RAPAPORT... With the slump in global demand for diamonds, producer countries in southern Africa can expect lower production in the coming months from the mining companies they host, which will almost certainly impact diamond export revenues and, in turn, domestic economic growth. While the immediate impact of the economic meltdown has varied among Botswana, Namibia and South Africa, they share a common concern for the prospects of long-term financial recovery.
Botswana Plans For Slump A global recession would be most detrimental to Botswana, given that diamonds account for two-thirds of its exports and nearly half of its government spending.
Keith Jefferis, managing director of Econsult Botswana and former deputy governor of the Bank of Botswana, noted that, based on the most recent sales and tenders, the market for diamonds “is very depressed and Botswana’s diamond exports have fallen to near zero.” He added that the country would nevertheless probably meet its sales target for 2008, given the high exports during the first eight months of the year. As a result of those strong early numbers, the government has accumulated a financial surplus equivalent to approximately one year of expenditures, from which it can draw to keep spending at budgeted levels in the short term, he explained.
Jefferis warned, however, that the strategy of using accumulated savings to buffer the impact of a downturn in the global diamond market can only be sustained for a few months. “If there is no recovery in sight by the middle of 2009, Botswana will have to acknowledge that the market for its major export has changed and it will have to start adjusting to lower levels of income and institute cuts in government spending,” he said.
Similarly, Mervin Lifshitz, chairman of the Botswana Diamond Manufacturers Association (BDMA), reported little impact yet on the manufacturing sector, but added that a more accurate assessment would be made after Christmas.
The country’s mining giant, Debswana, a joint venture between De Beers and the government, is also not planning any drastic changes in its 2008 production, sales and employment strategy. The year 2009, however, will likely present a different story. Debswana spokesperson Esther Kanaimba said the company was budgeting for a 20 percent drop in production in 2009, in line with De Beers announced policy to hold back production to meet the slump in demand. “If things improve, we will be ready to ramp up production again but, for now, our goal is to avoid stockpiling at all cost,” Kanaimba explained.
Namibia Less PositiveIn contrast to the delayed impact in Botswana, the global economic downturn has had a more immediate effect on Namibia.
According to local media reports, Namdeb, the mining collaboration between De Beers and the Namibian government, implemented a “voluntary separation” program that saw 237 employees leave the company. Reports also stated that Namdeb was “seriously considering” suspending production in December. Hilifa Mbako, Namdeb corporate communications manager, told local press the company was facing serious challenges because of the sharp decline in commodity prices.
The depressed market has trickled downstream to Diamond Trading Company (DTC) Namibia sightholders, some of whom have rejected goods in recent sights, as have their counterparts in London, Botswana and South Africa.
Burhan Seber, managing director of Hardstone Processing and chairman of the Diamond Manufacturers Association of Namibia (DIAMAN), said, however, that there had been no reports of layoffs or suspensions of operations to date among the 11 sightholders operating in the country.
Despondent South Africa
In South Africa, the economic decline is coupled with the transitional beneficiation challenges that have plagued the industry over the past year. Ernie Blom, chairman of the Diamond Council of South Africa and the Diamond Dealers Club of South Africa, reported that trade in Johannesburg’s Jewel City slowed significantly in October and that factories closed early for the Christmas vacation period as a result.
One dealer, who asked to remain anonymous, said the number of buyers in the market was down to about one-third of regular trade, adding that the range of goods they were seeking had become very selective. “People buy absolutely what they need. Price offerings are ludicrous and no one really knows what to offer,” he said.
In other action, the main industry bodies — the Master Diamond Cutters Association, Rough Diamond Dealers Association and the United Diamond Association of South Africa (UDASA) — merged into the Diamond Council of South Africa to present a unified voice to government.
The MarketplaceIn South Africa
• Business is very quiet in what is historically the busiest period of the year from mid-October until mid-December.
• There are more memo transactions but limited sales.
• Very few traders are optimistic that
business will pick up for the remaining weeks of business before the Christmas vacation period starts December 12.
• Many local polished manufacturers and dealers rely on the foreign market for their better-made stones, which has slowed due to overseas liquidity problems.
• Most polishers are on reduced work schedules already and will possibly not be returning to work until 2009.
Article from the Rapaport Magazine - December 2008. To subscribe click here.