African Development Bank’s Country Strategy Paper (CSP) 2015-2019 says Botswana is at a critical juncture in its development. CSP indicated that this has led to a rethinking of the country’s development strategy, saying that Botswana needs to accelerate economic transformation from the primary sector to advanced manufacturing and services in order to reduce its vulnerability to shock in the diamond trade.
The global financial crisis of 2009 exposed the country’s vulnerability to external shocks due to its reliance on one commodity. Real Gross Domestic Product contracted by 7.8 percent from an annual average growth of 10 percent experienced over the previous four decades. In addition, Botswana’s economy will face a difficult challenge in the medium term with the depletion of its diamond resources.
‘’The country needs to revive the growth of private sector investments and increase the productivity of economic investments. To achieve this, the government needs to invest in high impact infrastructure to improve competitiveness, provide a sound regulatory environment that is friendly to business, and further enhance skills development,’’ reads CSP.
Further, it noted that Botswana has made huge strides socioeconomic development over the past four decades, transforming itself from an underdeveloped country into a middle-income economy. However, a striking feature of the Botswana economy is the rather limited economic transformation.
“The structure of production has changed very little since the 1990s, minerals still dominate the economy, while labor-intensive manufacturing, which normally absorbs unskilled laborers who exit traditional agriculture, has not developed. As a result, the economy has high levels of unemployment and inequality. The 2009 global economic downturn exposed the country’s vulnerability to external shocks due to reliance in one commodity. At the same time, growth in the non-mining sector softened.”
To reduce unemployment and inequality, CSP notes that the country will need to accelerate growth of private sector investments and increase the productivity of economic investments. The CSP, which is anchored on the Bank’s ten-year strategy responds to the need to transform the Botswana economy in accordance with its national development agenda, outlined in the government’s 10th National Development Plan NDP10 covering the period 2009-2016.
The CSP is aligned with the priorities of the NDP10 that intersect with those of the ten-year strategy and focuses on the Bank’s core areas of competence. It is organized around two strategic and complementary pillars, infrastructure development to increase productivity and private sector development. The CSP calls for increased productivity and achieving high, inclusive and sustainable growth in Botswana, which is the shared goal of the ten-year strategy and the NDP10.
CSP continued to note that the structure of production of the Botswana economy has changed very little since the 1990s. The Strategy paper says the economic base remains narrow and the economy is still dominated by mining and government. The mining sector constitutes between 30 and 35 percent of the gross domestic product and government contributes around 16 percent of the GDP. These percentages have not changed significantly over the last decade.
The fastest growing sector has been services and its overall contribution to GDP has increased mainly due to the slowdown in mining as a result of the global economic slowdown. Within the sector, the fastest growing subsectors such as government services, banking, insurance and construction are al linked to revenue from the mining sector.
It also stated that agriculture, especially cattle farming is the dominant source of livelihood, saying more than half of Botswana’s population live in rural areas and are dependent on subsistence farming. However, domestic agriculture production meets only a small proportion of the nation’s food needs. The contribution of the agriculture sector to the GDP has continued to decline and is now under2.5 percent from a peak of 3.4 percent in the 1990s. The limited contribution of agriculture to GDP is mainly due to the severe water shortage and inadequate rain.
The share of the manufacturing sector in GDP has remained limited in the range of 5 to 6 percent since the 1990s. Unlike in many MICs, non-mining manufacturing has not been a dynamic absorber of labor. Rather, its share in GDP has been declining. Some attempts were made in the past to boost the textile industry and take advantage of access to the US market under the African Growth and Opportunity AGOA, but this has now become difficult due to strong competition from other developing countries.
Furthermore, CSP highlighted that Botswana continues to rank low with regard to important determinants of private investment. It says non-price competitiveness indicators suggest that Botswana has been moving steadily downwards in global rankings. Between 2008 and 2013, the country slipped 18 positions from 56 to 74 in the Global Competitiveness Index and 21 positions from 38th to 59th in the World Bank’s Ding Business ranking. The decline is explained largely by the absence of improvements rather than worsening policies.
According to the 2014/15 Global Competitiveness Index, Botswana’s primary weaknesses continue to include technological readiness, small market size and efficiency, as well as inadequate basic health and education. The country is rated highly in macroeconomic environment, reliable and legitimate institutions, and a well-developed financial market. In the World Bank’s Doing Business indicators, Botswana ranks poorly in trading across borders, dealing with construction permits and starting business.
