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The conundrum of State Owned Enterprises

Over the past 10 financial years, Botswana‘s national coffers have been on the receiving end of poorly performing state owned enterprises (SOEs).These quasi- governmental organizations have been returning to authorities’ year and year out to seek more capital investment, some seeking  guarantee to loan facilities offered by commercial banks.

However even up to today the financial performance of these institutions is still very much found wanting. After a series of restructurings, remodeling, and retrenchments, among other things,  state owned enterprises space remains a no go area for Botswana to derive any source of pride from, and  one of the burning issues as the nation goes into national polls next week. Earlier this year, Auditor General reported that almost P1 billion pula of public funds has been drowned by 18 of the biggest state-owned enterprises in the 2018/19 financial year. In total, these businesses have registered combined loss adding to P742, 187, 254.00, with 9 parastatals yet to submit their annual reports as at May this year, signaling possibilities of losses figure going up.


THE BACKDROP

Following the 2008 global financial crises the country’s state owned investment arm Botswana Development Corporation (BDC) was the first to be hit, registering losses and failing to pay dividends to government. BDC then whirled into downward trajectories in the following years, marred with allegations of corruption, poor investment decisions. Some of its investment businesses liquidated and collapsed, such as the Palapye Glass project which was later auctioned at just over P10 million after hundreds of millions of investment.

Another culprit is Botswana Meat Commission (BMC), the once globally celebrated and financial sound meat producer registered a net loss of P229.7 million in 2016, following a net profit of P332.6 million in 2015. The net profit realized in 2015 was due to Government cash injection of P600 million. BMC was recently reported to be in over P40 million debts. National Development Bank has  also in the recent years  drowned into financial crises, failing to service its government loans and failing to retrieve its loans from its clientele, thus making losses year and year out. NDB recorded a net loss of P168.2 million in 2017, compared to a net loss of P21.2 million in 2016. NDB was given P400 million by Ministry of Finance during 2016/17 financial year, while P200 million was disbursed during the 2017/18 year.

National utility outfits in Botswana Power Corporation (BPC) registered a net loss of P140.2 million in 2017; compared to a net loss of P99.6 million in 2016 while Water Utilities Corporation (WUC) on the other hand recorded a net loss of P137.6 million in 2017, from a net profit of P119.4 million in 2016. National commercial flights outfit, Air Botswana registered a net loss of P12.4 million in 2017, compared to a larger net loss of P86.1 million in 2016.In 2018 Air Botswana recorded a loss of P42.10 million while Motor Vehicle Accident Fund recorded a loss  of P126.49 million. Botswana Agriculture Marketing Board BAMB recorded a loss P65.36

On a major highlight, in February 2016 government agreed to guarantee a 1 billion pula loan acquired from Barclays Bank by BCL, a state owned mine, 8 months later the country’s oldest copper and nickel mine was shut down sending over 5000 direct employees to streets. It was reported that 3 weeks before a decision was taken to close BCL , the company’s management had submitted a proposal requesting another P1 billion from the government, and decision makers reached a consensus that enough was enough, no more bail out.

CALLS FOR PRIVATIZATION

Calls have been rife across all walks of political and economic commentary, with observers urging government to exit doing business with a view to give space for private sector. In 2016, while speaking at Grant Thornton Private Growth Business Awards, former cabinet minister and business man, Charles Tibone indicated his lack of faith in the public enterprises in terms of their growth potential owing to their continued non-performance. “What is even more concerning is that the majority of these parastatals businesses are chronically unprofitable, they operate on negative returns on investment or on life support from Government through subsidies,” he said.

Tibone noted that a case can be made for parastatals that provide a social service like Water Utilities Corporation (WUC) or those which regulate sectors such as Botswana Communication Regulatory Authority (BOCRA) or Civil Aviation Authority (CAAB) not investment business, banking and financial services , logistics and airline businesses.
Last year former Member of Parliament for Tati East, Samson Guma Moyo made a public call to government, urging the state to fast track disposing of Botswana Development Corporation (BDC), Local Entrepreneurship Agency (LEA), National Development Bank (NDB), & Citizen Entrepreneurship & Development Agency (CEDA) into one competitive development Bank. Moyo said the aforementioned parastatals were a complete waste of government limited resources as their mandates and purpose of establishment were more or less the same and a duplicate of one another.

RESTRUCTURING, MERGING PRIVITISATION EFFORTS

One of the ministries that house a good number of parastatals is Ministry of Investment, Trade & Industry (MITI). Currently 80 % of MITI total recurrent budget allocation goes to funding its parastatals. MITI houses 8 parastatals and 3 state owned enterprises making a total of 11.In the 2017/18 MITI channeled over P753 million pula on its 9 parastatals which include CEDA, BITC and LEA amongst others compared to P721 563 220 spent in the previous financial year being 2016/17.

