Botswana Firms are less optimistic about economic performance in 2019 than projections made in the 2019 Budget Speech. According to a Bank of Botswana Business Expectations Survey released this week, businesses expect the economy to grow by 3.8 percent in 2019, compared to the estimate of 4.2 percent in the 2019 Budget Speech and the 4.5 percent recorded in 2018.
It is expected that economic activity in the first half of 2019 will be mainly driven by mining and quarrying, trade, hotels, restaurants and transport, finance and real estate and manufacturing – the report says. The results of the Survey suggest that the level of optimism by firms regarding economic activity has declined, compared to the previous survey. Overall, businesses expect lower sales, reduced capacity utilisation and lower profits, compared to the September 2018 survey.
Investment in buildings also declined in the current survey, in line with the dampening effect of the tight access to credit in the domestic market, as perceived by the respondents. The anticipated deterioration in business confidence among both domestic-oriented and export-oriented firms with respect to future prospects is expected to affect economic activity.
The optimism in mining and quarrying, and the trade, hotels, restaurants and transport sectors could be attributable to the positive prospects for global demand for diamonds, which are likely to lead to a rise in sales and prices of diamonds as well as prospects for tourism. Meanwhile, the BoB Survey notes that Construction is the only sector anticipated to produce less output in the first half of 2019, compared to the second half of 2018, possibly due to the completion of some of the construction projects under the Economic Stimulus Programme and some private construction projects, particularly in the Gaborone Central Business District (CBD) and Palapye, and he lower rate of increase in funds allocated for the development budget in the current financial year.
“Overall, business conditions are expected to remain positive during the first half of 2019, yet slightly weaker than in the final half of 2018. Optimism among businesses declined marginally from a confidence level of 28 percent in the second half of 2018 to 25 percent in the current survey period, and it is expected to fall to 21 percent in the second half of 2019.”
Furthermore, firms anticipate reduced levels of: capacity/resource utilisation; production/service capacity; sales; stocks/inventories; profitability; and investment on buildings and ‘other investment’ during the first half of 2019, compared to the second half of 2018. The BoB Business Expectations Survey reports that the decline in investment on buildings and ‘other’ is in line with the dampening effect arising from the tight access to credit, as perceived by the business community. On the other hand, intentions to invest in vehicles and equipment, and plant and machinery have strengthened, mainly among firms in consumer-related services, such as retail trade, hotels and restaurants.
But there is a reason as to why the decline – The Survey acknowledges that the slippage in perceptions about the overall business conditions in the first half of 2019 arises from the declining optimism among domestic-oriented firms, which comprise about 91 percent of the current survey respondents, compared to the second half of 2018. It states that this group of firms is also less optimistic about business conditions in the second half of 2019 and in the 12-month period to June 2020 (M12).
Meanwhile, export oriented firms are more optimistic about the first half of 2019 compared to the second half of 2018. However, their outlook on business conditions becomes negative in the second half of 2019 and in the 12-month period to June 2020, states the BoB report. “In general, the declining business confidence among both domestic-oriented and export-oriented firms is expected to negatively affect economic activity, as reflected in, among others, the anticipated decline in sales, capacity utilisation and investment in plant and machinery.”
Domestic lending rates expected to rise in both 2019, 2020
According to the BoB Business Expectations Survey, firms expect both lending rates and the volume of borrowing from the domestic market to increase in the second half of 2019 and first half of 2020. However, more firms expect both lending and borrowing rates to be higher in the first half of 2020 than in the second half of 2019.
“Similarly, in South Africa, lending rates are expected to rise in both the second half of 2019 and first half of 2020. The expected rise in lending rates in South Africa is consistent with the consensus forecast for market rates, obtained from Bloomberg3, for the same period. In line with this, borrowing volumes from South Africa are expected to decline in the second half of 2019, before rising in the first half of 2020”, reads the report.
