It has emerged that Botswana got P17 billion from Anglo American as total tax and economic contribution for its precious stones in the company’s last financial year.
This was revealed through Anglo American’s recently latest Tax and Economic Contribution 2018 report which was released concurrently with the mining company’s Integrated Annual Report for the year ended 31 December 2018. Anglo American’s P17 billion contribution is an improvement from last year which was a billion Pula less at P16 billion. Anglo American is a major stakeholder of De Beers Group- a company it jointly owns with Botswana government. Botswana government owns 15 percent of De Beers while Anglo American holds 85 percent.
De Beers also has a 50 year 50:50 partnership with Government of Botswana on Debswana, a mining company which is the biggest contributor of rough diamonds to De Beers and generates more than 80 percent of profits for Botswana. Debswana owns the Jwaneng mine, one of the world’s richest diamond mines by value, a contributor to 70 percent of Debswana’s total revenue. Debswana’s Orapa mine is one of the largest resources by volume. Debswana, in turn contribute approximately 50 per cent of public revenue, 33 per cent of GDP, and over 80 per cent of foreign earnings to Botswana.
According to the Tax and Economic Contribution 2018 report, Anglo American spent almost P1 billion ($98.6 million) on Capital Investment. Capital investment is defined as cash expenditure on property, plant and equipment, including related derivatives, proceeds from disposal of property, plant and equipment and direct funding for capital expenditure from non-controlling interests, according to Anglo American, and these includes capitalized operating cash outflows.
For the year ended 31 December 2018, according to Anglo American, the mining company employed 1,524 people in Botswana. This came at a cost of P915 million($86.0) for Wages and related payments which Anglo American explains as, “payroll costs in respect of employees, excluding contractors and certain associates’ and joint ventures’ employees, and including a proportionate share of employees within joint operations.”
In the latest report released by Anglo American, the company’s Global Head of Tax says, “this report (Tax and Economic Contribution 2018) demonstrates the enduring nature of our economic contribution to society and our commitment to the countries in which we operate.” Furthermore in Total Taxes Borne and Collected Botswana made almost P9.31 billion ($874.8m). This broken down is P4.5 billion ($448.8) of corporate income tax which is calculated based on profits and includes withholding taxes.
There is also P3.26 billion ($326.6 million) as Royalties and Mining Taxes which are revenue, production and profit based royalties. Botswana got P570 million ($5.7 million) as other payments borne which are simply other payment directly incurred by Anglo American. Botswana pocketed P937 million ($93.7 million) as taxes collected for the year ended 31 December 2018 and this reflects taxes paid by Anglo American on behalf of other parties as a result of the Group’s economic activity.
Apart from paying wages and taxes Anglo American show it has spent P6.73 billion ($672 .8million on “total procurement” which refers to addressable expenditure only (excludes public sector spend) and includes all supply chain related spend from third party suppliers. According to Anglo American, this includes opex- and capex-related transactions and inter-business unit procurement.
For local procurement which is procurement of goods or services from within the same immediate area as the operation, as defined by each operation Anglo American spent P5.52 billion or $551.8 million. According to the mining company, a localized supplier is a supplier that meets the business unit criteria for localized procurement, allowing goods or services to be procured from within the same immediate area as the operation. This is defined using the same parameters and definitions as set out in SEAT Tool 2A – Profiling the Local Area.
In Corporate Social Investment (CSI) Anglo American contributed P20. 5 million or $2.5 million. Anglo American’s CSI contribution refers to all social investment spend that is not related to impact management, either from allocated budgets or established foundations. According to Anglo American’s Integrated Annual Report for 2018, the company has made an operating profit of P60 billion ($6.1 billion) as compared to the P55 billion in 2017 or $5.5 billion. The 2018 revenue was around P280 billion or $27.6 billion when compared to 2017’s P262 billion ($26.2 billion). As for diamonds, Botswana’s economic mainstay, De Beers comes forth with P1.2 billion underlying EBITDA.
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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”