Kabo Mokgoabone
12 March 2008
The US sub-prime crisis is expected to drag on for months, Jeremy Gardiner the director of Investec Asset Management in South Africa has said.
The man nicknamed 'Mr. Optimistic' by the media, because of his over optimism even in difficult times, expects to see a world that "slows but not tumbling" because of the sub-prime crisis. "The sub prime is far from over. It could take six months, 12 or even 18 months," he told an Investec briefing on Monday night at the GICC. The briefing was meant to share with the market what is happening globally and how the global economy's 'stray missiles' will impact on the Botswana economy.
"Sometime it will bottom, but not yet. We will see a world that slows, but not crumble," Gardiner says. His comments will not be good news for the diamond-dependent Botswana economy as the US is the major consumer of world diamonds.
Botswana is the world's largest producer of rough diamonds (over 34 million carats annually) while the US accounts for 45 percent of the world's diamond market. As a result of the US recession, it is argued that industry-specific crunch in housing and credit sectors following sub-prime write-downs will lead to lower sales, reduced prices or both. This will result in reduced diamond earnings and possible stockpiling if production levels are maintained.
World diamonds land in the fingers of the newly wed rich couples in the US, while others go to markets in Europe, Japan, India and China. Gardiner says that although some observers say the US is already in a recession, the extent will be known by the end of the first quarter of 2008. A recession happens when GDP growth is negative for two consecutive quarters. Gardiner says the problems will partly be offset by lower interest rates regime, which the US Federal Reserve has adopted to keep the economy ticking.
"Panic will subside, but it will take some time," he says. Gardiner thinks that with the world's largest economy in trouble, other emerging economies like China will come to the rescue. Asian and Middle East private equities and Sovereign Wealth Funds (SWF) have been providing the needed liquidity in the US banks. This has not gone down well with the US authorities who want to limit Asian cash entering the American system.
Meanwhile, the managing director of Investec Asset Management Botswana, Martinus Seboni says although Botswana faces problems of imported inflation, its economy is in good shape. He says it is encouraging to see the non-mining sector growing to reduce the country's dependence on mining, especially diamonds.
Non-mining engines in Botswana like manufacturing has shown signs of growth in the past year. Seboni is concerned about power shortages, which he says will affect the economy if they continue for long. "If the electricity problem is not addressed, it will have negative a impact on economic growth. Domestic prices will be affected because lots of goods come from South Africa," he says.
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