The upward pressure on lending rates elsewhere (any market other than Botswana or South Africa) is expected to drop significantly in the first half of 2020, compared to the second half of 2019, while the expected increase in borrowing volumes over the period is marginal.
Inflation expected to remain within 3-6 percent objective range
The Bank of Botswana Survey further shares that although slightly higher in the current survey, firms’ expectations about the domestic inflation have generally been on a downward trend since 2013, and within the Bank’s inflation objective range of 3-6 percent since 2014. Furthermore, uncertainty about future inflation has, on the whole, declined as shown by the smaller standard deviation from the average expectations despite the noticeable divergence in the current survey. “Firms’ inflation expectations have averaged 4 percent since 2016, suggesting that inflation expectations are well anchored within the Bank’s objective range.”
Factors Affecting Business Conditions
Unavailability of skilled labour is perceived to be a major challenge to doing business in Botswana, the BoB Business Confidence Survey has noted. It says the unavailability of skilled labour was cited as the greatest challenge facing businesses in the first half of 2019, arising from the reported difficulties experienced in recruiting foreign skilled labour. The new administration of President Dr Mokgweetsi Masisi has pledged to ease business in this area.
According to this report, difficulties in sourcing skilled labour is more pronounced in the construction sector, followed by trade, hotels, restaurants and transport. Meanwhile the 2018 Global Competitiveness report has also highlighted lack of skilled labour among the main challenges of doing business in Botswana. Meanwhile, the political climate, domestic demand and regulatory framework are viewed as being supportive to doing business in Botswana during this half year.
However, the BoB Survey says the number of firms viewing lack of skilled labour as a challenge has fallen notably compared to the previous survey. An interesting observation from the survey is that, ‘other’, which from the previous survey was viewed as a major challenge to doing business due to the dominance of government spending, is no longer considered a major impediment as government spending is now viewed to be neutral.
The BoB Survey says his may be partly attributable to a reduction in responses from sectors, such as manufacturing and construction, which rely mostly on government as a major client. “Another observation is that water and electricity continue to be viewed as contributing positively to the business climate, reflecting ongoing efforts to improve the supply of these utilities through measures such as the implementation of the North-South Carrier 2 water project and the North-West Transmission Grid electricity connection,” reads the report.
Overall, the Business Confidence Survey notes that business conditions are perceived to have marginally weakened compared to the last survey, and are expected to decline further in the second half of 2019. “The cost pressures are expected to decline in the second half of 2019, compared to the first half of the year. As firms’ inflation expectations seem to be anchored at rates of just below 4 percent, the survey responses are consistent with the official projection that inflation will remain within the Bank’s objective range of 3 – 6 percent going forward.”
The Business Expectations Survey (BES) was conducted by the Bank of Botswana in March 2019. It covers local business community’s perceptions about the prevailing state of the economy and economic prospects up to June 2020.
Botswana Stock Exchange (BSE) moved swiftly this week to suspend BBS Limited from trading its securities following a brawl between Board of Directors and Managing Director, Pius Molefe, which led to corporate governance crisis at the organisation.
In an interesting series of events that unfolded this week, incumbent board Chairperson, Pelani Siwawa-Ndai moved to expel Molefe together with board Secretary, Sipho Showa, who also doubles up as Head of Marketing and Communications. It is reported that Siwawa-Ndai in her capacity as the board Chairperson wrote letters of dismissals to Molefe and Showa.
Following receipt of letters, the duo sought and was furnished with legal opinion from Armstrong Attorneys advising them that their dismissals were unlawful hence they were told to continue to report to work and carry out their duties.
Documents seen by BusinessPost articulate that in the meeting which was held on the 1st of April, the five outgoing board members, unlawfully took resolutions to extend their contracts by a further 90 days after April 30 2021 as they face tough competition from five other candidates who had expressed interest to run for the elections.
Moreover, at the said meeting, management explained that neither management nor the board have the authority to decline nominations submitted by shareholders or the interested parties which is in line with Companies Act and also BBS Limited constitution.
