Uncertainty returns to haunt economic recovery

Uncertainty returns to haunt economic recovery
Uncertainty returns to haunt economic recovery

After a year in which the economy began to recover from the record slump in 2020, the emergence of the Omicron variant and attendant lockdowns in the key markets for Botswana’s commodities has once again raised the unwelcome threat of uncertainty. Staff Writer, MBONGENI MGUNI reports

Diamonds, the country’s single most economically important commodity, are usually the first to hint that the country’s fortunes will go through a testing period. Being intricately linked to international markets such as the United States, China, India and diamond centres such as Brussels and Tel Aviv, the country’s diamonds act as a wet finger in the wind for the local economy.

The recessions of 2009 and 2015 were all first tasted by rough diamonds and eventually driven by them. Debswana, the country’s predominant producer of precious stones, has an expression for the instability global markets often bring to the local economy: Volatile, Uncertain, Complex and Ambiguous or VUCA.

The rise of the highly mutated Omicron variant in late November has brought VUCA to the local economy, which had been beginning to warm up from the steep contraction of 8.5 percent last year. The forecasts of 9.7 percent growth for this year have not been officially revised, but finance ministry technocrats are certainly carefully assessing the new variant’s impact on the numbers.

Staying steadyOn Wednesday, De Beers, the government’s equal equity partner in Debswana, announced provisional sales of $332 million in its 10th and last auction for the year, about 27% down on the same period last year and 24% down from the ninth auction.

Group chief executive officer, Bruce Cleaver, however, said sales over the year were stronger than the pre-pandemic year of 2019 and ‘much stronger’ than the COVID-19 hit 2020.

“Consumer demand for diamond jewellery is continuing to perform very well over the key holiday period, so we head towards the new year with positive trading conditions and industry sentiment,” he said.

In fact, De Beers expects that whatever the impact of Omicron on its rough diamond business, the impact will be softened by measures already taken during previous pandemic waves to insulate the business. De Beers holds 10 sights or auctions in Gaborone each year where rough diamonds from its operations across the world are offered for viewing and buying by its exclusive list of buyers known as sightholders. After the onset of COVID-19 last year, De Beers was forced to cancel its third auction and move its sales closer to other international diamond centres.

De Beers’ executive vice president Diamond Trading, Paul Rowley, told BusinessWeek that should it become impossible for its buyers to travel to Botswana for rough diamond auctions, the group would continue with an already tested alternative of offering viewings in other locations.

“As has been the case throughout the year, we will offer viewings in other locations, as well as hosting the sight (auction) in Botswana for clients who are based locally or those who elect to travel to Botswana and are able to do so in light of the prevailing travel restrictions,” he said.

Strict COVID-19 protocols remain in place across the mines to protect workers and the diamond giant has also been one of the biggest private sector financiers of government’s COVID-19 response.

Outside diamonds, the overall mining sector has largely rebounded from last year, thanks to growing international consumer demand, the institution of COVID-19 responses and the opening of local borders.

Tricky tourismThe economy’s other major pillar, tourism, is equally exposed to the new variant’s potential impact. According to the World Travel and Tourism Council (WTTC), which produces the world’s most authoritative reports on value in the tourism sector, Botswana’s travel and tourism sector contributed about P19 billion to the overall economy in 2019, while employing about 71,000 workers.

COVID-19 and its impact on travel, borders and arrivals, shrank this contribution down to P9.6 billion last year, with about 53,000 jobs.

Despite the contraction, tourism and travel remain a strong contributor to the economy being a key avenue for foreign currency receipts and an engine of economic activity for towns and villages in the remote parts of the country.

The country’s ‘high value, low impact’ tourism approach used formally since the year 2000, means tourists from areas such as the US, the United Kingdom, the European Union, Japan and others are the primary source markets for the local sector.

All these countries and more slapped travel bans on Botswana and other Southern African countries from November 26, citing the uncertainty around Omicron. By Wednesday, most of these countries still had travel bans in place for Botswana, although the UK removed its restrictions last week. US president, Joe Biden on Tuesday announced that the country was also considering the relaxation of its own ban in the short term.

Despite the positive developments recently, the impact of the November bans has already been felt in the local tourism sector with cancellations of bookings and loss of incomes.

Okavango Wilderness Safaris, the country’s largest tourism group with 18 camps located in prime safari areas such as the Okavango Delta, says the Omicron bans and uncertainty came at a time when the business was banking on the peak April to September season to recover from the COVID-19 impact.

Wilderness’ profile in local tourism is significant, employing about 1,000 workers and with 85% of its procurement done locally, the group supports businesses and communities in areas such as Ngamiland.

“We were really thinking that from April this coming year, we would be out of the woods,” Okavango Wilderness Safaris chair, Kabelo Binns told BusinessWeek recently.

“Once we are in trouble, the knock-on effect for the entire district is very huge and we have seen it in indicators of poverty such as crime and others.”

However, like De Beers, the Omicron wave finds Wilderness better prepared.

“Our position is that we have great faith in the protocols in place and in fact, the whole region has done very well with limited vaccine supply, to make sure the industry is a lot better than it could have been.

“That’s the best that we can share with the agents,” the chairman said.

Niggling numbersThe uncertainty caused by Omicron comes as Peggy Serame, the finance minister and her technocrats were finalising the budget process for the 2022-2023 financial year. In fact, according to the budget calendar, the November 26 travel bans came on the same day Serame’s ministry was scheduled to present the proposed budget to a sub-committee of the Cabinet, as part of the last steps to an official presentation in Parliament next year.

The VUCA nature of national budgeting in a pandemic that regularly produces new variants can be seen in the fact that the forecast deficit for 2021-2022 was upgraded to P7.75 billion in August, from the original forecast of P6.03 billion made in the February budget speech. Earlier this month, Serame told legislators the forecast deficit had been further revised to P10.2 billion.

The country’s budget has been running shortfalls since 2017-2018, essentially meaning that since that year, the government has been spending more than it receives or makes.

The situation has caused the erosion of reserves housed in the Government Investment Account (GIA), as well as higher borrowings from the local capital market and external financiers.

“These persistent budget deficits have resulted in the depletion of accumulated government savings in the face of high levels of spending and reduced revenue,” Serame told Parliament recently.

“As a result, the country has had to rely on debt to finance its fiscal deficits.”

The only sustainable way out of the fiscal hole is to improve the performance of the domestic economy but the uncertainty brought by Omicron suggests the various programmes government and the private sector have initiated in this regard, will take a knock in the short term.

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