Sunday, September 20, 2020

Economic slow-down likely to hurt diamond exports

Analysts praised government decision to lower fuel prices Friday but warned that the global economic slow-down that has been pinning crude priced down might have a more negative impact on the country’s diamond driven economy.
A statement released by the Ministry of Minerals, Energy and Water Affair Thursday said that petrol prices will go down by 100 thebe, diesel by 150 thebe and paraffin at 100 thebe.

The move was prompted by the drastic decrease in the international crude oil prices which reached US $ 147 per barrel in the second half of the year but was at US $ 96 per barrel by the beginning of this week.

“I think there is still room for the prices to come down but the biggest worry is the economic slow-down in the USA, Europe and Asia. That is likely to affect the prices of our minerals,” head of Capital Asset Management, Leutwetse Tumelo, said Friday.

His views were equally shared by Geoffrey Bakwena the chief executive officer of Stockbrokers Botswana who said although the reduction in fuel pump price will mean an increase in the household’s disposable income the danger is that it will affect the purchase of “our diamonds” if the big economies are faced with an economic slow-down.

The USA, which accounts for 45 percent of diamond jewellery sold around the world per annum, was faced with one of the biggest economic melt-downs in recent memory as big banks went bust and insurance company AIG was taken over by government to avoid the biggest corporate failure in history.

Elsewhere across the developed countries, central banks injected billions of dollars to hedge against possible corporate failure which were sparked by the sub-mortgage crisis of the USA.

“Fuel prices are going down because of the economic slow-down in the developed countries. There is not enough demand because of the economic crisis and it means our diamonds are likely to be affected as well,” Tumelo said.

Diamonds account 33 percent of the GDP and over 50 percent of government revenues which put Botswana in a very precarious situation.

“This is going to affect our exports sooner or later,” he said, adding even if there is a strong growth in Asia it would not help the situation because their purchase for diamond jewellery is low compared to the USA.

“The crude oil prices have been coming down significantly leading to a slow increase in the inflation rate. But I doubt that inflation will be within a single digit by the end of the year,” Bakwena said.

However, he said crude oil prices are likely to stabilize at around US $ 80/85 per barrel.

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