In one morning of 2017, Boitumelo Molefe Chief Executive Officer of Botswana’s largest pension fund (BPOPF), and third largest in Africa got a demanding correspondence from one of her service providers Capital Management Botswana (CMB) that she signs an offer to purchase a minority (7%) of Mascom shares owned by Strive Masiyiwa through his company Econet by the aftyernoon on of the same day.
CMB wanted to purchase the shares from Masiyiwa on behalf of the BPOPF. CMB as an investment manager to the Fund one, and on the face of value would say there is nothing wrong with that. Sources close to the events state that, “There were problems on many fronts. BPOPF was given not only a subjective valuation of the shares, but there were also obscenely overpriced.
CMB was requesting that the shares to be purchased don’t come from their allocated portion of money that they managed, but that BPOPF inject more money to them in order to buy the shares. The timeline in which the CEO of BPOPF was to sign and accept the offer was impossible. She literally had a few hours not to consider the offer but to agree to it. Surely being put in the shoes of the BPOPF CEO Boitumelo Molefe, I would smell something sinister about this offer,” said the source.
“Fast forward two years down the line, the same would-be seller being Strive Masiyiwa at a joint Youth Leadership conference with government recently wants to buy more of the same shares he wanted to sell prior, and then list the company. One might say, there’s nothing wrong in a man changing his mind. But that’s not the point here. Industry insiders and pension activists say the country should read a lot on the intentions of Strive Masiyiwa on Mascom.”
They decry that Masiyiwa may not be ideal for the 250,000 plus members of the BPOPF. “BPOPF portion of shares have long been of interest from various groups. First it was the usual ‘Big Men’ of town who wanted to take the Fund’s shares. MTN then followed in wanting to consolidate their holdings. Then Cater Morupisi claiming to represent government also got involved,” states the source.
Boitumelo Molefe is thought to have refused flat out to entertain the hostile purchase of Masiyiwa’s portion of shares in 2017 by CMB on behalf of BPOPF. And this is one of many decisions that caused her relationship to go sour with her then Chairman Morupisi. At the time BPOPF had valued Mascom at P3.5 billion pula, and yet CMB requested P700 million to purchase the 7% of Masiyiwa’s Econet shares. At that amount it put the valuation of Mascom at P7 billion, which was way too high.
Directly, or indirectly one then has to question the integrity of CMB. Like any entrepreneur, Strive would have wanted maximum return for his shares. But unfortunately for him the would-be transactors being CMB had questionable motives. “He needs to tell his side of his story, but one thing for sure he can’t fault us for wanting so desperately to question his renewed interest in Mascom. “Once beaten, twice shy as the English language says.
At the Youth Conference, Econet Founder Strive Masiyiwa spoke of his intentions of buying MTN shares in Mascom, and then floating the company on the Botswana Stock Exchange. He further went on to say that he would like Batswana and Mascom employees to actively participate in the IPO (Initial Public Offering). This IPO media houses reported the listing could actually come within this year. BPOPF is thought to have had first refusal, and purchase the MTN shares but opted not to.
Said an analyst, “my considered view is that the same Strive Masiyiwa returning years later to buy more of the very same shares he wanted to sell should be put to a serious ethical test. “More so that the actors whom he was perceived to be in cohorts with haven’t necessarily disappeared. The investment analyst continued to say hard questions should be asked of BPOPF why they didn’t exercise their right to buy more shares of Mascom.
“Yes, a very lazy and easy excuse is that they are not in the business of telecommunications, or something along the lines that will increase their risk in the investment by buying more shares of the company…. blah blah…. blah. “Mascom is no just a telecommunications company. “It is a pride of the nation, just like Letshego, or a Kgalagadi Breweries.
“What stopped BPOPF with each huge cash reserves doing exactly what Strive is going to be doing, buying the MTN shares and then listing them to reduce their concentration investment risk on the company? “Strive Masiyiwa and his company are the only ones going to be smiling all the way to the bank. “My gut feeling is that everything relates to this So called “Youth Conference” which was actually attended by adults, wanna-be CEOs of town.
