Debswana in cautious 10% output ramp
Brian Benza | Friday October 11, 2013 15:54
Most of Botswana's markets for diamonds are flat on the back of the sluggish global economic conditions while the Indian market, the largest cutting and polishing centre in the world, has been hard hit by exchange rate and liquidity constraints.
Addressing the media in Gaborone this week, Debswana Managing Director Jim Gowans said the diamond market only realised some growth in the first six months of the year but the mood has been flat since then.
Debswana produced 11.9 million carats in the first six months of the year on the back of a mildly positive market mood.
' This year and the next, growth in the diamond market will be slow. The cheaper goods might have done slightly better but most of the markets are facing challenges.
'We have seen steady growth in the US and we don't expect the current financial problems in that country to significantly impact us, unless if its too prolonged. Japan has started to show some signs of recovery, China is showing some strength as well but the Eurozone is still slightly in the negative,' he said.
On Debswana's contribution to government coffers, Gowans said he expects the company's injection into the fiscus to be above last year's as the prices of diamonds have improved this year.
'We are on target to produce more carats this year and prices have firmed a bit as well, so our contribution to the country should be above last year's levels,' he added.
Prices and output fell by 12% respectively last year from the 2011 levels pulling down government revenues from Debswana's diamond sales to an estimated P10 billion from P16 billion in 2011.
Government receives 80% of Debswana annual revenues being dividends, taxes and royalties, while the remainder goes to De Beers.
In an attempt to cushion the impact of the diamond market downturn on government revenues, Gowans told Mmegi Business last November that Debswana had to pluck P3.4 billion from its capital reserves for distribution to shareholders.
'Due to the sluggish market conditions, we will not be producing as much as we had forecast and this has allowed us to cut down on our capital. Some of our revenue-generating projects have been postponed so that we do not immediately require some of the capital that we have. We have an obligation to always maximise shareholder benefit so the P3.4 billion is meant to reduce the impact of the market downturn,' he said.
From a high of 34 million carats in 2007, diamond production, which contributes just under 30% to GDP and 65% to foreign exchange receipts, has plateaued in the last few years as Debswana caps production to match weakening market conditions.
On the back of the weaker mining sector, the economy is projected to grow by a modest 4-5 percent this year.
In a recent publication, the IMF said real GDP will grow by 3.9 percent in 2013 on the back of a strong non-mineral GDP growth and an anemic mining sector.
The Bank of Botswana, on the other hand, forecast GDP growth in the 12 months to June 2013 to be around 5 percent, reflecting a slower increase in the non-mining output and a marginal contraction in the mining sector.