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Botswana’s P17bn harvest from Anglo American

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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Debswana Jwaneng underground project to cost P65 billion

27th April 2021
Debswana

Jwaneng Mine— by far the world’s richest diamond mine is not about stop any time soon — plans are underway to ensure more gem stones are birthed from the Prince of mines.

Owners and operators of the mine, Debswana, a 50-50 De Beers- Botswana Government joint venture intends to spend over P65 billion to breathe life into the mine beyond the current Cut 9 project. Cut 9, which is currently transitioning from outsourced contractor to in-house operation, will take Jwaneng to 2036.

Debswana, by far one of world’s leading rough diamond producer revealed in a media briefing on Friday morning that an ambitious project to transition Jwaneng from open pit mining to underground is on the cards.

The company top brass noted that studies are underway to guide this massive project. These entail desktop studies of available geoscience information, hydrogeological surveys to appreciate the underground stratigraphy, water table levels, geotechnical composition and of course kimberlites geology.

Lynette Armstrong, Debswana Acting Managing Director said the company will invest all the necessary resources required for prefeasibility studies to determine the best model for undertaking the multibillion Pula Project. “This is a complex project that will require high capital investment over a period of years, advanced skills and cutting edge technological advancements,” she said.

Armstrong stated that underground mining projects have been undertaken and successful delivered before. “It will not be a completely new thing, we will  benchmark from other operations and learn how they have done it, we have a database of former BCL employees who worked for that underground mine , we will source skills locally,  where there are no required skills in country we will source from outside,” Armstrong indicated.

The Acting MD further explained that the company is getting ready for the highly anticipated mega project in different key aspects required for the successful implementation. “We have seconded some of our employees and top talents to benchmark in our sister operations within De Beers Group, to prepare and ready our workforce mind-sets and also acquire the necessary skills,” she said.
In terms of funding, Lynnette Armstrong revealed that Debswana would look into available options to fully resource the project.

“We have been discussing and exploring other available avenues that we could use to fund our life expansion projects, debt financing is one of them, it will obviously have to go through all our governance structures, internally and all the way to the board for approval,” she said.

Debswana Head of Projects revealed that an estimated cost of P65 billion would be required for the entire project from feasibility studies, engineering and scope development, construction, to drilling, sinking of shafts and all the way to transitioning, extracting the ore and feeding the processing plants. Meanwhile the process of transitioning Jwaneng Cut 9 project from Majwe Mining contract to an in-house hybrid model is underway.

The General Manager of Jwaneng Mine, Koolatotse Koolatotse, revealed that Debswana would not necessarily absorb all employees of the former CUT 9 contractor Majwe Mining. Speaking at the same virtual media briefing, Koolatotse said: “Debswana did not commit to absorbing Majwe Mining employees”

Majwe was in 2019 awarded the multi billon Pula contract to deliver the Jwaneng Cut 9 project, a significant investment by Debswana that intends to extend the life of Jwaneng Mine. The contract was however terminated due to “internal reasons.”

“Our contract with Majwe allowed for such termination , where one party on reasons best known to them could walk away from the contract without necessarily stating to the other party why it’s necessary to terminate.” Koolatotse further explained that Debswana has no obligation to re-hire Majwe Mining employees.

“In recruiting new skills for our new hybrid model we are publicly floating requests for expression of interest , that is to say anyone who has the skills we require for our new in-house model is welcome, it will not be based on whether you worked for Majwe or not,” he said.

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Leading global funders jump into Botswana-Namibia mega solar project

27th April 2021
Mega Solar Project

Top development funding institutions amongst them World Bank investment arms have jumped into the much anticipated Botswana-Namibia Mega Solar Project. The multibillion dollar massive project was confirmed by authorities of the two countries late August last year.

The Southern African sovereigns, both of which enjoy massive natural solar exposure, have partnered with Power Africa- a United States government entity to deliver what will be one of the world’s largest solar power plants. The project will see installations built across both countries and the power produced will be exported to the Southern African region.

