Business rankings: Only broad-based reforms will reverse decline
A local economic think tank, econsult Botswana has advised that the key challenge for the country is the implementation of broad-based reforms that will reverse the decline in Botswana’s rankings on business environment rankings. The observations are captured in econsult’s Economic Bulletin for the period January-March 2019.
According to this report compiled by Keith Jefferis, Sethunya, Sejoe, and Kitso Mokhurutshe, “this requires the implementation of a coherent policy agenda, based on prior analysis of the likely impact of policy proposals, and ensuring that policy measures are in line with the Transformation Agenda laid out in Vision 2036, whereby Botswana will become more globally integrated, with growth driven by high productivity, innovation and competitiveness.”
Jefferis and his team are of the view that measures such as the tax limit on interest deductions make starting a business more difficult, not easier, and the proposal to make it more difficult for non-citizens to buy property makes Botswana less globally integrated, not more. Similarly, they observe that Botswana should avoid populist measures such as import controls and border closures, which raise the costs of trade and make the country less competitive, not more.
Furthermore econsult says a disappointing development during the quarter was Botswana’s inclusion on new lists issued by the European Union (EU) regarding Tax Co-operation and Anti-Money Laundering (AML). The EU issued two new lists. The first related to tax transparency and the exchange of information regarding tax compliance. Botswana was “greylisted” as a country that had made some improvements, but would have to implement more changes before the end of 2019 to bring tax transparency standards into line with international norms if the country is not to be blacklisted next year.
The second list relates to anti-money laundering and counter-terrorist financing frameworks (AML-CFT). Botswana has been included on the list of 23 countries identified as having strategic deficiencies in their AML-CFT frameworks. According to Jefferis and his team, Banks and other entities covered by EU anti-money laundering rules are required to apply increased checks (due diligence) on financial operations involving customers and financial institutions from these high-risk countries to better identify any suspicious money flows.
“This may make such financial institutions reluctant to deal with Botswana, which has adverse implications for attempts to diversify and attract foreign investment. A prominent challenge is therefore to rectify the AML-CFT framework in order to ensure that Botswana is removed from the EU blacklist at the earliest possible opportunity,” they observe. A further disappointing development, according to the E-Consult economists is the failure to issue more work permits for foreign workers and investors.
The number of work permits in issue as at the end of 2018, 5,605, was 3% lower than a year earlier. “So, despite the proclaimed intention to liberalise the issuance of work permits and be more responsive to the needs of firms, the actual impact has been limited. Whether this is due to a lack of applications for permits, or a continued high level of rejections is not known; the statistics published by Statistics Botswana do not include information on the numbers of applications and rejections.”
The econsult economists in their Q1 Economic bulletin opine that there have also been a couple of policy mis-steps, due in part to a lack of proper analysis of proposals before being implemented. “For example, the Income Tax Amendment Act, passed in December 2018, introduced a restriction on the amount of loan interest that firms could claim against taxable profits.
The rationale for this measure was to reduce the potential transfer of profits out of the country through debt-financed “thin capitalization” companies owned by foreign investors; the measure is in line with OECD recommendations to avoid Base Erosion and Profit Shifting (BEPS). However, as introduced in Botswana, the restriction applies to all companies, whether domestic or foreign owned. Hence it goes way beyond BEPS prevention.” Jefferies and his team argue that this effectively makes start-ups more difficult, as they often have high levels of debt and low profits in their early years.
“Companies supported by the Citizen Entrepreneurial Development Agency (CEDA) would be amongst those affected. It also kills the Variable-Rate Loan Stock (VRLS) property company model, which was introduced to enable (tax-exempt) investors such as pension funds to invest in property through a fund model rather than directly, and therefore to benefit from professional property management expertise. Debt finance is penalised, even when the loans are from domestic financial institutions (which are taxable, so the issue of profit-shifting is not relevant),” says the econsult Economic Bulletin.
Meanwhile Botswana’s outlook for 2019 is for growth at or slightly below the 2018 level. The IMF is projecting real GDP growth of 3.9% in 2019. Our view is that growth will be within the range of 3.5%-4.0%. The public sector pay rise to be paid in April 2019 will add somewhat to domestic demand, which will provide some relief for retailers and other service sectors that have been squeezed by slow real income growth in recent years.
According to the econsult report, the first quarter of 2019 has seen a mixed but broadly positive set of economic developments. Real GDP data for the fourth quarter of 2018 (and hence completing the picture for the year as a whole) showed an improvement in economic growth to 4.5% for the year. This was broadly in line with expectations, but was sharply higher than the previous year, when growth was only 2.9%. The recovery was driven by improved output in the mining sector, with higher output from Debswana and Botswana Ash.
In addition, the impact of the closure of the BCL copper-nickel mine in 2016 dropped out of the annual growth calculations. The non-mining private sector also performed well in 2018, with the only major detractor being a slowdown in diamond trading activity (part of the wholesale sector of the economy) during the year, as total sales volumes through De Beers Global Sightholder Sales (DBGSS) were 4 percent lower in 2018 than in 2017.
Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.