…the fall and fall of an African miracle
Was the P2 billion bailout of the banking sector a telltale that the economy is on a sick bed? How about the recent sustained job loss in the mining sector? It appears the banking and mining sectors – the engine of growth – have been flagging that our economy is ailing and needs a quick fix. But the writing has always been on the wall – all the economic indicators point to an ailing economy. Even a local diamond guru, Mmetla Masire admits that this has been the longest and toughest time for the diamond market. Diamonds are the mainstay of the economy but demand has been declining.
The contagion has affected the labour market too – as subdued factory production has led to lay offs, driving unemployment to record highs of 22 percent. Government is expected to tighten its spending screws, while on the other side the private sector is under pressure to survive the tough economic times. Low and unreliable rainfall is also putting pressure on food security and threatening to frustrate central bank efforts to control inflation.
Wheels appear to be turning off for the mineral-led economy as water shortage and electricity crisis put spanner on the works. Small business with no capacity to supplement these commodities has folded their operations or is struggling to survive.
Diamonds lose sparkle
Stomachs are churning again as diamonds, the mainstay of the economy endure a historic loss since the fall of the Lehmans Brothers. China, a sizeable consumer of luxury goods, including diamonds is sliding into deep economic trouble. Major currencies such as the rand and the Yuan are sliding too along with Chinese and German stock prices adding nervous sentiment in the diamond market, where margins are being squeezed by high inventories driving prices lower and slower consumer demand in Asia.
Analysts say banks interest income profits will remain under pressure as long as the interest rate environment remains low.
Masire is not that worried but admits that sluggish demand for diamonds caught the market by surprise and is responding slower than they had anticipated. “We expected that the stockpile that is still there would have been finished by now, unfortunately that’s not the case.” He forecasts a rebound in December, a busy month for the diamond sector.
Masire says despite the slow turnaround, there is still confidence in the local market as remaining diamond companies have stayed put, without any closer and any liquidation. “Out of 20 companies only two shutdowns and the rest remain in business,” he said, adding that another one will be opening showing a lot of confidence in the local market.
The supply glut will weight down on other commodities too. A slowing China dragged copper prices. Several copper mines are cutting down on production. Australian firm, Discovery Metals Limited is the latest casualty of a slump in demand for copper.
World rich markets have regained their poise. In the US, latest data shows an uptick in retail sales and industrial output during the month of July. US retail sales and industrial output were up 0.6 percent in July compared to the previous month. In the broader market, the main polishedprices index posted further losses during the week; opening at 126.14 on Friday, from Monday’s opening at 129.66.
Banks watch as profit shrinks
Analysts say banks interest income profits will remain under pressure as long as the interest rate environment remains low. “Most of the banks have started making better profits on non interest income” Tlotlo Ramalepa an analyst at Motswedi Securities says, explaining that this is an innovative way to make money during this time for banks. Ramalepa also pointed out that the rate cut is used to spur economic activity. “The impact of the rate cut take time to be realised,” he said.
Job market subdued
The latest figures from Statistics Botswana show that the country’s unemployment rate is at around 20 percent, while poverty levels are estimated at over 20 percent, together with radical income inequalities. During a presentation this year in June, renowned economist Keith Jeffries of E-consult said formal employment growth was slow at 0.6 percent in September 2013. He painted a depressing picture when he indicated that the economy managed to create 1, 859 new jobs in 12 months while approximately 15-20 000 new jobs are needed each year. Job losses and lay-offs also compound the problem. Discovery Metals Limited retrenched around 400 employees, while Cadbury recently shut its doors and left many stranded.
Government has approved paying 85 percent of the last 2014/15 seasonal loans to eligible farmers under the ACGS.
In the heart of dryness
Rainfall patterns in Botswana are becoming erratic and threaten to put pressure on the food and inflation in 2015. Regions such as Pandamatenga, Barolong Farms and Tuli Block have enjoyed bumper harvest in the past, but analysts fear that lower food production will have significant impact on prices and push inflation. Botswana faces drought. Citizen Entrepreneurship Development Agency (CEDA) and National Development Bank (NDB) were given a lifeline by government to cover costs they loaned to commercial farmers under the Agriculture Credit Guarantee Scheme (ACGS).
Minister of Agriculture Patrick Ralotsia revealed that government has approved paying 85 percent of the last 2014/15 seasonal loans to eligible farmers under the ACGS. Ralotsia said that P103 million has been spared to payout farmers for both CEDA and NDB.
Water, power outage diming economy The ailing economy is expecting to take a further beating as the country battles its worst water shortage and power outage because of lackluster implementation and project monitoring and drought.
State owned power producer, Botswana Power Corporation has been struggling to keep lights thanks largely to a failed power station project, Morupule B. in the southern part of the country dams remain dry and drawing the much needed drink from the northern part of the country has been marred by delays and mismanagement. The mineral led economy is heavily dependent on water and electricity. Small businesses are struggling to remain afloat as a result of frequent power cuts. Construction and manufacturing have been the worst affected creating a persistent risk to the economy and business confidence.