Figures indicate that The Citizen Entrepreneurship Development Agency (CEDA) has been receiving the largest share of this money from the past 5 financial years. In 2013/14 CEDA received over P340 million, in 2017/18 the agency received over 298 million pula. CEDA which is a financing agency to promote entrepreureship amongst local’s suggestion were already proposing its merger with BDC and /or NDB. Last year Minister of Investment Trade and Industry Bogolo Kenewendo announced that a process was ongoing to merge some of her ministry parastatals.

In February this year government through PEEPA announced that  state owned airline Air Botswana currently running four operations in house, being passage business, ground handling facilities, engineering and maintenance, as well as cargo services would be restructured.“We want to unbundle it and asses these divisions separately and propose independent operations of this segments so they run efficiently” he said. With BMC, PEEPA CEO said in an interview with WeekendPost in February this year that following government‘s decision to liberalize the beef industry and open up the market with regard to beef oversea exportation , more players will emerge  mirroring the end BMC monopoly.

WE STILL NEED STATE OWNED ENTREPRISES – PROFESSOR LUMUMBA

In this wake of privatization wave, experts and observers however still note that Africa still needs state owned enterprises to realize its developmental goals, transformation of its economies and creation of employment for its people.   Renowned Lawyer, thought leader and international pan African speaker Professor Lumumba is of the view that the African Agenda of high income economies will require significant government participations.

In a interview with local journalists in Gaborone last week Lumumba said African countries should borrow a leaf from Scandinavian countries in the area of successfully combing government participation with private sector for economic growth “I don’t agree with the talk that private sector is the solution to all our problems, we need to combine public ownership and mix it up with private sector DNA, by doing so we ensure that the social investment aspect of the business is take care off” he said.

Observers say non performance of State owned enterprises in Africa and Botswana in particular is an issue of poor management, political interference and corruption. “Norway, Sweden, Demark and other Scandinavian countries have successfully managed to combine commercial interest with best interest of the general population, the private sector comes with good corporate governance and wining business models, and government comes with social investment interest”

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BONELA speaks on same-sex decriminalization case

18th October 2021
BONELA

In June 2019, a case involving the Attorney General was brought before the High Court, in which the applicant Letsweletse Motshidiemang challenged Sections 164 (a) and 167 of the Penal Code. The applicant contended that these sections are unconstitutional because they violate the fundamental rights of liberty and privacy. 

The applicant argued that these sections violated his right and freedom to liberty as he was subject to abject ignominy. These laws subjected the LGBTIQ community to brutal and debasing treatment through social control and public morality. On the 1st of November 2017, the Botswana High Court further allowed Lesbians, Gays and Bisexuals of Botswana (LEGABIBO) to join the case as amicus curiae.

However, in July 2019, the respondents, in this case, i.e. the Government, filed an appeal against this iconic High Court ruling seeking re-criminalization of homosexuality. Human Rights Group has criticized this move of the Government all over the world.  The appeal was heard before five judges at the Court of Appeal on Tuesday. The State was represented by Advocate Sidney Pilane, while LEGABIBO and Letsweletse Motshidiemang were represented by Tshiamo Rantao and Gosego Rockfall Lekgowe, respectively.

Non-Governmental Organizations advocating for the LGBTIQ+ community joined the two parties at the Court of Appeal during this case. They argue that the minority group should enjoy their rights, especially the right to privacy and health. Botswana Network on Ethics, Law and HIV/AIDS (BONELA) Chief Executive Officer, Cindy Kelemi says the issues being raised by LEGABIBO are that as individuals belonging to the LGBTIQ community, they have and must share equal rights, including the right to privacy, which also speaks to being able to involve in sexual activities, including anal sex.

“Those rights are framed within the constitution, and therefore a violation of any of those rights allow them to approach the courts and seek for redress. We do not need the law to be regulating what we do in the privacy of our homes. The law cannot determine how and when we can have sex and with who, so the law does not have any business in that context. What we are saying is that the law is violating the right to privacy,” she said on the sidelines of the decriminalization case in Gaborone on Tuesday.

The first case involving the homosexual act was the Utjiwa Kanane vs the State in 2003. Contrary to section 164(c) of the Penal Code, Kanane was charged with committing an unnatural offence and engaging in indecent practices between males, contrary to section 167. The conduct at issue involved Graham Norrie, a British tourist, and occurred in December 1994. (Norrie pleaded guilty, paid a fine, and left the country.)

Kanane pleaded not guilty, alleging that sections 164(c) and 167 both violated the constitution. The High Court ruled that these sections of the Penal Code did not violate the constitution. Kanane then appealed to the Court of Appeal. BONELA CEO recalls that in its judgment then, the High Court indicated, Batswana were not ready for homosexual acts. Twenty years later, the same courts are saying that Batswana are ready, she says.

