Tuesday, August 9, 2022

Botswana gov’t hands tied to effect stimulus package

While many people are calling on the government of Botswana to follow global trends and bail out local struggling companies, especially Debswana, the Botswana Insurance Fund Management (Bifm) Investment Committee thinks otherwise.
In its quarterly economic briefing for 4th Quarter of 2008, the committee, led by Dr Keith Jefferis, pointed out that the duration of global recession makes the idea less attractive.
“The government’s ability to do so is limited. The fact is that it (recession) will last for five years. If it was short term, then we could use foreign reserves,” reasoned Jefferis.
“We have to make adjustments in government spending”, he suggested.
The government cash cowÔÇöDebswana is biggest hit company because its survival depends on the successful sales of rough diamonds, but because of US economic recession, diamonds have not been sold since late 2008.
There are no buyers in the US with potential clients concerned about losing their homes and putting bread on their tables. Diamond sales represent two thirds of Botswana’s exports and accounts for 40% of government revenues, which means export revenues are badly affected.
 The company, which has the highest wage bill in the land, is now facing challenges of whether to cut staff permanently or close some of its operations.
 It is also rumoured that the company is operating on an overdraft because government does not find it visible to bail it out at the moment.
Jefferis argued that a stimulus plan will mean drawing from the foreign reserves that have also been affected by the global economic recession.
There has been a concerted call lately to recall the over P60 billion foreign reserves to help the economy and mainly help struggling mining houses, including Debswana.
In the month of November 2008, there were lower levels of diamond exports leading to trade imbalance where imports surpassed exports. There was P3 billion import bill and P1 billion for exports representing a shortfall of P2 billion.
What is happening at the moment is that the country is ‘eating’ and not producing anything.
“If we do not export and continue to import, we will be forced to draw from the foreign exchange reserves,” the former Bank of Botswana Deputy Governor observed.
Botswana’s foreign reserves are invested in different financial instruments, including bonds that have not been severely hit by credit crunch compared to equities.
Therefore, the major threat to reserves is the continuing financing of imports as a result of the slump in commodity prices including copper, nickel and diamonds followed by tourism.
He said by the end of October, the foreign reserves were not hard hit because it was only at the end of October that major stock markets started crushing.
“The reserves are diversified and mostly invested in the bond market. The government bond market is not negatively affected. The bonds performed well in the crisis,” said Jefferis.
“If we go to the stage where the bond market performs badly, then we are vulnerable,” he added.
Meanwhile, this week Blackie Marole, the Managing Director for Debswana, told employees of Orapa and Letlhakane mines that the global economic recession continues to affect the company badly.
He told the workers that there has been a sharp decline in the demand for diamonds from De Beers sightholders with most of them owing money to banks since they raise bridging finance from banks.
“When the crisis hit, they already had bank debt. Due to lack of further funding from the banks, sightholders have not been able to purchase rough diamonds at the normal rate and had to correct their inventory levels and thus having a negative effect upon their ability to further purchase rough diamonds,” the company said.
However, the company was able to make low sales in December 2008 and January 2009 although there were no sales in November.
Marole also told the employees that the company has reduced wastage such as deferring major capital projects, freeze on travel, training, leave encashment and cutting operations for four weeks at the company’s expense to conserve cash.


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