Protection of intellectual property rights has improved and the legal system is sufficient to ensure commercial dealings. While access to credit has not emerged as a major concern, available evidence points to the need to improve access to credit by small and medium enterprises as they play a critical role towards the actualization of economic diversification.
The domestic banking system has remained profitable, liquid and well capitalized, although recently there have been increases in nonperforming loans to households. CSP indicated that the robustness of the financial sector is demonstrated by a number of prudential indicators pertaining to asset composition and portfolio quality.
Access to financial services remains low and it is estimated that about 33 percent of adults do not have access to such services. Non-Bank Financial Institutions have been growing rapidly in recent years, resulting in closer linkages with commercial banks. This has increased the probability of contagion with implications to the financial system and the economy. However, there has been a notable progress on supervision of the non-banking financial sector, including the establishment of a Non-Bank Financial Institutions Authority NBFIRA. NBFIRA has benefited from efforts to enhance its capacity and to develop a legal and regulatory infrastructure.
Greater challenges are coming from the high concentration of bank loans to households and the rapid growth of unsecured lending. The growth of household indebtedness has the potential of creating stress in the financial sector, and is a liability to the macroeconomic environment. Striking an appropriate balance between financial inclusion and stability is therefore emerging as a policy challenge for Botswana.
Meanwhile, the country’s capital markets have developed over the past two decades, but both the stock and bond markets are characterized by low liquidity which undermines their ability to provide price signals to the market. Capital market operations are largely conducted through Botswana Stock Exchange which operates and regulates equities and fixed interest securities market. While market capitalization is reasonably high at about 28 percent of GDP, there is a dearth of long tenured assets.
The government is the main issuer, however, the issuance is limited to only twice a year and currently the longest issuance has a 17-year tenor. To address the shortcomings in the financial sector, the government has launched a financial sector development strategy aimed at maintaining a robust framework for financial access for the underserved, and deepening financial markets and supporting intermediation of long-term financing, mainly by strengthening key institutions such as Botswana Stock Exchange and the Botswana Development Corporation.
HIGH LEVELS OF INEQUALITY
Inequality in Botswana is among the highest in the world despite the sharp decline in poverty, CSP added. It said income inequality as measured by the Gini coefficient is in excess of 0.55. This reflects the disparities in the quality of economic opportunities and services and underlines the need to ensure a more inclusive development.
The persistent high inequality level mainly emanates from the limited economic diversification and the dominance of minerals extraction in the country’s GDP and exports. Because mining absorbs only a small proportion of the workforce, long-term policies for poverty reduction have not been complemented by effective absorption of the poor into the productive economy.
Inequality also stems from the fact that Botswana’s vast size and thinly spread and small population make the provision of economic infrastructure and social services extremely expensive and present daunting challenges for the government. As a result, public support programmes have not generated significant growth in employment, and hence poverty reduction.
In conclusion, the CSP noted that the Kalahari Desert occupies 77 percent of Botswana’s land mass, leaving the country with limited supplies of arable land and fresh water. Erratic rain and drought are the country’s most frequent natural disasters. The country is also faced with land degradation due to overgrazing and diversification. Climate change is expected to adversely impact agricultural production and water resources.
The government has put in place a national environmental policy framework that covers all the relevant sectors. Conservation and sustainable management of natural resources are fully integrated in the development planning process. Over a third of the country’s total land area is under some form of conservation, with 17 percent designated as national parks and game reserves, 20 percent as wildlife management areas and 1 percent as forest reserves. Participation of communities in natural resource conservation is ensured through a community-based natural resources management programme.
Botswana has recorded its first trade surplus for 2021 since the only one for the year in January.
The country’s exports for the month of July surpassed the value of imports, Statistics Botswana’s July International Merchandise Trade data reveals.
Released last Friday, the monthly trade digest reports a positive jump in the trade balance graph against the backdrop of a series of trade deficits in the preceding months since January this year.
According to the country’s significant data body, imports for the month were valued at P7.232 billion, reflecting a decline of 6.6 percent from the revised June 2021 value of P7.739 billion.
Total exports during the same month amounted to P7.605 billion, showing an increase of 6.1 percent over the revised June 2021 value of P7.170 billion.
A trade surplus of P373.2 million was recorded in July 2021. This follows a revised trade deficit of P568.7 million for June 2021.