“Those that have long wanted to take Mascom away from us Batswana have now come wearing different clothes because it proved impossible before to do that. “It is really upsetting that we continuously miss commercial opportunities and rather have foreigners come take what we could have done here. “The loser here is BPOPF, and Botswana at large.”
“All said and done, we ought to question the Strive Masiyiwa transaction with MTN and Mascom. Bad experiences unfortunately give us reason to doubt the integrity of the transaction. “I won’t be surprised in a few years down the line we find that there were some within government that were stoking the fire at Mascom. “Watch the space”, signed off the analyst. Contacted for comment, Molefe refused to go in detail with the deal saying it was confidential, “safe to say MTN approached them with information that they intend to sell their shares.”
BPOPF PUSHES FOR 73%
But it has since surfaced that BPOPF has taken a hardline approach to the issue and wants to own 73% stake in Mascom. BPOPF is of the view that the proposed transaction by Econet will result in change of controller hence they must be a choice to exercise their pre-emptive rights as the shareholders agreement. Masiyiwa is said to have raised an unsolicited offer to buy the shares currently held by MTN.
It is said that the parties involved in this proposed transaction do not agree with the interpretation of clause 12 of the shareholders agreement that deals with sale of shares and change of controller. The regulator, Botswana Communications Regulatory Authority (BOCRA) is said to have demanded certain information from Mascom but it is not forthcoming because the parties cannot agree on its release. The Mascom Board, which is made up of three BPOPF representatives and three MTN representatives is expected to meet to discuss the matter, but a stalemate is projected.
In the 24 months period ended December 2020 De Beers Group, the world largest diamond producer by value has cumulatively lost over P27 billion from its revenue earned when gauged against 2018 figure of $6.1 billion.
According to official figures contained in the Anglo American yearend financial report released this week De Beers has suffered another massive decline in revue in 2020 following another huge slump in 2019.
THE 2019 DOWNTURN
In 2019 , total revenue dropped by 24% from $6.1 billion (approximately P61 billion) to $4.6 billion (approximately P46 billion) with rough diamond sales falling by 26% to $4.0 billion from $5.4 billion in 2018.This in local currency mirrored a whooping P15 billion decline in De Beers total revenue for the year 2019.
This was due to an 8% decrease in consolidated rough diamond sales volumes to 29.2 million carats from 31.7 million carats in 2018 and a 20% reduction in average realized price to $137/ct from $171/ct in 2018. The reduction in realized price was driven by a 6% decline in the average rough price index and from a lower value mix of diamonds sold, in response to the weaker demand for higher value diamonds that year.
In response to the challenging midstream trading environment, De Beers offered increased supply flexibility to Sightholders and sold a lower value and volume of rough diamonds to the midstream, while increasing marketing expenditure to $178 million( over P1.8 billion from $166 million( over 1.6 billion) in 2018 to further drive consumer demand for diamond jewellery.
Underlying EBITDA decreased by 55% that year, to $558 million from $1,245 million in 2018 owing to lower sales volumes, a lower value sales mix which curtailed mining margins, and the lower rough price index which reduced margins in the trading business. This 2019 slump in De Beers’s revenue was due to a range of factors that created significant challenges for rough diamond demand during the year.
In late 2018, stock market volatility and US-China trade tensions resulted in lower than expected holiday retail sales, which led to higher than anticipated stock levels in the industry’s midstream at the start of 2019.
Throughout the course of 2019, the midstream inventory position was under further pressure due to the closure of some US ‘bricks and mortar’ retail outlets, an increase in online purchasing (where inventory levels are lower), and retailers increasing their stock held on consignment. Tighter financing also affected the midstream’s ability to hold stock, all of which resulted in lower demand for rough diamonds during the year 2019.
