The document discusses credit ratings and profiles of diamond-producing countries in Africa. It provides details on Botswana's strong credit profile due to prudent fiscal policies and low debt levels, though it relies heavily on diamonds. It was downgraded in 2009 due to economic risks. South Africa, Angola, and Zimbabwe have also been negatively impacted by falling diamond demand and prices during the global recession. The document concludes that African diamond-producing countries face difficult economic times due to downturns in the mining industry.

1. Credit Profile and Rating Migration
of Diamond Industry in Africa
Prepared By:
PRANITA MEHTA
Roll No. 962

2. Credit Rating

3. Definition of 'Credit Rating'
An assessment of the credit worthiness of a borrower in general
terms or with respect to a particular debt or financial obligation.
A credit rating can be assigned to any entity that seeks to borrow
money – an individual, corporation, state or provincial authority,
or sovereign government. Credit assessment and evaluation for
companies and governments is generally done by a credit rating
agency such as Standard & Poor’s or Moody’s. These rating
agencies are paid by the entity that is seeking a credit rating for
itself or for one of its debt issues. For individuals, credit ratings
are derived from the credit history maintained by credit-reporting
agencies such as Equifax, Experian and TransUnion.

4. • Credit rating agencies typically assign letter grades to
indicate ratings. Standard & Poor’s, for instance, has a
credit rating scale ranging from AAA (excellent) and
AA+ all the way to C and D. A debt instrument with a
rating below BBB- is considered to be speculative grade
or a junk bond.
Credit rating changes can have a significant impact on
financial markets. A prime example of this effect is the
adverse market reaction to the credit rating downgrade
of the U.S. federal government by Standard & Poor’s on
August 5, 2011. Global equity markets plunged for
weeks following the downgrade.

5. Diamond Industry in Africa
• Among all the major natural resources on earth,
diamonds have often been considered the most
mysterious.
• For centuries they have been prized for their
extraordinary brilliance and hardness. Battles
have been fought over diamonds, fortunes have
been won and lost.
• A third of the country's gross domestic product
(GDP) flows from diamonds, and the gemstones
account for 80 percent of all export earnings and
about 39 percent of public revenue.

6. • "For our people, every diamond purchase
represents food on the table, better living
conditions, better healthcare, potable and
safe drinking water, more roads to connect
our remote communities, and much more."

9. BOTSWANA
• WITH A TRACK RECORD OF sound macroeconomic
policies, good governance, reliable institutions and
political stability, Botswana remains one of the top
performing economies in Africa.
• The country has managed its diamond wealth
efficiently, in stark contrast to the widely cited cases of
natural resource curse experienced by many
developing countries.
• Largest exporter of diamonds
• Botswana also has the reputation of being the least
corrupt country in Africa and has the highest sovereign
credit rating on the continent.

10. Map of Botswana’s diamond mines

12. Botswana’s Credit Profile by Moody’s
• Moody's notes that Botswana's key credit
strengths include the government's robust
balance sheet, as highlighted by its fiscal
surplus of around 1% of GDP in 2012
(compared with a deficit of -12.3% in 2009)
and its low debt levels of around 18.5% of
GDP in 2012. These results reflect the
government's prudent approach to fiscal
policy and the effectiveness of its
consolidation measures to date

13. • Diamond-rich Botswana has so far managed to avoid
Africa's "resource curse" - a term for conflicts sparked
or maintained by commodities - but is unlikely to
escape the global recession unscathed.
The country relies heavily on diamonds for its
development, but in tough economic times, deriving
most of your revenue from a single resource can sour
reputations. In March credit agencies downgraded
Botswana's rating.

14. • Kristin Lindow, senior vice-president and
regional credit officer for Africa at Moody's, a
well-known international credit rating agency,
said in a statement that Botswana's lower
rating was a result of the current economic
crisis representing a "serious risk for
Botswana's diamond-dependent economy."

15. Botswana’s Credit Rating by Moody’s
• Botswana's A2 government bond rating by Moody’s
• Moody's says that Botswana's heavy reliance on the
diamond industry is a key credit weakness. Despite the
government's efforts to diversify the economy, the
mining industry's share of gross value added remains
high at around 20% in 2012, albeit down from 29% in
the 2000s.
• As a result of this narrow economic base, the economy
is highly susceptible to shocks, as reflected in the 7.8%
contraction in GDP during the global financial crisis in
2009.

