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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.

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Business

The  Bulb World CEO selected for Africa’s prestigious award

22nd July 2021

The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.

Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.

Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.

The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.

Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.

The finalists will compete for a share of US $1.5 million in grant money.

The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.

The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.

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Business

Mining production down 12 % IN Q1 2021

14th July 2021

During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.

The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.

The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.

The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.

Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.

Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.

On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.

Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.

A week later Lucara  announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.

In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.

Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.

Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.

Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.

Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.

Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.

Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.

The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.

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Business

Gov’t awards mining licence for Gantsi Copper Mine

14th July 2021
Moagi

Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.

Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.

Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.

In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.

Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.

GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER

Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.

As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.

“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.

MINING CONTRACT

Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.

The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.

The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.

These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.

The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.

Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).

The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.

The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.

Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.

“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”

Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.

“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.

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