Monday, November 29, 2021

De Beers contributed to liquidity crisis – MP

Gaborone Bonnington South MP, Ndaba Gaolathe, has mentioned diamond mining giant, De Beers, among entities that contributed to the liquidity crisis which he says has gripped the banking sector but which has been denied by the Governor of the Bank of Botswana.

For almost four decades now, De Beers has been tearing vast swathes of land at four locations (and counting) to extract diamonds and sell them abroad. The Jwaneng mine that it co-owns with the Botswana government through Debswana Diamond Company, is the richest in the world in terms of its content of gem-quality diamonds. Gaolathe says that profits from this commercial venture are not invested in Botswana but elsewhere.

“Most large investors in the country, including De Beers as partner in the Debswana mining company, repatriate their profits, and do not necessarily deposit or invest it in Botswana. The more mature the investment, the more it is repatriated over time,” the MP says in starting a thoughtstream about how the liquidity crisis came about.

Reason Two is that private real earnings (especially those of the civil service which is the largest single formal employer) have been falling over the past few years due to the government’s salary freeze. Gaolathe says that as a result, private individuals have not had much to put in their savings accounts.

The third reason he gives is that not much foreign investment has been coming into the country. The fourth is that many of the institutional investors, including pension funds, are increasingly placing their money in portfolio investments abroad and not locally. The fifth is that the government expenditure has not been increasing rapidly in real terms and deposits are now predominantly kept with the central bank.

The sixth is that local businesses – including farming operations – have had a lackluster performance over the last few years due to a number of factors including the world recession and subdued government expenditure.

“The effect has been little profits to place as deposits with banks,” the MP says.

The seventh reason that Gaolathe gives is that a “progressively restrictive” monetary policy that has been at play over the last few years has resulted in the increase of financial reserve requirements as well as removal of government deposits from commercial banks.

“Poor financial intermediation, lapses in financial/saving products – or lack of financial markets depth in general, are some of the other factors that are contributing [adversely] to the liquidity situation. So, it is evident that some of the causes are systematic and require longer-term solutions. The solutions are also broad-based and require the interventions of many stakeholders over and above the Ministry of Finance or the Bank of Botswana,” the MP says.

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