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South African company promises hand of steel at Pula Steel

Creditors, liquidator and auctioneer found bid from South African company DH Machine Manufacturing for the Pula Steel plant hard to resist because it initially complied with the offer requirements document and made the highest bid of P21 million while its competitor was trailing by P7 million.

South African auctioneer WH Auctioneers was tasked by Pula Steel liquidator John Hinchliffe to handle the sale of the plant. WH Auctioneers adjudicated two companies Botswana bound Wealth Key Trading and South African based DH Machine Manufacturing.“Based on the fact that DH Machine Manufacturing was in full compliance with the offer requirements document and made the highest bid, we recommend that DH Machine Manufacturing offer be accepted, subject to receipt of payment of the balance of the offer,” WH Auctioneers Director Prelena Narainsamy recommended DH Machine to the Pula Steel liquidation in a letter leaked to BusinessPost.

In a letter written to the creditors this week, Pula Steel liquidator Hinchliffe heeded WH Auctioneers’ recommendation further stating that he gave DH the plant because it has “intent  on investing further in Botswana and will create significant employment in the country over the next few years if their plans come to fruition.” Hinchliffe further said the offer also compares reasonable well to a valuation which was carried out in August 2018 in which the assets DH has offered to purchase were valued at approximately P29 million in total.

“Given the passage of time which could have resulted in further deterioration of the assets and the ongoing poor economic environment in Selibe Phikwe, I believe a 10 percent discounting of the original valuation is reasonable.  I am therefore, as Liquidator, also recommending to the creditors that the assets be sold to DH. I believe this will be in the best interest of the creditors, “said Hinchliffe in a communication to the creditors.

According to requirement of the Sale of Pula Steel Plant, the Seller has the right to reject any offer and may choose entirely at his own discretion not to accept any offer for any reason. Also the Seller will be under no obligation to provide reasons for his non-acceptance of any offer. The awarding of the tender for DH came after a failed attempt to have the Pula Steel Plant sold. The tender process failed due to inability of the preferred bidder to pay within stipulated time periods.

The liquidator and the Master of High Court then agreed that the tender which was issued in October 2018 be canceled. Then interested parties who have both expressed interest and have financial capacity would be invited to submit offers under a private treaty arrangement (i.e this is not a public/open tender but is available only to the selected parties).

After failure of the first sale Hinchliffe and the Master of High Court also agreed that the assets for sale would include the rolling mill assets which were previously excluded from the tender due to a claim of reservation of title by the supplier. WH Auctioneers was tasked with selling the plant on behalf of the liquidator. This week the creditors, bidders and the auctioneers met for a decisive event at the Court of Appeal where it was decided that DH should own the Pula Steel plant as many saw it as “economically sound and the best interest of the creditors.”

The Pula Steel assets comprises of, Plant and Buildings, plant and machinery at the main site valued at P18 181 818.18. The rolling mill components are at P3 000 000 .00. The whole plant cost at P21 181 818.18. WH Auctioneers were also paid P2 118 181.81 as commission. The gross bid excluding tax is P23 299 999. 99 and when the 12 percent VAT is included the whole amount payable becomes P26 095 999.15.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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