For the total exports value of P7.605 billion, the Diamonds group accounted for 91.2 percent (P6.936 billion), followed by Machinery & Electrical Equipment and Salt & Soda Ash with 2.2 percent (P169.7 million) and 1.3 percent (P100.9 million) respectively.
Asia was the leading destination for Botswana exports, receiving 65.2 percent (P4.96 billion) of total exports during July 2021.
These exports mostly went to the UAE and India, having received 26.3 percent (P1. 99 billion) and 18.7 percent (P1.422 billion) of total exports, respectively. The top most exported commodity to the regional block was Diamonds.
Exports destined to the European Union amounted to P1.64 billion, accounting for 21.6 percent of total exports.
Belgium received almost all exports destined to the regional union, acquiring 21.5 percent (P1.6337 billion) of total exports during the reporting period.
The Diamonds group was the leading commodity group exported to the EU. The SACU region received exports valued at P790.7 million, representing 10.4 percent of total exports.
Diamonds and Salt & Soda Ash commodity groups accounted for 37.8 percent (P298.6 million) and 6.2 percent (P48.7 million) of total exports to the customs union.
South Africa received 9.8 percent (P745.0 million) of total exports during the month under review. The Diamonds group contributed 39.9 percent (P297.4 million) to all goods destined for the country.
In terms of imports, the SACU region contributed 62.7 percent (P4.534 billion) to total imports during July.
The topmost imported commodity groups from the SACU region were Fuel; Food, Beverages & Tobacco, and Machinery & Electrical Equipment with contributions of 33.3 percent (P1.510 billion), 17.4 percent (P789.4 million) and 12.7 percent (P576.7 million) to total imports from the region, respectively.
South Africa contributed 60.1 percent (P4.3497 billion) to total imports during July 2021.
Fuel accounted for 32.1 percent (P1.394 billion) of imports from that country. Food, Beverages & Tobacco contributed 17.7 percent (P772.0 million) to imports from South Africa.
Namibia contributed 2.0 percent (P141.1 million) to the overall imports during the period under review. Fuel was the main commodity imported from that country at 82.1 percent (P115.8 million).
During the months, imports representing 63.5 percent (P4.5904 billion) were transported into the country by Road.
Transportation of imports by Rail and Air accounted for 22.7 percent (P1.645 billion) and 13.8 percent (P996.2 million), respectively.
During the month, goods exported by Air amounted to P6, 999.2 million, accounting for 92.0 percent of total exports, while those leaving the country by Road were valued at P594.2 million (7.8 percent).
Founders from twenty companies have been accepted into the program from Botswana, Namibia, and South Africa
The 4th Cohort of the Stanford Seed Transformation Program – Southern Africa (STP), a collaboration between Stanford Graduate School of Business and De Beers Group commenced classes on 20 September 2021. According to Otsile Mabeo, Vice President Corporate Affairs, De Beers Global Sightholder Sales: “We are excited to confirm that 20 companies have been accepted into the 4th Seed Transformation Programme from Botswana, Namibia, and South Africa. The STP is an important part of the De Beers Group Building Forever sustainability strategy and demonstrates our commitment to the ‘Partnering for Thriving Communities’ pillar that aims at enhancing enterprise development in countries where we operate in the Southern African region”. Jeffrey Prickett, Global Director of Stanford Seed: “Business owners and their key management team members undertake a 12-month intensive leadership program that includes sessions on strategy and finance, business ethics, and design thinking, all taught by world-renowned Stanford faculty and local business practitioners. The program is exclusively for business owners and teams of for-profit companies or for-profit social enterprises with annual company revenues of US$300,000 – US$15million.” The programme will be delivered fully virtually to comply with COVID 19 protocols. Out of the 20 companies, 6 are from Botswana, 1 Namibia, and 13 South Africa. Since the partnership’s inception, De Beers Group and Stanford Seed have supported 74 companies, 89 founders/CEOs, and approximately 750 senior-level managers to undertake the program in Southern Africa.
Minergy, the coal mining and trading company with the Masama coal mine, this week released results for the year ended 30 June 2021. The company achieved revenue of P193 million (2020: P81 million) with significant improvement in sales volumes surpassing 415 000 tonnes sold for the year.
The performance was divided into two distinct periods with very different operating environments. The first eight-month period (July 2020 – February 2021), was negatively impacted by delayed funding, COVID-19 impacts and excessive rain; and the last four-month period (March – June 2021), was a more stable production environment moving toward nameplate capacity.
