Economy stares into the abyss
Mbongeni Mguni | Friday March 27, 2020 17:29
Besides the risk to workers, Mmegi is informed that suspension of some operations for Debswana could also be because buyers for its stones are unable to enter the country due to an 18-country travel ban imposed as part of measures to limit the deadly coronavirus.
De Beers, the global diamond empire responsible for marketing Debswana’s production, held a video conference with government this week to find ways of continuing its rough diamond auctions in the face of the travel ban.
Each year Gaborone hosts 10 diamond auctions, known as sights, where buyers exclusively contracted to De Beers fly into the country, view the diamonds and make their purchases.
Two sights have taken place already this year, earning revenues of US$906 million. This year, government had expected to rake in P12.4 billion in mineral royalties and dividends, and another P5.6 billion in mineral taxes. The majority of those funds would have come from the Debswana and De Beers chain.
Mmegi is informed that after this week’s video conference featuring senior officials in London, Johannesburg and Gaborone, it emerged that the third sight, due to have been held on March 30, was in doubt. Sights 4, 5 and 6 may also be put off, with the possibility of alternative measures being taken. Mineral Resources, Green Technology & Energy Security minister, Lefoko Moagi told Mmegi that solutions around the issue were still being sought. “Sights have or are likely to be cancelled but they are still exploring the possibility of using technology.
“That is not a difficult thing. The difficulty is that once someone has purchased the goods, how do they then take them to use them because of the travel bans? “For instance, you might see the goods via an online platform and purchase them, but the physical goods need to be moved to where you continue with your manufacturing and that might be the challenge. “We will await Debswana and De Beers to clarify around that.” The travel bans mean Debswana is producing stones that cannot be sold under traditional arrangements. De Beers, government equal equity partner in Debswana, is traditionally reluctant to produce for stockpiling and has said in cases of demand weakness, it prefers to “keep diamonds in the ground”.
The developments bode badly for the maintenance of full operations at Debswana’s mines. Continuing operations also mean enhanced exposure to the virus should it reach local shores.
“There’s a real possibility of Debswana scaling down its operations,” the minister said on the coronavirus exposure to mining operations.
“It has happened before. It is a question of which operations they will look into, looking at all the protocols and we take it from there.
“I can’t say it will be total shutdown because they have to look at all the permutations and advise and we also advise ourselves.”
He added: “Debswana by the end of this week will give us feedback in terms of their response plans, De Beers too. Then, we will take it from there whether its closure of operations, which operations, minimal working or things like that.” Even if arrangements are found for the sales to continue, De Beers’ buyers are facing difficult conditions getting stones to customers. Some of the key diamond markets such as China and India are in lockdown, meaning customers cannot go to shops to purchase jewellery. The main market of the US has tightened travel protocols, but for now is ruling out a lockdown.
China has said it will ease its lockdown in Wuhan, the epicentre of the coronavirus outbreak, but consumer demand for the precious stones remains weak amidst downward pressure from the pandemic on global growth.
Debswana officials yesterday said while the group was currently fully operational, it was planning for a range of different scenarios to “respond proactively”. “One of these scenarios does include possible suspension of operations to combat COVID-19 as we have seen the positive impact of lock-down across the world,” said Agatha Sejoe, corporate affairs manager, in response to Mmegi enquiries. “It is important for Debswana, to act responsibly in line with the directives from government. “Most importantly, the size and complexity of our operations and the implications presented by the various scenarios, require that we comprehensively risk assess all scenarios in order to advise our business partners and shareholders effectively. “The timing of our decisions will largely be guided by emerging developments as events unfold in the coordinated response to the crisis.”
Asked what pressure the inability of buyers to participate in auctions was placing on Debswana’s continuing production, Sejoe said mitigation plans were in place to safeguard the group and ensure sustainability. “Debswana’s focus now is on keeping our employees and contractors safe. “Decisions on scenarios will be made in due course. “We have conducted the necessary risk assessment on all key expansion projects and have developed several scenarios in response.
“We will continue to monitor the situation and keep all stakeholders appraised of any developments.” Meanwhile, the Hospitality and Tourism Association of Botswana (HATAB), the industry body for the sector, says it has submitted a draft proposal to the Ministry of Environment, Natural Resources, Conservation and Tourism on rescuing the sector and the broader economy from the coronavirus’ impact. HATAB’s members are amongst the most affected in the economy, with mass cancellations of tourism and hospitality bookings and mounting job losses in the tourism heartland of the north west. Noting that hotels were operating at 10% of their capacity and that the industry as a whole could lose 80% of its output, HATAB proposed that government establish an Emergency COVID-19 Containment and Recovery Plan (ECCRP) to stem the effects of the coronavirus’ impact.HATAB projects that the ECCRP could cost up to 20% of GDP, which at current estimates is about P40 billion.
“The proposals are premised on the view that the coronavirus is not just a health crisis; it is also an acute economic crisis and an existential threat to society as we know it. “The Botswana economy is certain to be thrown into recession unless containment and recovery measures are mounted successfully. “Extensive loss of business will throw many firms, especially SMMEs, into bankruptcy.
“Jobs will be lost by the tens of thousands and tens of thousands of households will be thrown into destitution. “The urgent task for all stakeholders is to limit the depth of the descent into recession and to lay the foundation for a speedy recovery.” HATAB has proposed a range of interventions for the tourism and hospitality sector, as well as the broader economy, which include initiatives around public health, emergency credit for businesses, 90-day moratorium on loans and debt restructuring, as well as tax relief. The Association is also calling on government to consider instituting a temporary wage cut of 50% for workers, subject to a minimum take home of pay of P3,000, in order to provide relief for firms that keep workers on their payroll. “The payroll cost of affected employees will therefore be shared equally by the firms and the ECCRF.“Furthermore, emergency measures should be put in place to allow companies in coronavirus induced distress, to send employees on unpaid forced leave for up to three months to avoid outright retrenchment.
“Half of salaries of employees on unpaid leave would be paid out of the ECCRF.” HATAB’s proposals come as various ministries finalise proposals from their own sectors to be considered by Cabinet in a stimulus plan expected to be announced soon. Government this week launched a P2 billion Corona Relief Fund with a call for donations in cash and kind from the private sector, NGOs, ordinary Batswana and others. It is expected that part of the proceeds from the Relief Fund could be used in the stimulus plan being finalised.