This week, information emerged that The African Development Bank, The International Finance Corporation and The International Bank for Reconstruction and Development have signed a Memorandum of Intent to open talks for financing the project.

The International Bank for Reconstruction and Development, and The International Finance Corporation are World Bank private Investment agencies that seek to support private sector growth across developing economies of its member States. According to sources, the Memorandum of Intent would support the pre-feasibility and related studies required to advance the project.

Botswana authorities revealed recently that the capital raising campaign involving the three mentioned financing organisations would help fund the studies and could be involved in supporting the actual project’s development. It is anticipated, based on previous experience on similar projects, that the feasibility study could cost up to P20 million.

Plans for the 5 GW solar energy capacity to be developed over the next 2 decades for both the African nations, Namibia and Botswana, were first formulated and shared by the World Economic Forum’s (WEF) Global Future Council on Energy and the US led Power Africa initiative, in August 2019.

There will be a multi-phased solar procurement program to help these countries get access to secure, reliable, inexpensive solar power at scale.  Under phase 1, the idea would be to procure 300 MW to 500 MW capacity to cover future domestic demand only, phase 2 will see 500 MW to 1 GW capacity to be procured to cover regional demand within the South African Power Pool (SAPP) or through bilateral agreements.

Under phase 3, between 1 GW to 3 GW capacity will be procured to meet demand in SAPP and Eastern Africa Power Pool (EAPP), as per the plans shared last year. All this capacity will be developed through a competitive procurement process.

Botswana and Namibia were specifically chosen for this mega solar project because of their solar irradiation potential, large open spaces and low population density, strong legal and regulatory environment, and low-cost, efficient and smart power-trading potential to meet high regional demand.

“Southern Africa may have as much as 24,000 MW of unmet demand for power by 2040. The market for electricity produced by the mega-solar projects in Botswana and Namibia includes 12 other countries in the region that could be connected via new and/or upgraded transmission infrastructure. As battery storage technology advances and costs of solar storage drop below $0.10 per kilowatt hour, solar power becomes an even more cost-competitive solution,” the World Economic Forum said in 2019.

While the 5 GW capacity will help both the nations diversify their energy mix, it will also help bring down their dependence on South African national electricity utility, Eskom, which has problems of its own in financial and operational terms. Namibia and Botswana will be able to save their resources spent otherwise spent on energy import.

According to the Global Market Outlook for Solar Power 2020-2024 of Solar Power Europe (SPE), Namibia was among the few countries in Sub-Saharan Africa to have installed over 100 MW on-grid PV in 2019, with 130 MW added. The 5 GW project with Botswana, if realized, will help the country in its renewable energy target of 70% for its energy mix to be achieved by 2030.

Botswana and Namibia offer the potential to capture around 10 hours of strong sunlight per day for 300 days per year and have some of the highest solar irradiance potential of any country in Africa, which translates to highly productive concentrated solar power (CSP) and photovoltaic (PV) installations.

Both countries have sizeable areas of flat, uninhabited land not currently used for productive economic activity, which is conducive to building land-intensive solar PV and CSP installations. According to World Economic Forum (WEF) key investment challenge for power projects across sub-Saharan Africa is limited availability of foreign currency to permit repatriation of proceeds.

“Given the active diamond and mining industries in both countries, there should be sufficient foreign exchange available to facilitate outside investment,” a WEF report said in 2019. Botswana and Namibia are also working on conceptualisation of the ambitious ocean water distillation project to supply both counties with drinking water.

“We are happy with the prospects presented by this project, because we need water. However, our ministers and technocrats need to determine what is best for us keeping in mind our governance procedures,’’ aid President Masisi Masisi in one of his working visits to Namibia early this year.

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‘Sub-Saharan Africa records slowest growth in 2021’

27th April 2021

An International Monetary Fund (IMF) report on the Regional Economic Outlook on Sub-Saharan Africa has revealed that the region will be the world’s slowest growing region in 2021, and risks falling further behind as the global economy rebounds.

Speaking at a virtual press briefing on the Regional Economic Outlook recently, Abebe Aemro Selassie, Director of the African Department of the IMF, highlighted that although the outlook of the Sub-Saharan Africa region has improved since October 2020, the -1.9% contraction in 2020 remains the worst performance on record.