OVER P12 BILLION PULA DECLINE IN 2020
The year 2020 was another catastrophic year for De Beers Group and the entire global diamond industry. The lucrative business began the year on a high note with De Beers and Alrosa, both world’s leading producers, registering a significant upswing in rough diamond sales.
However that was short-lived as the COVID-19 pandemic which broke out of China in late 2019 spread across the world, halting international trade and restricting both movement of people and shipment of goods.
The onset of the Covid-19 pandemic, and measures taken by governments in response, had a profound impact on global diamond supply and demand. Much of the industry was temporarily unable to operate, with up to 90% of jewellery stores closed at the peak of lockdowns, first in China, then in Europe and the US.
Reduced demand from jewellery retailers due to store closures combined with the closure of diamond cutting and polishing factories in India from April to June, led to a substantial reduction in rough diamond purchases in the first six months of 2020.
In response, De Beers reduced production and offered significantly increased flexibility to customers. The gradual easing of restrictions across the globe led to improved trading conditions and an increase in demand throughout the supply chain in the second half of the year.
As a result of the difficult market conditions, lockdowns in India and associated flexibility offered to customers, De Beers total revenue decreased by 27% to $3.4 billion(around P34 billion) from $4.6 billion( over P46 billion) in 2019 with rough diamond sales falling by 30% to $2.8 billion from $4.0 billion in 2019.
Rough diamond sales volumes decreased by 27% to 21.4 million carats (2019: 29.2 million carats). The average realized price decreased by 3% to $133/ct (2019: $137/ct), with a 10% decline in the average rough index largely offset by an increased proportion of higher value rough sold in 2020, driven by midstream demand and inventory mix.
Rough diamond production decreased by 18% to 25.1 million carats (2019: 30.8 million carats) in response to lower demand due to the pandemic and the Covid–19-related shutdowns in southern Africa during the first half of the year.
In Botswana, where De Beers operates a 50-50 joint venture with Government , production decreased by 29% to 16.6 million carats (2019: 23.3 million carats), with volumes at Jwaneng reduced by 40% to 7.5 million carats (2019: 12.5 million carats), while production at Orapa decreased by 16% to 9.0 million carats (2019: 10.8 million carats).
This was largely due to a nationwide lockdown from 2 April to 18 May, and the planned treatment of lower grade material at both Jwaneng and Orapa, following their restart, as a production response to lower demand. Both mines substantially reconfigured their mining operations to preserve costs in light of the lower levels of production, thereby preserving the mining margin.
In Namibia, production decreased by 15% to 1.4 million carats (2019: 1.7 million carats), while next door in South Africa, production increased to 3.8 million carats (2019: 1.9 million carats). Across oceans In Canada, production decreased by 15% to 3.3 million carats (2019: 3.9 million carats) principally reflecting Victor reaching the end of its life in the first half of 2019. Gahcho Kué production decreased by 4% to 3.3 million carats (2019: 3.5 million carats) as a result of the implementation of Covid-19 workforce protection measures.
PROSPECTS ARE HOWEVER LOOKING GOOD
De Beers says recent consumer demand trends have been positive in key markets and industry inventories are in a healthier position, providing the potential for a continued recovery in rough diamond demand during 2021, subject to the ongoing impact of Covid-19.
The London headquartered diamond mining giant says consumer desirability for natural diamonds is set to remain high over the medium to long term despite the economic impact of the pandemic and increasing supply of lab-grown diamonds.
De Beers says in the longer term, the impact of Covid-19 has accelerated the transformation that was already underway across the industry and which is expected to continue at pace. This includes more efficient inventory management, increased online purchasing, and a growing consumer desire for products with demonstrable ethical and sustainability credentials, including an enhanced appreciation for the natural world.
The long term outlook for the sector remains positive as De Beers continues to focus on its business transformation to support the continued growth of its own business and the wider diamond value chain. For 2021, production guidance is 32–34 million carats, subject to trading conditions, the extent of further Covid-19related disruptions and ongoing operational challenges.