According to Minergy CEO, Morné du Plessis, production and sales initially recovered in July and August 2020 with the easing of COVID-19 restrictions and recoveries were further bolstered by the successful launch of the rail siding. Delays experienced in concluding the funding contributed to contractors limiting operations to manage arrears.
“However, the heavy rains we experienced from December 2020 through February 2021 flooded the mine pit making access difficult and impacting both production and sales. Fortunately, the rain subsided in March 2021, and we entered a more stable environment, with a positive impact on operations. Good recoveries in production and sales were experienced during the last four-month period of the year, with the mine moving closer toward a breakeven position.”
“Despite these operational constraints, including the effects of COVID-19 on logistics and manning of shifts, we expect to reach consistent nameplate capacity in the 2022 financial year,” du Plessis added.
In addition to the revenue reported above, the company incurred costs of sales of P256 million (2020: P150 million) with operating costs of P23 million (2020: P31 million). This effectively resulted in an operating loss of P86 million (2020: P100 million). Finance costs of P51 million (2020: P17 million) were incurred, bringing the net loss before taxation to P136 million (2020: P117 million).
Du Plessis explains that the adverse conditions in the first eight-month period contributed to 86% of the gross loss, while the more stable four-month period alone contributed to 50% of total sales value, helping to decrease monthly gross losses, albeit below breakeven levels.
The company benefited from a strengthening in the South African Rand (“ZAR”) supporting higher back-on- mine sales prices.
“As announced, we’re pleased to have secured P125 million of additional convertible debt funding through the Minerals Development Company Botswana (Proprietary) Limited (“MDCB”). Minergy remains grateful for this support.”
He added that the first tranche of additional funding provided by the MDCB had been received in December 2020, which allowed Minergy to settle the majority of the contractor’s arrears and allowed their teams to be remobilised. The second and final tranche was paid post the financial year-end and will allow the business to reach nameplate capacity in the new financial year.”
COAL SALES AND MINE PERFORMANCE
Sales volumes increased by 110%, supported by increased sales in Botswana and internationally in South Africa and Namibia. Sales for June 2021 exceeded 56 000 tonnes, a record since the inception of the mine, with pricing increasing late in the financial year on the back of buoyant international prices and a strengthening ZAR.
Minergy also concluded a further 12-month off-take agreement to the existing off-take agreement, with a further agreement finalised post year end.
Overburden moved during the reporting period increased by 86% and extracted coal by 50%. Coal mined in June 2021 alone exceeded 100 000 tonnes. “This is a good performance considering the challenges faced such as sacrificing pre-stripping activities for a period to manage arrears, excessive rain and COVID-19,” du Plessis indicated.
“The wash plant was initially starved of coal due to the factors noted already. Despite this, overall plant throughput performance was 37% higher than 2020. Consistent output was supported by the completion of the Stage 2 rigid crushing section as well as the water saving dewatering screen with filter press contributing to a reduction in water usage of 60% per tonne of coal. A record throughput of more than 84 000 tonnes was achieved in March 2021 and this consistency has been maintained.”
According to du Plessis, the completion of Stage 4 of the Processing Plant, the rigid screening and stock handling section, remains a key optimisation step, which has associated benefits. “The completion was unfortunately delayed by a southern African wide shortage of structural steel but was commissioned post year-end.”
Minergy expects the positive momentum in international coal pricing for southern African coal to remain in place. Higher coal prices have resulted in coal being withdrawn from the inland market in favour of lucrative international markets. Du Plessis added that the regional market is currently under- supplied with sized coal, which supports higher pricing and new customer opportunities for Minergy.
“Our objective for the 2022 financial year is to achieve nameplate capacity by completing final ramp-up of operations. This will enable the company to generate sufficient cash flow to stabilise the business at breakeven or better. The bullish coal market is also providing support. COVID-19 will still be closely managed, and we look forward to the lifting of the State of Emergency, as announced, and trust that vaccination programmes will achieve herd immunity in Botswana during the next 12 months.”
Du Plessis expressed his excitement on prospects stating that, “The Eskom due diligence process is continuing, and we are hopeful of receiving feedback during the current financial year. In addition to this opportunity, Minergy is also investigating participation in the request by the Government of Botswana to provide a 300MW power station for which the company has been shortlisted.”
The approved process to issue shares for cash is showing positive leads and he concluded by saying that a listing in London is still being investigated.