Wednesday, March 22, 2023

Shrinking diamond sales to have negative impact on government revenues

Keith Jefferis of the Botswana Insurance Fund Management (Bifm)’s painted a bleak future on the economy of the country pointing at the down sales of diamonds saying that they will be much poorer than originally thought.
Jefferis said that the performance of the diamond industry will be 67 percent lower and mainly blamed the global economic downturn.

“It is now that the world economy is in deep recession, with the last quarter of 2008 and the first quarter of 2009 showing the most severe contraction in economic output for 80 years,” he said in his Bifm Economic Review.
“Of more immediate concern to Botswana is the impact of the global crisis on commodity prices,” he added.

The prices of commodities, such as copper fell about 70 percent in the last quarter of last year although they are showing some signs of recovery towards the close of the first quarter of this year. However, even though there are some signs of diamond recovery there is still some constrains on the pipe-line and the general economic mood ÔÇô especially in the major end market consuming countries.

“The ability of diamond producers, such as Botswana, to sell and export rough diamonds depends on both the level of retail demand and the resumption of credit availability. Growth in retail demand is likely to be slow given the very low level of consumer confidence in the major industrialized economies, and the likelihood that increased consumption of luxury goods will only come quite late in the recovery cycle, after housing and motor vehicle start to pick up,” he said.

However, credit facilities are easing nowadays, with USA government and the rest of the world having come with stimulus packages trying to aid the ailing companies. The US government is also planning to come with a US $ 250 million facility for the diamond cutting and polishing companies in Botswana but the question is whether the industry will be able to pick up from where they left off before the crisis.

“The diamond market is less transparent that, for most of other commodities, market forecasts are less readily available that they are for copper or gold,” he claimed.

Jefferis said diamond production in Botswana is expected to fall by almost two-thirds in 2009 due to the shut-down of some mines and the scaling-down of production at Jwaneng and Rapa mines. The level of production, he said, should approach “normal” levels in 2011 but would not reach the 2007 levels until after 2013.

“The turmoil in the diamond market inevitably raises questions regarding Botswana’s relationship with De Beers and whether it needs to be changed. Both De Beers and Debswana are in a weak financial position, and if government is being requested to provide financing, then it should be considering what it requires in return; for instance, should be government be considering increasing its stake ?,” he asked rhetorically.

This comes at a time when the marketing agreement for Botswana diamonds comes up for renewal before the end of this year and government has expressed an interest in having some of the gemstones being sold through an auction. Auction sales or a parallel market to De Beers are thought to be producing better results compared to De Beers price book.

However, one of the main shareholders in De Beers, the Oppenheimer family, has pointed out that they are willing to loan out the company some money if need be, and added that the company is thought to make some profits even if its sales were to slump by 50 percent.


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