The higher production is driven by an expected increase in ore and improved grade performance at both Jwaneng and Venetia. Unit cost guidance is c. $55/ct, reflecting the increase in production volumes and the benefits of the restructuring undertaken in 2020.
The energy sector is by far one of the most lucrative spaces for business and making money, because the sector drives life, businesses, industries and entire economic activity across board.
Locally the sector is foreign dominated from all aspects and measures, ownership and control. In power supply, the country is dependent on South African state owned producer Eskom for over half of its power demand. In oil and petroleum, when refineries and distribution channels are disrupted across borders in foreign production bases Botswana crashes into supply shock, the 2020 COVID-19 induced situation is testament to that fact.
Botswana doesn’t only depend on foreign producer countries that have the natural resources but also largely depend on foreign companies to deliver the products cross border in to the local consumer market. Majority of companies transporting and trading with energy products, bringing the goods into Botswana are foreign owned, the same is the case with distribution companies.
On Tuesday, Member of Parliament for Shoshong Aubrey Lesaso questioned government’s efforts in facilitating participation of Batswana owned companies in the gas industry. The Shoshong lawmaker wanted Minister of Mineral Resources, Green Technology & Energy Security Lefoko Moagi to appraise parliament on how his ministry will create an environment that will incorporate indigenous Batswana into the industry and further state the potential jobs the gas industry could create for Batswana in the value chain.
In response Minister Moagi told parliament that the Liquefied Petroleum Gas (LPG) industry in Botswana has been unregulated over the years. He noted however that Parliament passed the Botswana Energy Regulatory Authority (BERA) Act in 2016 to regulate the provision of energy services including LPG.
“To fully establish how the LPG industry has been functioning, my Ministry through the Botswana Energy Regulatory Authority (BERA) has commissioned a Gas Market Study which will be completed by April 2021” Minister Moagi told parliament.
The study is among other things, looking into the market structure in terms of the value chain, market participants including company shareholding, pricing of LPG, investments into the sector including ownership of assets, as well as citizen Participation and Safety and health issues pertinent to the sector.
Minister Moagi also revealed that the local gas market currently has six (6) importers and ten (10) known distributors while the retail space comprises of numerous small businesses that sell gas to consumers. Retailers which are Batswana range from those with cages of varying sizes to a small man in the street known as “bakkie boys”. The six importers are Afrox, Easigas, Tswana Gas, Air Liquide, Quick Gases and Simsa Gas.
The Minister told parliament that only one importer-company (Tswana Gas) has majority citizen shareholding at 57.4% while the other five (5) companies are foreign owned. Despite the temporary closure of Quick Gases, the local gas market continues to operate efficiently, serviced by the other five importers.
“We did experience some disruptions last year due to challenges in South Africa at the refineries but it was for a short time. Therefore, there are generally non significant challenges experienced regarding the supply of LPG into the country” Moagi said All volumes imported into the country are filled into cylinders of varying sizes (9kg, 14kg, 19kg and 48kg) and distributed accordingly. Currently there are ten (10) known distributors being Lobatse Gas Works, owned 70% by Citizens and 30% Foreigners.
Other distributors are Salubrious and City Gas both at 80% Citizens and 20% Foreign, and Seahorse Investment, BC&LM, Shanaz Gas, Viking Voyagers all the four (4) are 100% foreign and Sefalana Tsabong which is 100 owned by Sefalana Holding Company Limited. Calvin Technology is the only wholly indigenous Citizen owned distributor.
Minister Moagi told parliament that the Botswana Energy Regulatory Authority (BERA), as the licensing Authority in the energy sector, continues to ensure that Batswana are facilitated by way of granting licenses to operate businesses in the energy sector, including LPG. The licensing committee of BERA sits every Friday to consider license applications brought before the Authority.
