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No plans to terminate KPMG, BOB audit contract – Matsheka

Minister of Finance & Economic Development, Dr Thapelo Matsheka has said the contract between Bank of Botswana (BoB) and KPMG through which the latter provides external audit services to the former is not considered for any potential termination before its period lapses.

Minister Matsheka was responding to a question by Member of Parliament for Selibe Phikwe West, Dithapelo Keorapetse this week.  Keorapetse had brought the question to Parliament in recognition of the fact that KPMG has been making headlines in both local and international media on scandalous matters that question its creditability as a finance and audit firm.

KPMG SCANDANLOUS HEADLINES

Across oceans in the Unites States where the company’s roots are, KPMG was in June this year slapped with a fine of $50 million for its use of stolen regulatory information to cheat on audit inspections, The Wall Street Journal reported.In South Africa the company was in 2017 under fire and suffered a severe reputational hit after becoming caught up in a corruption scandal surrounding one of the then country’s most powerful families, the Guptas. KPMG was accused of facilitating the Gupta family tax evasion and corrupt dealings.

While the firm denied any wrongdoing, it admitted to missing several “red flags” in relation to the family’s accounts. At least eight senior KPMG South Africa officials resigned in the wake of the scandal, including CEO Trevor Hoole. In Botswana , in 2017 Kingdom Bank Africa Limited liquidator, John Little accused KPMG Botswana of misconduct in signing off the books of the bank which collapsed two years before. The liquidator went on to file a law suit of close to P200 million against the accounting and auditing firm on behalf of creditors.

KBAL was in May 2015 placed under liquidation due to insolvency after an audit assigned by Bank of Botswana (BoB) uncovered an $18.7 million (P200 million) mismatch between assets and liabilities. The liquidator stated that KBAL was already insolvent in 2010, but continued trading until 2014 because over those financial years KPMG falsely reported that the bank was solvent and signed them off as a going concern.

KPMG – BANK OF BOTSWANA CONTRACT

When responding to Keorapetse’s question, Minister Matsheka explained that KPMG has been the external auditor for Bank of Botswana since 2011. He explained that the audit firm was appointed on a 5 year term which was extended into a second and last term in 2016, for another 5 year period lapsing end of 2020.

Matsheka told lawmakers that at the time of its appointment the firm was brought in for this critical job of zooming into the Central Bank’s book based on its track record of global repute “The decision to appoint KPMG the statutory auditors of Bank of Botswana was in line with the banks’ procurement policy, they basically won the tender which was floated in the market,” he said.

Dr Thapelo Matsheka who is also Member of Parliament for Lobatse further explained that the contract is subject for a review by the Bank of Botswana Board Audit and Risk Committee  on an annually basis. The Finance Ministry Boss further underscored that the Bank of Botswana audit services specifications of 5 year term subject to renewal into another term are in line with audit rotations recommended by the Botswana Accountancy Oversight Authority (BAOA) which is a maximum of 2 five year terms.

In 2018 The Chief Executive Officer of Botswana Accountancy Oversight Authority (BAOA) Duncan Majinda expressed his concerns about KPMG citing the controversies the firm was facing around the world. Appearing before the Committee on Statutory Bodies and State Enterprises, Majinda said that as the oversight body they were concerned about scandals KPMG is embroiled in particularly because it is auditing most state owned enterprises including government departments.

"I have even talked to the Office of the President that the company must be monitored and look at how they have been doing books as it shows that we might be sitting on a ticking financial bomb," he said adding that almost 70% of companies in Botswana are using the firm.  Minister Matsheka however told parliament this week that currently there are no considerations or any decisions by neither executive management nor BOB board to discontinue KPMG’s contact with the bank. “We are aware of wide negative media coverage surrounding KPMG as an audit firm; however these are subject to evaluation and determination of relevance by respective appointing authorities to the basis and criteria for evaluation,” he said.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status.  The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.

This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago.  In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.

However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced.  Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.

The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April.  For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.

Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.

Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).

“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.

Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.

This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.

For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.

Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers.  “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.

‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’

According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.

Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.

“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.

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