Botswana is now part of the Energy Resource Initiative (ERGI), a strategic set up established by the United States to assist other member countries develop their mineral reserves and reduce global reliance on its rival, China, for components crucial to high-tech industries.
The ERGI is also an initiative to support the discovery of strategic metals such as lithium, copper and cobalt that are used to make batteries for electric vehicles (EVs). It is further expected to promote sound governance and resilient supply chains in the energy minerals sector. Other countries joining the US and Botswana are, Canada, Australia, Peru, Argentina, Brazil, the Democratic Republic of the Congo, Namibia, the Philippines and Zambia.
According to a recent US government fact sheet, the initiative is also designed to promote best practices in the mining sector and resilient energy mineral supply chains. The ERGI will aim to diversify the relatively concentrated production of some strategic minerals, in particular, metals that are critical to the manufacturing of EVs. “Growth in mineral intensive clean energy and electric vehicle (EV) technologies is creating unprecedented demand for raw materials and products. By the year 2030, 130 million EVs are projected to be on the road – up from five million today, according to the (US) International Energy Agency,” the fact sheet reads.
“In turn, global demand on energy resource minerals will increase ten-fold over the same period. This presents complex challenges for some countries that are rich in energy resources but that face challenges with governance.” Through the ERGI, the US Department of State’s Bureau of Energy Resources will engage the above-named countries to advance governance principles, share best practices, and encourage a level playing field.
“The ERGI founding partners—Australia, Botswana, Peru, and the United States—share long histories of responsible resource management. Together, the United States and the other founding partners are developing a best practices toolkit on governance and transparency, which will support nations’ responsible mineral development,” the US State Department said. In addition to the technical and professional aspects, ERGI will also encourage the adoption and implementation of high safety and environmental standards in all mineral development projects globally. This effort will, additionally, help to ensure these projects are attractive to international investors.
In Botswana, manganese developer Giyani Metals applauded the decision by the taken by the Botswana Government to join the ERGI. “As a Botswana based manganese developer for the battery electric vehicle market, we are extremely pleased by this news. We believe that this global effort will raise awareness of the strategic importance of securing the supply chain of verifiably-sourced and ethically-produced battery metals,” Robin Birchall, the chief executive of Giyani said.
“We at Giyani apply global mining best practices and adhere to a strict policy of health, safety, and environmental management. Through our close collaboration with the local authorities in Botswana, we believe that Giyani will be a significant contributor to this global effort,” he said. Birchall said he believed that the global effort would raise awareness of the strategic importance of securing the supply chain of verifiably-sourced and ethically-produced battery metals.
He added that the ERGI would promote best practices in the mining sector and resilient energy mineral supply chains that it also aimed to diversify the relatively concentrated production of some strategic metals, in particular, those that were critical to the manufacturing of EVs. Giyani Metals is listed in Canada and focuses on a battery-grade manganese project. It recently published the results of a preliminary economic assessment for the K. Hill manganese project in Botswana, which determined that it has a value of US$285-million.
The US grew more concerned recently about its dependence on mineral imports after China suggested using them as leverage in the trade war between the world’s largest economic powers. This would interrupt the manufacture of a wide range of consumer, industrial and military goods, including mobile phones, electric vehicles, batteries, and fighter jets.
“Over 80 percent of the global supply chain of rare earth elements … is controlled by one country. Reliance on any one source increases the risk of supply disruptions. Demand for critical energy minerals could increase almost 1 000 percent by 2050,” the US State Department said in a fact sheet outlining the effort.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”