Public Enterprises Evaluation and Privatisation Agency (PEEPA) has announced Friday that the process involving privatisation of the beleaguered Botswana Meat Commission (BMC) will cost the agency at least P12. 9 million, following the awarding of the tender to two entities recently.
PEEPA is responsible for advising Government on privatisation strategies as well as implementation of privatisation, which includes commercialisation, restructuring, outsourcing and divesture interventions for the effectiveness and efficiency of public enterprises and ministries as well as promoting good corporate governance in quasi-government institutions. PEEPA recently awarded two tenders to locally based companies; leading auditing firm Deloitte Botswana as well as leading corporate law firm Minchin & Kelly.
Deloitte was awarded the P4.2 million tender relating to assessing the value of BMC Maun abattoir, which has since been de-linked from the BMC, and would be privatised separately. Meanwhile Minchin & Kelly was awarded the tender relating to the main BMC, and has been mandated among others to explore feasible privatisation models, and make a recommendation to government. Deloitte is expected to have concluded its work in the next 10 weeks, while Minchin & Kelly has been given up to September to complete its work, owing to the magnitude of its mandate compared to the former.
Explaining the process which led to the award of the two tenders, PEEPA Chief Executive Officer (CEO), Obakeng Moumakwa said the with regard to the main BMC tender, PEEPA had issued an Expression of Interest (EOI), of which five companies responded. The five companies which responded, according to Moumakwa, were invited to submit Request for Proposal (RFP), of which four companies responded. The PEEPA then resolved to offer the tender to Minchin & Kelly based on its submissions.
Relating to the Maun abattoir, PEEPA approached Botswana Accountancy Oversight Authority (BAOA) and requested names of companies registered with them, and then offered them the opportunity respond to RFP, of which 9 companies out of 10 registered with BAOA responded. The agency reached a conclusion on Deloitte.
Permanent Secretary in the Ministry of Agriculture, Jimmy Opelo has allayed fears that the privatisation of BMC will lead to the job losses, noting that if anything, the entire liberalisation of the beef sector will lead to creation of jobs in the entire value chain of the sector. Opelo also indicated that government is hoping to repeal the BMC Act which has created the existing monopoly in the last meeting of parliament in July. Parliament will meet for the last time before it is dissolved in preparation for general elections.
“The transitional bill will be brought before parliament. Currently the bill is at attorney general and we are hoping that it will be brought to parliament on certification of urgency during the July parliament,” Opelo said. On the privatisation of BMC that government envisages, Moumakwa said since government has taken the decision not to be a player in the sector but to focus on regulatory, he also wants citizens to participate in the ownership of BMC, but that will depend on the recommendations of Deloitte and Minchin & Kelly for Maun Abattoir and main BMC respectively.
Government has been resisting calls by farmers to liberalise the beef industry. Since independence government, through BMC have been the only entity authorised to run an abattoir that export the beef to other countries. The liberalisation of BMC came about in 2013, when Ghanzi Farmers Association garnered support at Otse Meeting of farmers associations, resulting in the Letsema Resolution, wanting government to bring to an end BMC monopoly.
This was in the wake of financial crisis and corruption scandal which riddled the entity which have been ongoing since then. BMC have been making financial losses over the past few years and perennially faces cash flow problems. This has led to BMC failing to pay farmers within a reasonable time.
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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.
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”