Molefe also revealed that as management they cautioned the board that it was conflicted and it would be improper for it to influence the election process as it seems they intended to do so. “Nonetheless, in a totally unprecedented move in the history of BBSL, the board then collectively passed the unlawful resolutions below. Leading to the illegitimate decisions, the board had brazenly directed that its discussions on the Board elections should not be recorded totally violating sound corporate governance,” reads the statement released by management this week.
When giving their legal advice, Armstrong Attorneys noted that notice for the AGM should state individuals proposed to be elected to the board and directors have no legal authority to prevent the process.
Armstrong Attorneys also noted that, “due process” cited by board members are simply to ensure that the five retiring Directors avoid competition from interested candidates to be appointed to the BBS Limited board. The law firm further opined that the resolution of the 90 day extension of term of the five directors pending re-election or election was unlawful.
Molefe expressed with regret that BBS has been suspended from trading by BSE until the current matter has been resolved. “I am concerned by this development and other potentially harmful actions on the business. As management, we are engaging with stakeholders to mitigate any negative impact on BBS Limited,” expressed a distressed Molefe.
He assured shareholders and the rest of Management that they are working very hard to ensure that the issues are being dealt with in a mature manner. BBS which hopes to become the first indigenous commercial bank has seen its shares halted barely four months after BSE lifted the trading suspension of shares for BBS following submission of their published 2019 audited financial statements.
According to Chief Executive Officer (CEO) of the local bourse, Thapelo Tsheole said the halting of shares of BBSL is to maintain fair, efficient and orderly securities trading environment. “The securities have been suspended to allow BBS to provide clarity to the market concerning the recent allegations which have been brought to the attention of the BSE relating to the company’s Board of Directors and senior management,” said Tsheole.
Meanwhile in their audited financial statements for the year ended 31 December 2020, BBS recorded a loss of P14.6 million as at 31 December 2020 compared to the loss of P35.7 million for the comparative year ended 31 December 2019. According to Molefe the year under review was the most challenging for the bank, its shareholders and customers endured the difficult economic environment and the negative impact of the coronavirus.
He revealed that as the bank, they were forced to put in place several measures to ensure that the business withstands the impact of coronavirus and also to cushion mortgage customers from the effects of the pandemic. “Since April 2020 up to the end of December 2020, BBS assisted 555 mortgage customers with a payment holiday,’’ he said.
This is the bank whose total balance sheet declined by 12 percent from P4, 626 billion for the year ended. 31 December 2019 to P4, 088 billion as at 31 December 2020. As if things were not bad enough, total savings and deposits at the bank declined by 14 percent from a balance of P2, 885 billion as at 31 December 2019 to P2, 494 billion as at 31 December 2020.
On a much brighter side, BBSL mortgage loans and advances improved from P3, 401 billion to P3.408 billion with impairment allowance significantly improving to P78, 648 million from P102, 532 million for the year under review, representing a positive variance of 23 percent. BBS maintained a strong capital base with capital adequacy ratios of 26.32% for the year ended 31 December 2020.
Molefe was optimistic and anticipated a positive outcome during the implementation of the new BBS corporate strategy, whose main drive is commercialization of operations, which is in full force. “It will be spurred on by the positive results we have achieved for the year ended 31 December 2020, and our planned submission of our banking license application to Bank of Botswana which we anticipate to operate as a commercial bank in the third quarter of 2021,” he alluded.
Chief Executive Officer (CEO) of Premium Nickel Resources Botswana (PNRB), Montwedi Mphathi, has said his company will resuscitate the formerly owned BCL assets and deliver a new, sustainable and cutting edge mining operation.
The new mine which will leverage on modern and next generation technology, will be environmentally sensitive and cognisant of the needs of its people and that of the communities around the area of influence.
In a statement last week, Premium Nickel Resources Botswana and its parent company, the Canadian headquartered Premium Nickel Resources announced that they have now completed the Exclusivity Memorandum of Understanding (MOU) with the Liquidator.