“They gave the explicit example that shows that indeed Batswana are ready. There are policies and documents in place that accommodate people from marginalized communities and minority populations. The question now is that why is it hard now to recognize the full rights of an individual who is of the LGBTI community?” She further says intimacy is only an expression. The law that restricts homosexuality makes it hard for LGBTIQ members to express themselves in a way that affirms who they are.

“We want a situation where the law facilitates for the LGBTIQ community to be free and express themselves. The stigma that they face in communities is way too punitive. They are called names; some have been physically violated and raped at times. It shows that the law doesn’t not only prevent them from expressing themselves, it also exposes them to violence.” The law on its own, Kelemi submits, cannot change the status quo, adding that there is a need for more awareness and education on human rights and what it means for an individual to have rights.

“As it is now, it is very tough for some to do that because of a legal environment that is not enabling. We also want to see a situation where LGBTIQ+ people can access services and be confident that they are provided with non-discriminatory services. It is challenging now because health care providers, social workers and law enforcement officers believe that it is illegal to be homosexual. What we are saying is that if you have an enabling law, then that will facilitate for people to be able to express themselves, including accessing health services,” Kelemi said.

“As we are doing this advocacy work, one of the issues that we picked up is that there is lack of capacity, especially on the part of healthcare workers. We noted that when we provide services or mobilize Men who have sex with other men (MSM) to access health facilities, health care workers are not welcoming, forcing them to hideaway. We must put an end to this to allow these people the freedom that they equally deserve.”

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Masisi warns Gov’t officials

18th October 2021
President Masisi

The President, Dr Mokgweetsi Masisi, has declared as an act of corruption the attitude and practice by government officials and contractors to deliver projects outside time and budget, adding that such a practice should end as it eats away from the public coffers.

For a very long time, management problems and vast cost overruns have been the order of the day in Botswana, resulting in public frustrations. Speaking at the commissioning of the Masama/Mmamashia 100 Kilometres project this week, Masisi said: “There is a tendency in government to leave projects to drag outside their allocated completion time and budget. I want to stress that this will not be tolerated. It is an act of corruption, and I will be engaging offices on this issue,” Masisi said.

In an interview with this publication over the issue, the Director-General of the Directorate on Corruption and Economic Crime (DCEC), Tymon Katholo, says, “any project that goes beyond its scope and budget raises red flags.” He continued that: “Corruption on these issues can be administrative and criminal. It may be because government officials have been negligent or been paid to be negligent by ignoring certain obligations or procedures. “This, as you may be aware has serious implications on not only of the economy but even the citizens who use these facilities or projects,” Katlholo said, adding that his agency is equally concerned.

According to the DCEC director, the selection, planning and delivery of infrastructure or projects is critical. In most cases, this is where the corruption would have occurred, leading to a troubled project. A public finance expert at the University of Botswana (UB), Emmanuel Botlhale, attributes poor project implementation to declining public accountability, lack of commitment to reforming the public sector, a decline in the commitment by state authorities and lack of a culture of professional project management.

In his research paper titled, ‘Enhancing public project implementation in Botswana during the NDP 11 period,’ Botlhale stated that successful implementation is critical in development planning. If there is poor project implementation, economic development will be stalled.
Corruption is particularly relevant for large and uncommon projects where the public sector acts as a client, and experts say Megaprojects are very likely to be affected by corruption. Corruption worsens both cost and time performance and the benefits expected from such projects.

Speaking during this week’s Masama/Mmamashia pipeline commissioning, Khato Civils chairman said Africans deserve a chance because they are capable, further adding that the Africans do not have to think that only Whites and Chinese people can do mega projects.  During his rule, former president Ian Khama went public to attack Chinese contractors for costing the government a move that ended up fuelling tensions between China and Botswana after Khama dispatched the then Minister of Foreign Affairs, Pelonomi Venson Moitoi, to China to register Botswana’s complaints with Chinese government-owned construction companies.  Botswana had approached the Chinese government for help in its marathon battle with Chinese companies contracted to build, among others, the failed controversial Morupule B power plant and refurbishment of Sir Seretse Khama International Airport (SSIK).

 

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Guma’s battle for millions of Pula give Court headache

18th October 2021
Guma Moyo

A legal battle between former Botswana Democratic Party (BDP) legislator Samson Moyo Guma and First National Bank (FNB) over a multimillion oil refinery project intensified this week with Justice Zein Kebonang referring the matter to Court of Appeal for determination.  The project belongs to Moyo Guma’s company called United Refineries which he has since placed under judicial management.

The war of words between Moyo Guma and FNB escalated after the company’s property worth millions of Pula were put up for sale in execution by the bank and scheduled to take place on 8th October. It emerges from Court papers that the bank had secured an order from the High Court to place the company’s property under the hammer.