16. • Moody's notes that upward pressure on
Botswana's A2 rating could develop as a result of
a successful implementation of the economic
diversification strategies over the medium term,
coupled with the accumulation of an even larger
net financial position.
• Moody's expects to see fiscal consolidation and
economic diversification becoming more crucial
to preserving the country's economic strength
given that its diamond mine resources will begin
to deplete in 2030.

17. • DTC Botswana announced a few days ago that it shall
suspend its diamond projects from March 2 toMarch 13,
2009 to preserve employment and conserve cash.
Debswana, the company jointly owned byBotswana’s
government and diamond giant De Beers, recently
announced the termination of its twoBotswana operations;
Damtshaa and Orapa’s Plant 2 projects.
• Mining projects are not the only victims of this crisis. The
job market has sustained a blow as well. In
January DTC Botswana and sightholders announced that
thousands of people might lose their jobs if diamond sales
do not revive. Faced with the new circumstances,
companies have cut down on diamond purchases and
several sightholders refrained from participating in the
November sight altogether. The company estimates that
large scale dismissal of employees this year is inevitable.

18. • Furthermore, in December diamond giant De
Beers decided to postpone the relocation of
its aggregation from London to Botswana, due
to the company’s forecast of extremely
sluggish sales as a result of the liquidity crisis
in the diamond market. Despite what
the Botswana government described as its
“shock,” De Beers did not reconsider its
decision.

19. South Africa’s poor Performance
• South Africa’s diamond sector is as shaken as Botswana’s.
• De Beers recently declared its intention to dismiss around
3,500 of its South African employees due to the weakening
demand for luxury products. The company is in the process
of formulating the terms and steps to be taken as part of
the cutback in its South African operations.
• A few days ago South Africa announced the postponement
of its diamond royalties’ policy to 2010. This decision is
projected to generate assistance amounting to 1.8 million
ZAR forSouth Africa’s diamond and gold industries, a step
which could potentially reduce dismissals. This is part of
the government’s efforts to help the domestic mining
sector, which has been badly hit by plummeting prices,
diminishing global demand and lack of liquidity.

22. Angola
• Last year Angola was Africa’s third largest diamond
producer, with Botswana and South Africa ranked as first
and second, respectively. Nevertheless, even Angola has
seen better days. Alrosa, the Russian diamond giant and
the largest foreign shareholder of the Catoca mine, recently
announced that the production of the world’s fourth largest
diamond mine will decrease this year due to the global
financial crisis. Catoca’s other shareholders are Endiama -
Angola’s national diamond company, the Israeli owned
Daumonty and the Brazilian Odebrecht company.
• As a means to deal with the crisis, Angola’s Mining Minister
Makenda Ambroise recently called on local diamond
mining companies to cut the number of expatriates on
their payroll.

23. • Endiama is reportedly on the
lookout for partners in diamond
explorations at 100 sites
throughout the country. It aims to
expand its diamond production
from 9.7 million carats in 2007 to
10.5 million carats this year
despite the global recession.
• Endiama is reportedly considering
the relinquishment of its national
Angolan diamond mining shares as
part of the current reformulation
of the country’s diamond
regulations, a process which is
expected to be finalized shortly.

24. Zimbabwe
• Zimbabwe has fared far worse than any of its neighbors.
About a month ago the World Diamond Council (WDC)
demanded an immediate examination of Zimbabwe’s
diamond industry, following reports of violent incidents at
the state’s diamond fields, diamond smuggling to other
countries such as South Africa, and the use of income from
illegal diamond sales to fund the regime of Robert
Mugabe, Zimbabwe’s President. If these reports are
verified, Zimbabwe risks the loss of its status as a legal
diamond trader in accordance with the Kimberly Process.
The country produces less that 0.4% of the world’s total
diamonds although the volume of illegal diamond mining in
its alluvial mines witnessed a sharp increase in 2008.

27. Diamond Offshore
• Diamond Offshore is a leader in offshore drilling,
providing contract drilling services to the energy
industry around the globe with a total fleet of 44
offshore drilling rigs, including five rigs under
construction.

28. Conclusion
• Indeed, the major African diamond producing states
are experiencing difficult times. Mining companies are
withdrawing from projects, cutting down on
production, sending workers home and thinking twice
before entering new projects. While diamond mining
companies are suffering the most from the industry’s
current crisis, the African countries, where diamond
mining constitutes the bulk of their income, are being
forced to come to terms with a new and disturbing
reality including the impact on the states themselves as
well as on the immediate value of their natural
resources.