The MOU will govern a six-month exclusivity period to complete its due diligence and related purchase agreements on the Botswana nickel-copper-cobalt (Ni-Cu-Co) assets formerly operated by BCL Limited (BCL), that are currently in liquidation.
On February 10, 2021, Lefoko Moagi, the Minister of Mineral Resources, Green Technology and Energy Security of Botswana, affirmed in Parliament a press release by the Liquidator for the BCL Group of Companies, stating that PNR was selected as the preferred bidder to acquire assets formerly owned by BCL.
“This is encouraging for the company and for Botswana. Our ambition in this new project dubbed “Tsholofelo” is to redevelop the former BCL assets into a modern, environmentally sensitive, efficient NI-Cu-Co-water producer where sustainability and the people are at the forefront of the decisions we make,” said Mphathi in a statement last Thursday.
“We also understand that no matter how successful we are at building the “New BCL” , our success will only be measured at our ability to create local wealth , skills and support the continued transition of local economy to a longer term sustainable base.”
The next step during the exclusivity period will be the completion of the definitive agreement. Simultaneous to this the PNRB will be conducting additional investigative work on site to further its understanding of the potential of these assets.
Specifically the company will complete an environmental assessment, a metallurgical study, a review of legal and social responsibilities, a review of the mine closure and rehabilitation plans and an on-site inspection of the legacy mining infrastructure and equipment that has been under care and maintenance.
Mphathi said they continue to monitor the global Covid-19 developments noting that they are committed to working with health and safety authorities as a priority and in full respect of all government and local Covid-19 protocol requirements. PNRB has developed Covid-19 travel, living and working protocols in anticipation of moving forward to on site due diligence.
“We will integrate these protocols with the currently applicable protocols of Ministry of Health & Wellness as well as District Health Management Team ( DHMT) and surrounding communities,” reads a statement released by the Gaborone based Premium Nickel Resources team.
PNRB is looking to become a catalyst in participating and building a strong economy for Botswana, with a purpose where respect and trust are core to every single step that will be taken. “Our success will mean following international best-in-class practices for the protection of Botswana’s environment and the focus on its people, building partnerships and earning respect, through cooperation and collaboration,” explains PNRB on its website.
“We are committed to Governance through transparent accountability and open communication within our team and with all our stakeholders.” Mphathi, a former BCL Executive, is widely celebrated for achieving unprecedented profitability at the mine during his tenure as General Manager.
The Serowe-born mining guru obtained a Diploma in Mining Technology from Haileybury School of Mines in Canada. He later obtained a B.Eng. Mining degree from the Technical University of Nova Scotia. Mphathi went on to City University in London, UK and obtained a M.Sc. in Industrial and Administrative Sciences.
Before ascending to the top country managerial role of Premium Nickel Resources. Mphathi was General Manager of Botswana Ash (Botash), Southern Africa’s leading salt and soda ash producer. He was at some point linked to Debswana top post, which is still to date not substantively filled following the death of Managing Director, Albert Milton, in August 2019.
With Mphathi out of the race and now leading the rebuilding of his former employer, the top post at De Beers- Botswana joint venture is likely to be filled by current acting Managing Director Lynette Armstrong, a seasoned finance executive with unparalleled experience in the extractive industry.
“We are happy to hear that former General Manager of BCL, Mr Montwedi Mphathi, has a relationship with the new Company that intends to resuscitate the mine, he is an experienced Mining Executive who knows BCL better, we want the mine to be brought back to life so that our people can be employed ” said Dithapelo Keorapetse Member of Parliament for Selibe Phikwe West recently in Parliament.
BCL was liquidated in October 2016 following a series of losses and government bailout occasioned by low Copper prices and allegedly poor Investment decisions and maladministration. Recently PNR CEO, Keith Morrison said his team of seasoned experts both from Canada and Botswana are committed to resuscitate the BCL assets and deliver a high performance mining operation.
