Hope glitters after diamond distress
Mbongeni Mguni | Friday February 5, 2021 11:35
Statistics Botswana figures released this week showed that exports of locally produced stones dropped to P23.7 billion in 2020 from P32.7 billion in 2019, while the main producer, Debswana, saw its production fall to 16.5 million carats from 23.3 million carats in 2019. State-owned diamond company, Okavango Diamond Company, which is allocated and sells a portion of diamonds from Debswana, saw its sales drop to $206.2 million (P2.3 billion) in 2020 from $440.3 million (P4.8 billion in 2019, further worsening the impact on government mineral revenues.
“The year 2020 was a tumultuous year for the global industry and Okavango Diamond Company, like the rest of the diamond industry was adversely affected,” Dennis Tlaang, the state diamond company’s communications coordinator told BusinessWeek.
“Okavango Diamond Company faced challenges of making sales during this period while managing a delicate balance between responsible selling and access to the market.
“The restrictions on travel resulted in Okavango Diamond Company not being able to host sales in April and June.” Debswana, meanwhile, which is the economy’s single most important corporate entity, faced similar problems, forcing it to restrain production under a group policy where stones are left in the ground during periods where demand is tested.
“Rough diamond production decreased, driven by continued planned reductions in response to the lower demand for rough diamonds caused by the COVID-19 pandemic and operational challenges at Orapa that led to lower than expected production,” officials stated. For the national economy, the impact was evident in the figures unveiled on Monday by Finance and Economic Development minister, Thapelo Matsheka. According to the budget speech, mineral revenues, which are largely made up of diamond revenues, fell by P13.5 billion from P20 billion in the original budget to P6.6 billion.
The collapse, set against higher COVID-19 related expenditures, meant that government dipped more aggressively into the reserves housed in the Government Investment Account (GIA) leading to its near depletion.
Matsheka expects mineral revenues to reach P23.2 billion in 2021-2022, accounting for 36.3% of revenues. The minister’s forecasts are based on the recovery seen in the diamond markets from the third quarter of the year, but on Monday he also acknowledged that there was a significant risk of yet another blow to the projections.
“Should this recovery not materialise, and a larger budget deficit appear likely, it may be necessary to introduce adjustments in the form of cutting expenditure during the financial year, if necessary by the withdrawal of warrants,” he said.
Matsheka will draw comfort from De Beers’ figures on Wednesday showing that the diamond giant’s first auction of the year has surpassed the earnings from the first auction of last year. De Beers, which is government’s equal partner in Debswana, earned $650 million (P7.1 billion) from its first auction of rough diamonds up from $551 million (P6 billion) from the corresponding auction in 2020. “With the midstream starting the year with low levels of rough and polished inventories, and following strong sales of diamond jewellery over the key holiday season in the US, we saw good demand for rough diamonds at the first cycle of the year as midstream customers sought to restock and to fill orders from retail businesses,” De Beers CEO, Bruce Cleaver said.
“Sales of rough diamonds are also being supported by expected demand ahead of Chinese New Year and Valentine’s Day.”
“While risks to recovery as a result of ongoing restrictions on the movement of both people and goods persist, we have been encouraged by demand conditions.”