Even during these unprecedented times of the pandemic, the IMF report reflects that the region will recover some ground this year and is projected to grow by 3.4 percent. On the other hand, per capita output is not expected to return to 2019 levels until after 2022.

“This economic hardship has caused significant social dislocation. In many countries, per capita incomes will not return to pre-pandemic levels until 2025. The number of people living in extreme poverty in sub-Saharan Africa is projected to have increased by more than 32 million. There has also been a tremendous ‘learning loss’ for young people. Students in the region have missed 67 days of instruction, more than four times the days missed by children in advanced economies,” said Selassie.

This is feared to risk reversing years of progress, and the region falling behind the rest of the world. The IMF report focusing on navigating a long pandemic has shown that financial stability indicators have displayed little change. But the longer the pandemic lingers, the more borrowers may find themselves compromised, with potentially significant implications for nonperforming loans (NPLs), bank solvency, and the triggering of public guarantees.

So far, financial soundness indicators do not point to any major deterioration in the financial system’s health, thanks, in part, to the exceptional policy support provided by local authorities.
Botswana’s supervisory authorities, according to the report, have allowed their banks to use their countercyclical capital buffers to help deal with the crisis, however, the full impact of the crisis is still to be felt with Regulatory Forbearance scheduled to end in 2021.

This has perhaps prevented a number of non-viable loans from being captured properly in existing financial soundness indicators, the report indicated. The outlook for sub-Saharan Africa is expected to diverge from the rest of the world, with constraints on policy space and vaccine rollout holding back the near-term recovery. While advanced economies have deployed extraordinary policy support that is now driving their recoveries, for most countries in sub-Saharan Africa this is not an option.

“As we have observed throughout the pandemic, the outlook is subject to greater-than-usual uncertainty. The main risk is that the region could face repeated COVID-19 episodes before vaccines become widely available. But there are a range of other factors—limited access to the external financing, political instability, domestic security, or climate events—that could jeopardize the recovery. More positively, faster‑than‑expected vaccine supply or rollout could boost the region’s near-term prospects,” the report stated.

The IMF has called out Sub-Saharan nations to focus on policies and the priorities for nurturing recovery; such as saving lives that will require more spending to strengthen local health systems and containment efforts, as well as to cover vaccine procurement and distribution.

Selassie underscored that: “the next priority is to reinforce the recovery and unlock Sub-Saharan Africa’s growth potential. Bold and transformative reforms are therefore more urgent than ever. These include reforms to strengthen social protection systems, promote digitalization, improve transparency and governance, and mitigate climate change.”

Delivering on these reforms, while overcoming the scarring from the crisis will require difficult policy choices, according to Selassie.  Countries will have to tighten their fiscal stance to address debt vulnerabilities and restore the health of public balance sheets—especially so for the seventeen countries in the region that are in debt distress or at high risk of it.

By pursuing actions to mobilize domestic revenue, prioritize essential spending, and more effectively manage public debt, policymakers can create the fiscal space needed to invest in the recovery.
‘‘The sub-Saharan region cannot do this alone; there is a crucial need for further support from the international community,’’ Selassie said.

Along with the international community, the IMF moved swiftly to help cover some of the region’s emergency funding requirements. This included support via emergency financing facilities, increased access under existing arrangements, and debt relief for the most vulnerable countries through the Catastrophe Containment and Relief Trust (CCRT).

“To boost spending on the pandemic response, to maintain adequate reserves, and to accelerate the recovery to where the income gap with the rest of the world is closing rather than getting wider. To do this, countries in sub-Saharan Africa will need additional external funding of around $425 billion over the next 5 years.

However, meeting the region’s total needs will require significant contributions from all potential sources: private capital inflows; international financial institutions; debt-neutral support via (Official Development Assistance) ODA; debt relief; and capacity development to help countries effectively scale up development spending,” said Selassie.
All these issues are expected to be discussed at the forthcoming High-Level International Summit on Financing for Africa in May.

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