“The World, Botswana and the mining industry have changed dramatically since mining first started at the former BCL assets in the early 1970s. The nickel-copper-cobalt resources remaining at these mines are now critical metals, required for the continued development of a decarbonized and electrified global economy,” he said.
Morrison added: “As we move forward, it is our goal to demonstrate the potential economics of re-developing a combination of the former BCL assets to produce Ni-Cu-Co and water in a manner that is inclusive of modern environmental, social and corporate governance responsibilities.”
He explained that to attain this, extensive upgrades to infrastructure will be required with an emphasis on safety, sustainability and the application of new technologies to minimize the environmental impact and total carbon footprint for the new operations.
“Our team remains committed to working with the local communities and all of the stakeholders throughout this period and we encourage anyone with questions or feedback to reach out to us directly,” he noted.
Lucara Diamond Corporation, the Canadian 100% owners of iconic Karowe mine, this week announced the extension of its supply deal with Belgian diamond midstream giant HB Antwerp.
The definitive supply agreement is in respect of all diamonds produced in excess. of 10.8 carats in size from its rare gem producing Karowe diamond mine located in the Boteti district of Botswana. Large, high value diamonds in excess of 10.8 carats in size account for approximately 70% of Lucara’s annual revenue.
Though the Karowe mine has remained fully operational throughout the COVID-19 pandemic, Lucara made a deliberate decision not to tender any of its +10.8 carat inventory after early March 2020 amidst the uncertainty caused by the global crisis.
Under the terms of this novel supply agreement with HB, extended to December 2022, the purchase price paid for each +10.8 carat rough diamond is based on the estimated polished outcome, determined through state of the art scanning and planning technology, with a true up paid on actual achieved polished sales thereafter, less a fee and the cost of manufacturing.
“Lucara is beginning to see the benefits of this strategy in accessing a broader marketplace and delivering regular cash flow based on final polished sales,” said Lucara CEO, Eira Thomas on Wednesday.
“We believe these early results warrant an extension of the arrangement for at least 24 months to determine if superior pricing and market stability for our large, high-value diamonds can be sustained longer term.”
The Canadian junior miner initiated a supply agreement with HB for large stones from its Botswana Karowe mine in July 2020, after pausing its tenders shortly after the Covid-19 pandemic began. The deal enables Lucara to sell the rough diamonds to HB at a price based on an estimate of the polished outcome, which the companies determine using diamond scanning and planning technology. Once HB sells the goods, it adjusts the price that Lucara receives based on the actual selling price of the polished, minus a fee and manufacturing costs.
The extended supply deal will follow the same payment terms as the initial agreement, and will be in effect through to December 2022. Lucara said in a statement this week that the agreement also provides increased tax revenue and beneficiation opportunities for the government of Botswana, and creates a streamlined supply chain for Karowe’s rough.
“More than a supply agreement, this collaboration structurally embeds a new transparent and sustainable way of working in the diamond-value chain,” said HB CEO, Oded Mansori. “For the first time, different partners of the value chain are fully aligned, sharing data and information throughout the process from mine to consumer.”
Mansori added: “We are truly proud with this innovative and straightforward collaboration that has proven itself through the volatile and uncertain reality of 2020. We are confident to achieve even better results during the term of this new contract and demonstrate the power of a true partnership.”
Lucara, which early this year secured extension of Karowe mining license to 2040, announced over P2.4 billion funding for Karowe underground mining expansion project a fortnight ago. The Vancouver headquartered top large diamond producer says this supply agreement deal extension with HB will bring about regular cash flow for Lucara using polished pricing mechanism. Furthermore, the company says the deal has potential revenue upside, particularly suited for Lucara’s large, exceptional diamonds.
In the main, Botswana will benefit increased tax revenue and additional beneficiation opportunities for the Government and communities around Karowe mine. A streamlined supply chain that achieves alignment between Lucara and HB to maximize the value of each +10.8 carat diamond produced at Karowe.