An 8.6 months year old Embraer ERJ 170 jet with serial number 17000319 currently bearing registration code N735A lies in store and unused at UK aviation company waiting for Air Botswana to take it home, BusinessPost has established. Fresh information is that this airmachine which is currently owned by UK leading professional aircraft registration company, Southern Aircraft Consultancy, is expected to descend upon Botswana in June this year.
Recently Minister of Transport and Communications Dorcas Makgato also confirmed that government has approached the funding facility of Public Service Debt Fund (PSDF) for acquiring of two jets and the first one has arrived in last day of 2018. The PSDF loan, according to the minister, is P230 million payable over a period of seven years at an interest of 5 percent for the two jets. Before the minister released a hint, there have been sketchy details on the two aircrafts; how they were paid for and whether one or two were acquired.
BusinessPost has established the kind of the second jet which is coming to Air Botswana shores in a space of two months. The aircraft which was manufactured in 2010,m the Brazilian plane maker Embraer is currently stored at the Southern Aircraft Consultancy like her fellow sister Embraer ERJ170 (c/n 17000318), A2-ABM, formerly registered N734A which was delivered on the New Year’s Eve of 2018. The two aircrafts were both kept on the storeroom before the other was delivered to Botswana.
This publication understands that before being delivered to UK the coming Embraer jet was formerly part of the three jets (including the one that is already in Botswana) owned by Saudi Arabia’s state owned oil company Saudi Aramco. Unconfirmed reports are that both jets were part of the aircraft sales bribery matter that rocked the Asian country. They are alleged to have been part of the three jets bought from Brazilian aircraft maker Embraer SA by Saudi Aramaco linked to a huge scandal where a former executive of Embraer pleaded guilty in October 2016 to USA charges that he arranged a bribe to an employee of the Saudi company.
In early 2010 Saudi Aramco had awarded Embraer a $93 million contract for three new aircraft. Saudi Aramco named the aircraft that is now owned by Air Botswana Damman, the other one which was bought by this country and coming was named Shaybah while the third jet which was bought by the Saudi company named al-Hasa’s whereabouts are unclear.
It is reported that after the bribery scandal Saudi Aramaco’s relationship with Embraer suffered as all the three jets were never seen on the Saudi skies again before taken by Southern Aircraft Consultancy in 2018. Some reports allege that al-Hasa might still be “stored” at Saudi Arabia waiting for it to be sold. Investigations shows that ever since the 2016 scandal Saudi Aramco ‘grounded” all the Embraer aircrafts and since then the Saudi company has not flew any aircraft made by the Brazilian jet maker.
In 2016 after the bribery allegations Saudi Aramco confirmed publicly that it had “suspended all business dealings with Embraer since the incident and excluded it from any future business.” This is despite Embraer in October 2016, the same year, agreeing to pay $205.5 million to settle a six year corruption investigation by US and Brazilian authorities-a spirited attempt to resuscitate its disgraced mammoth image. During that time Embraer was involved in similar corruption scandals in Mozambique, India and Dominican Republic.
How Air Botswana settled for “cheaper” second hand jets
Further allegations reveal that the two jets which are now on Air Botswana’s books never touched the sky for a long time and were “stored” at Southern Aircraft Consultancy before being acquired at “a cheaper price” by Air Botswana. Further unconfirmed reports suggest that the N735A which is expected to come to Botswana is currently still residing at Toronto Lester B. Pearson International Airport pending its fate.
This publication can authoritatively reveal that in 2016, the same year when Embraer was hit by myriad corruption scandals involving the sale of their jets Botswana government had toyed with the idea of buying an airmachine from it. The same year a P2.6 billion refleeting tender was put forth for purchase of two jets (from Embraer) and two turbo-propellers. It was the same time when the then Minister of Tourism Tshekedi Khama was said to be taking Air Botswana from the transport ministry to his portfolio- a move that failed and so was the lucrative tender.
Three companies Embraer of Brazil, Bombadier of Canada and ATR of France were on government’s mind during that seemingly lucrative refleeting tender. A source revealed this week to the publication that the refleeting was dealt a huge blow and delayed because of disagreement of a task team that lead the project. In 2016 it also emerged that a sub-committee for privatization of Air Botswana visited countries like the US, Brazil and Canada in a bid to buy new fleet. The then minister of transport Kitso Mokaila “was not in any way going to break a bank for government to buy the new fleet” hence the disagreements, said a source.
It is reported further that government officials which were part of the negotiating team for refleeting agreed that “cheaper”, “affordable”, “sustainable” and “durable” second hand aircrafts were ideal for the hence the move to buy the two used jets. “Therefore, Botswana Government decided to buy two second hand jets for P230 million. Government officials were advised that it is affordable and sustainable. If you watch very carefully, government was advised by a consultant to buy these kind of brands which are trusted internationally and it was believed even the second hand Embraer jets or ATR turbo-propellers,” said a source.
Okavango joined by younger sister as privatization remains on the horizon
Born in 22 November and renamed Okavango by Air Botswana, Embraer ERJ170 (c/n 17000318), A2-ABM, formerly registered N734Awas acquired from Regional One last year December, but it is yet to take on the skies. It is expected to take on Lusaka and Harare routes which will be opened on next week Tuesday.
With the additional N734 which was made on 15 December 2010 coming in June, Okavango will not be a lonely jet on the Botswana skies. The coming new jet yet to be named by Air Botswana upon arrival is expected to get a brand name after being ‘born again’ to the local airliner and it is expected to traverse the long routes of Gaborone-Durban and Gaborone-Maputo in few months to come. The new jet will add to Air Botswana’s fleet of five aircrafts.
The same month when the new jet arrives, International Air Transport Association (IATA) will conduct a biennial Operational Safety Audit. The last audit which was carried in 2017 cleared Air Botswana as fit and safe. Meanwhile the national airline has been taken up by PEEPA for privatization, the process started last year December. Minister Makgato revealed recently before parliament that PEEPA has appointed Deloitte Consulting as a “Transaction Advisor”
“The key deliverable would be strategic options available to Government on how the airline could be privatized thereby enabling the shareholder to make strategic choices in line with other national strategic objectives,” said Makgato to parliament.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.