Furthermore, Moagi said Botswana Oil Limited has been established as a government strategic entity to amongst other objectives; ensure meaningful citizen participation in the petroleum sector, including LPG. “My Ministry through its strategic entities will ensure that Batswana companies are capacitated through awareness sessions on issues pertaining to running sustainable operations in the energy sector, including LPG.”
First National Bank Botswana (FNBB), the country’s largest commercial bank by all measures has received significant blow from the COVID pandemic in the six months trading period ended 31st December 2020.
In its unaudited condensed consolidated financial results for the six months ended 31 December 2020 the bank has reported a decline in profits following downward pressure on its revenue during the period. Profit before tax and profit after tax both declined by 23% due to pressure on top line revenue and increased credit provisioning to adequately provide for the effects of COVID-19.
During the period under review profit before taxation was registered at P419 053 from P544 913 recorded in the previous half year period ending 31 December 2019. The resultant return on equity was 17.9% compared to 25.4% in 2019
FNBB Executives however said these half year results were within the expected parameters given the prevailing operating environment. “The overwhelming impact on the December 2020 results was the difficult trading environment created by COVID-19, which the banking industry as a whole continues to navigate responsibly,” the bank Executives said in the financial results released on Tuesday.
FNBB observes that the COVID-19 pandemic has presented itself as a real and severe economic test, bank however boasts of having shown that its income streams are resilient while a key focus has been on strengthening the balance sheet. Interest income decreased following both an 8% decrease in gross advances, and the cumulative Bank Rate cut of 100 basis points.
The deposit mix shifted towards overnight funding, resulting in the interest expense reducing significantly by 12% while customer deposits increased by 6%. The impairment charge for the year increased by 16% year-on-year with a charge of P199m, due largely to an increase in stage 1 and 2 impairments in the tourism and transport industries.
The bank continues to provide prudently for the expected downward pressure on customer risk profiles and realisable collateral values in the overall context of COVID-19. Non-interest revenue (NIR) decreased 4% year-on-year following a decrease in foreign income revenue, while other core revenue lines remained resilient.
NIR was mainly driven by service-related revenue increasing by 16%. This was in turn supported by both an increase of 9% in the customer base and an annual rise of 2.8% in the tariff. An additional 795 Point-Of-Sale (POS) devices resulted in commission income growth of 5%, notwithstanding card transaction volumes remaining flat.
The total number of POS devices in use exceeds 10,000. The overall NIR decline was largely due to a sharp decrease in foreign exchange revenue, following muted activity in cross-border transactions. Costs decreased by 6%, with reduced variable costs. Employee costs reduced by 3% year-on-year emanating from a reduction in discretionary remuneration, while the other operating expenses fell by 8%.
The main contributors towards the reduced other operating expenses were; a net reduction in foreign expenses, the digitisation of training, and reduced entertainment and travel in line with COVID-19 restrictions. The increased cost-to-income ratio of 49.2% (2019: 47.0%) is largely a factor of reduced net interest income.The cost-to-income ratio reflects FNBB’s continued steadiness in balancing cost management initiatives with strategic investments.
On the outlook FNBB says given the current uncertainty surrounding the rollout and impact of the COVID-19 vaccine and the second wave of infection being seen across the world, it expects that 2021 will continue in a state of overall uncertainty.
“We anticipate that pressures on discretionary household income will be sustained and that businesses will defer capital expenditure to conserve cash reserves pending stronger signs of imminent recovery. Furthermore, with credit default pressure rates mounting despite low interest rates, the operating environment for financial services is likely to remain challenging.”
FNBB says its forward-thinking approach to technology and innovation will remain a core priority. The majority of the workforce has been successfully working remotely over the past 6 months, and consideration will be made towards maintaining similar flexible working arrangements in the longer term.
The bank assessment is that Botswana’s economy has registered a contraction of 8.1% in 2020, with expectation to rebound to 3.9% growth in 2021. This should in part be driven by structural recovery, and most significantly in tourism and mining, which were severely impacted in 2020.