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Seesaw economy: Local firms skeptical

Bank of Botswana’s quarterly Business Expectations Survey (BES), the latest document which represents Botswana’s business community economic perception in its entirety and published by the central bank, paints a gloomy picture of an economy than is bending down to a lukewarm 2019.

“The results (BSE) suggest that firms were less optimistic about economic activity in the third quarter of 2019 compared to the second quarter of 2019,” said the Business Expectations Survey. As they are already feeling the pinch of an already depressed economy according to them, local firms are already seeing a decrease in exports of goods and services; profits; and investment in buildings, plant and machinery, vehicles and equipment, and ‘other’ category in the third quarter of 2019.

The Bank’s quarterly Business Expectations Survey (BES) collects information on the domestic business community’s perceptions about the prevailing state of the economy and prospects. In the survey, businesses respond to a range of questions relating to, among others: the business climate; outlook for economic growth; inflation and business performance over the survey horizon. The survey horizon comprises the quarter in which the survey is conducted, also referred to as the current period, the subsequent quarter and the next twelve months to September 2020.


BES shows results of the survey carried out in the third quarter of 2019, covering the third quarter of 2019 (Q3:2019 – the current period); the fourth quarter (Q4:2019); and the twelve-month period (M12) from October 2019 – September 2020 (Q4:2019-Q3:2020). With the response rate of 84 percent, it samples 100 businesses from eight economic sectors: agriculture; mining; manufacturing; water and electricity; construction; trade, hotels and restaurants; transport and communications, and business services. The response rate for this Survey is 84 percent.


While the focus of BES is chiefly to look at providing survey questions in anticipation of direction of change in selected indicators, it usually extract qualitative survey responses which is believed to provide valuable information to facilitate analysis and inform policy. The Bank further explains that however responses to questions relating to GDP growth and inflation are quantitative and consolidated into simple averages.

The local firms economic forecast also shrunk the 2019 Budget Speech projection by expecting the economy to grow by 3.5 percent in 2019 which is lower than the 4.2 percent projection of the national treasury. Local firms expect inflation to be slightly below 4 percent, agreeing with Bank of Botswana that inflation will remain within the objective range of 3 – 6 percent in the medium term.

Furthermore there is expected cost pressure to rise in the fourth quarter of 2019, mainly reflecting the anticipated upward pressure on costs of materials, wages and transport. But firms expect inflation not to be perturbed but to remain stable and within the Bank’s medium term objective range of 3 – 6 percent going forward. According to BES, firms’ inflation expectations for 2019 average 3.8 percent, suggesting that inflation expectations are well anchored within the Bank’s objective range.

Seesaw year of 2019 to recover towards 2020

A seesaw year according to the economic perception of the Botswana business community as a decline in third quarter of this year which is mainly attributable to weak economic conditions is uninspiring when compared to the better slate of Q2:2019. The third quarter was painted with a brush of gloom by a drastic decline in exports of goods and services; profits; investment in buildings, plant and machinery, vehicles and equipment; and ‘other’ investments.

However as this month of October opens up the last quarter of 2019, BES expect business conditions to improve slightly in this quarter. This improvement is expected to crossover to 2020 and this is when consistent with the anticipated improvements in capacity or resource utilization; production or service capacity; sales; stocks or inventories; and investment on: plant and machinery; buildings; and ‘other’. Despite lower performance expectations, all other sectors, led by the trade, hotels and restaurants and the transport and communications sectors were optimistic about economic activity in the third quarter of 2019, compared to the previous quarter.

External factors made a huge negative impact in mining

In the third quarter of this year, the BES says there was weak performance in the mining and quarrying sector and this could be attributable to the negative impact of the heightened trade tensions between the United States of America and China, which is adversely affecting the diamond market. Mining companies which are mainly export market-oriented firms were less optimistic about the third quarter of 2019 compared to other periods of the survey.

There is however confidence in the domestic market-oriented firms and these businesses are the main source of the economy’s expected jump up in the fourth quarter of 2019 to 2020 and this positive gesture is all thanks to an economic drive by trade, hotels and restaurants, transport and communications and the finance and business services sectors.

Borrowings by the business community

It has also been revealed in the BSE that mining firms prefer to borrow money from international markets and they intend to reduce borrowing from the domestic market. The survey which gathered together business community minds shows that about 73 percent of the domestic firms cited the availability and accessibility of the required loan products as the basis for their borrowing decisions. Some businesses, representing a fraction of 27 percent, borrowing was influenced by affordability of credit facilities and this was irrespective of whether funds are to be sourced from Botswana or abroad.

Last year’s BES showed that majority of firms prefer to finance their business operations from retained earnings and loans and this was the case in the survey for September 2019. Retained earnings as a source of finance is more prominent in the trade, hotels and restaurants, and the transport and communications sectors, according to BES. But the firms in manufacturing, finance and business services and the construction sectors plan to fund their businesses through loans.

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Business

The  Bulb World CEO selected for Africa’s prestigious award

22nd July 2021

The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.

Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.

Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.

The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.

Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.

The finalists will compete for a share of US $1.5 million in grant money.

The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.

The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.

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Business

Mining production down 12 % IN Q1 2021

14th July 2021

During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.

The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.

The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.

The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.

Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.

Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.

On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.

Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.

A week later Lucara  announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.

In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.

Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.

Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.

Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.

Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.

Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.

Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.

The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.

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Gov’t awards mining licence for Gantsi Copper Mine

14th July 2021
Moagi

Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.

Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.

Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.

In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.

Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.

GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER

Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.

As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.

“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.

MINING CONTRACT

Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.

The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.

The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.

These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.

The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.

Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).

The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.

The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.

Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.

“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”

Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.

“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.

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