Moyo Guma then also approached the High Court seeking among others that the public auction scheduled for 8th October 2021 be stayed. He contended that the assets that were to be sold belonged in reality to United Refineries and that as the company had been under judicial management at the time of the attachment, the intended sale in execution was unlawful.

He also sought the Court to declare that the writs of execution against the properties of guarantors and sureties of United Refineries Botswana Holdings Propriety Limited (the company) are unlawful.  Moyo Guma also sought a stay of the execution against the property known as Plot 43556 in Francistown, that is, the land buildings, plant and machinery which make up the property and any all immovable or movable property belonging to the guarantors and sureties of the company pending finalization of the winding up of United Refineries.

But FNB disputed Moyo Guma’s assertions and submitted that the properties in question belonged to TEC (Pty) Ltd and not United Refiners. TEC Pty Ltd which is one of the shareholders in United Refineries is one of the sureties and co-principal debtors of a debt amounting to P24 million owed by United Refineries to FNB.  FNB argued in papers that the properties belonged to TEC because it was TEC which had passed a covering mortgage bond in its favour over the property it now sought to execute.

Moyo Guma submitted that the covering mortgage bond passed in favour of FNB did not tell the full story as the property in question was in truth and fact owned by United Refineries and not TEC Pty Ltd. He maintained that the shares had been had been passed by the company in exchange for the properties in question and that the parties had always been guided by the spirt of the share agreement in dealing with each other despite delays in the change or transfer of ownership of plots 43556 and plot 43557 in Francistown.

Kebonang said it was clear to him that the two plots (43556 and 435570 belonged to United Refineries notwithstanding that TEC (Pty) Ltd had passed a mortgage bond over them in favour of FNB.  “For this reason the properties were immune from attachment or sale in execution so long as the judicial management order was in place,” he said.

The background of the case is that Moyo Guma together with five other investors, namely Elffel Flats (Pty) Ltd; Mmoloki Tibe; TEC (Pty) Ltd; Profidensico (Pty) Ltd and Tiedze Bob Chapi, each bound themselves as sureties and co-principal debtors in respect of a debt owed by a company called United Refineries Botswana Holdings (Proprietary) Limited (the Company), to First National Bank Botswana (FNBB) (1st Respondent).

FNB had extended banking facilities to the company in the amount of P24 million which was then secured through the suretyship of Moyo Guma and other shareholders.  Court records show that Moyo had on the 11th February obtained a temporary order for the appointment of a provisional judicial manager in respect of United Refineries and it was confirmed by the High Court on 24th September 2019.

In terms of the final court order by the High Court issued by Justice Tshepho Motswagole all judicial proceedings against the company, execution of all writs, summons and process were stayed and could only proceed with leave of Court. Court documents also show that First National Bank had sued the company and the sureties for the recovery of the debt owed to it and through a consent order, the bank withdrew its lawsuit against the company.

But FNB later instituted fresh proceedings against Moyo Guma and did not cite the company in its proceedings.  “There is no explanation in the record as to why the Applicant was now reflected as the 1st Defendant and why the company had suddenly been removed as the 1st Defendant. There was no application either for amendment or substitution by the bank,” said Justice Kebonang.

FNB had also argued that it sought to proceed to execute against Moyo Guma and other sureties on the basis of the suretyship they signed and that by signing the suretyship agreement, Moyo and other sureties had renounced all defence available to them and could therefore be sued without first proceedings against the principal debtor (United Refineries).  The question, Kebonang said, was that can FNB proceed to execute against Moyo Guma and other sureties on the basis of the suretyship contracts they signed?

“The starting point is that the Applicant (Moyo Guma) and others by binding themselves as sureties became liable for debts of the principal debtor and such liability is joint and several. He said the consequences of placing the company under judicial management means that every benefit extended to it should also extend to sureties.

“If the company is afforded more time to pay or its debt is discharged, reduced or compromised or suspended the obligation of sureties is to be likewise treated. It follows in my view that where judicial proceedings are suspended or stayed against the company, then any recourse against the sureties is similarly stayed or suspended,’ said Kebonang.

He added that “In the circumstances of this case, it seems to me that so long as the company is under judicial management, the moratorium that applies to it must also apply to its sureties/guarantors and no execution of the writs should be permitted against them. Any execution would be invalid.”

“Mindful that there is judicial precedent on this point in Botswana, at least none that I am aware of, and given its significance, I consider it prudent that the Court of Appeal must provide a determinative answer to the question whether a creditor can proceed against sureties where a company is under judicial management,” said Kebonang.

Pending the determination of the Court of Appeal, he issued the following order; the execution of writs issued in favour of FNB against Moyo and other sureties/guarantors of United Refinery are hereby stayed pending the determination of the legal question referred to the Court of Appeal.

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