER SUPPLY – Morupule B caught snoring again 

At the top of all the risks that faces the Botswana economy now is that of a possible black-out throughout the country due to an imminent interruption to power supply. In short, the return of 2015. 

As recent as two weeks back the company – EPC Contractor which has been tasked with remedial works at the country’s biggest power station – Morupule B notified the Botswana Power Corporation about its failure to mobilise its commissioning team, operational staff, original equipment manufacturer representatives as well as coded welders needed to carry on with remedial works at Morupule B due to travel ban in China. 

The multi-billion Pula power plant has been fraught with problems since it was commissioned in 2014 and is yet to operate at full capacity.

At the same time, the Botswana Power Corporation (BPC) Chief Executive Officer – Cross Kgosidiile says that some of the Corporation’s suppliers are based in China, and that their orders are likely to be delayed. 

“The first unit was scheduled for hand over to BPC by early September 2020 whereas the whole remediation project was scheduled to be completed by January 2023. With the current pandemic, the completion dates will change,” said Kgosidiile. It is not just change in completion dates that is imminent but also load shedding should the country’s oldest power plant – Morupule A, which was recently plugged back to the national grid also fail. Morupule A was recently refurbished giving a further gross generation capacity of 114MW to the national grid. 

TOURISM/HOSPITALITY – Jobs on the line if trend continues 

In recent weeks, the coronavirus has forced thousands of international travelers to stay at their home countries thus slashing demand for flights, hotel rooms and restaurant bookingsin tourists’ destinations such as Botswana. The World Travel and Tourism Council (WTTC) estimate that up to 50 million jobs could be lost because of the pandemic.

WTTC chief executive, Gloria Guevara says the outbreak “presents a significant threat to the industry”

In Botswana, the hospitality sector has already started to record decline in arrivals of international tourists. The Hospitality and Tourism Association of Botswana (HATAB) whose membership include hotels, lodges, tour operators amongst others says the industry has already seen cancellations ahead of the upcoming peak tourism season. 

Lilly Rakorong – HATAB Chief Executive however has expressed hope that it won’t end as ugly. “We are hopeful that doors won’t shut on us”. 

The national airline – Air Botswana on the other hand anticipates adverse impact on its business operations, given its feeder status and reliance on other international Airlines. Globally, the airline industry is set to lose $29 billion, according to the International Air Transportation Association (IATA). In view of the depressed passenger travel patterns, Air Botswana says its schedule has been modified to reflect the impact of the coronavirus pandemic, “…in line with the low business activity that is currently being observed”.

DIAMONDS SALES – The Virus hit the country where it hurts most 

As the second largest economy in the world, China has the world’s largest middle-income population and an enormous market. 

But the purchasing power of the Chinese people particularly of diamonds including those from Botswana seems to be eroding. 

The Chinese Ambassador to Botswana – Zhao Yanbo confirms that there is indeed some impact of the epidemic on the international diamond trade, but it will be short-lived. 

Yanbo says China has largely contained the spread of the virus and that, “China’s huge consumption potential will be released once the epidemic is over”. 

He adds, “I believe diamond consumption in the Chinese market will soon rebound”. 

Despite the positive sentiment by Yanbo, the diamond industry which was starting to show signs of recovery from the past challenging three years has been identified amongst those that will be hampered by the outbreak of the coronavirus. 

Fresh information from the diamond trading markets shows that diamond mining juggernaut De Beers’ second sales cycle took a nosedive, with provisional rough diamonds sold valued at $355 million, which is a 36 percent decline from the year’s first sale, and 28 percent lower than 2019’s corresponding sight that netted $496 million. The fall in what is usually a strong sales cycle is a blow to De Beers which had become optimistic after the past disappointing year. 

As a result of the declining diamonds revenue, Botswana, was even before Coronavirus projected a budget deficit. By early February 2020, when the impacts were of the virus was not as threatening, the expected deficit for 2020/21 was set at P6.9 billion or 3.1 percent of GDP. 

OFFSHORE INVESTMENTS – Over P34 billion in public pensioner’s money at high risk 

With the coronavirus epidemic intensifying, trends are showing that global markets have entered a period of extraordinary volatility. This could mean only one amongst other things – Botswana’s offshore investments including pensioners money could be facing some sort of erosion. A capital markets guru – Alphonse Ndzinge says over the couple of weeks the industry experienced global market volatility and weakness not seen for a number of years from the fall out of the coronavirus outbreak. Ndzinge, who is Chief Investment Officer at Kgori Capital says the market volatility was also exacerbated by the latest massive decline in the oil price.

As a result, Ndzinge says the mix of shocks will probably result in a technical global recession (two consecutive quarters of negative GDP growth) in mid-2020. 

“The intensification of Coronavirus containment measures such as rising social distancing; the rising health and economic uncertainty; the continued financial market turmoil; and the unprecedented oil price collapse could leave global growth close to zero or even slightly negative in 2020. This is quite significant if you consider that since 1980, annual global growth has only been negative in 2009 and only below 1.0 percent in 1982”, says Ndzinge.

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