In two days’ time, the Minister of Finance and Economic Development Kenneth Matambo will open his iconic briefcase and the nation expects it to be pregnant with hope as it is always the case with any Budget Speech of a government especially on its election year.
However the 2019/20 Budget was planned at a menacing projected budget deficit of P5 billion, increasing fiscal policy uncertainties which experts see as a gloomy picture for Botswana. This is mainly due to the fact that President Mokgweetsi Masisi’s first impression will be judged by the speech this Monday. The 2019 Budget Strategy Paper which was unveiled at last year’s Budget Pitso projected that total revenues are forecast to be lower than projected total expenditures, resulting in a budget deficit of P5.11 billion, or 2.4 percent of GDP.
“With total revenue and grants estimated at P61.28 billion, which is lower than the projected total expenditure of P66.40 billion, the budget deficit is estimated at P5.11 billion, or 2.4 percent of GDP,” said the 2019 Budget Strategy Paper giving a gloomy hope to the coming Budget Speech. According to the 2019 Budget Strategy Paper, budget deficits are forecast in the medium-term, mainly as a result of lower revenue collections, resulting from the expected sluggish mineral revenue receipts and volatility of the Customs and Excise revenue.
On the other hand, emerging expenditure pressures, from both development and recurrent expenditure sides, should continue to be managed in order to ensure fiscal sustainability, the Paper further states. When responding to the perpetual incurrence of budget deficit in his maiden State of The Nation Address which was announced last two months, President Masisi decried of P1.98 billion budget deficit recorded in the 2017/18 year which was followed by an expected “moderate” budget deficit for the 2018/19 financial year.
The upcoming Budget Speech will come at the right time for Botswana’s current National Development Plan 11 (NDP 11, 2017-2023) as in his last year’s State Of The Nation Address Masisi revealed that NDP 11 is due for its Mid-Term Review in the next financial year( meaning the 2019/20) which will be launched by Monday’s budget speech). This is where Masisi promised that “it is during this process that most of our transformative adjustments will be effected.”
Matambo’s pre-budget document, the Budget Strategic Paper 2019 states: “The strategic thrust for the next financial year 2019/2020 continues to be centred around the broad national priorities identified in NDP 11, which are: Developing Diversified Sources of Economic Growth; Human Capital Development; Social Development; Sustainable Use of Natural Resources, Good Governance and Strengthening of National Security, as well as monitoring and evaluation.”
When commenting on government’s continual battle against fiscal deficits, Masisi promised that despite the constrained fiscal outlook his government is committed to the principle of a balanced budget in the medium term, as outlined in the current National Development Plan (NDP11). The public’s high expectation on this year’s Budget Speech to be more promising as it is elections year coincides with the rating agency Moody’s view which expects pressure on spending by government in this important time of Botswana’s history.
Recent Moody’s view sees uncertainty and delay in fiscal consolidation efforts towards the 2019 General Elections and the rating agency highly expects Matambo’s Monday speech to vindicate that. “Ahead of elections in Botswana, the authorities now envisage a more gradual pace of fiscal consolidation…,” said Moody’s. A public voice echoed by workers who now regard themselves as the “working poor” has been reverberating for years and this year it is even louder towards the national polls hence an expected spending pressure by government.
Unionist Tobokani Rari did not mince words when making his promises heard by this publication. He said since 2011 he does not remember government attempting to cushion workers who have continued to struggle against inflation or cost living since the 2009 global recession. With regards to cushioning of workers from inflation, Rari said, the government has been accumulating arrears since 2011 as it has been increasing salaries with small percentages which would not cushion against inflation; only around 3 percent and 4 percent.
“This was not enough as the actual inflation was never met halfway by reasonably increasing prices. The increment of lesser percentages did not reflect compensation of inflation and rather it fell short by almost 16 percent,” said Rari who is against these lesser salary increments which would never compensate for erosion of salaries. Rari expects Masisi’s administration to bring back lost value of workers salary and he also believes this would enhance productivity.
He said Masisi should prioritize in human resource as it is a vital remedy for a healthy economy. It appears the NDP 11 reiterates Rari’s comments that government has been doing less in terms of increasing productivity which is vital for economic health. “With the positive relationship between total factor productivity and economic growth in Botswana, the failure to effectively address the issue of low productivity undermines the country’s ability to operate at its full potential,” says the NDP 11 which was released in 2016.
The NDP 11 further says the country’s ambition of being an upper income country may be difficult to realise in the foreseeable future. Any significant improvements in productivity in both the public and private sectors will have salutary effects on the economic growth and overall health of the economy, according to NDP 11.Meanwhile a Malaysian private consultancy firm appointed by government, Performance Management and Delivery Unit (PEMANDU), has secretively proposed that government increase salaries by 20 percent in a pyramid manner.
This means that the additional cost to the government will be P1.23 billion per annum and this is expected to be in Matambo’s briefcase. While economist Moatlhodi Sebabole is talking against irresponsible spending by the treasury in any occasion or important season like the time of elections, the expert encourages cautious spending by government and believes the current projected deficit was in no way over the bar or overboard.
He gave a scenario of 2009 when Botswana was waking up from global recession with a heavy fiscal deficit of over P9 billion-a time when the economy was still smaller than it is today. According to Sebabole, a projected deficit of P5, 11 billion should not scare as it is not that bad as it seems and will be recovered. Sebabole also welcomes the treasury’s current projected deficit saying it is a counter-cyclical fiscal policy.
He said in this kind of fiscal policy government has spent its revenues on mining projects like the development of Cut 9 in Jwaneng and the Cut 3 at Orapa projects which is expected to bring back returns that will cushion the impending fiscal deficits. Sebabole believes that the fiscal deficits may shrink even to P1.6 billion, even below the expected estimates. The economist believes fiscal consolidation by government should not in any way astray from the NDP 11 route and achievement of Vision 2036 goals or pillars.
“In my view I believe in cautious fiscal spending. In every hot national event fiscal spending pressures is expected to cater for management of elections and when the fiscal policy is under pressure to deliver in an election year,” said Sebabole. Sebabole believes government has always been spending within the fiscal spending threshold which also coincides with the fiscal rule. He explained that the fiscal rule has always been to spend not above 4 percent of the GDP and this should be maintained even at a time of elections.
Permanent Secretary to the President and Secretary to the Cabinet Carter Morupisi told this publication that government will not be swayed by pressure of elections year and the budgetary process have not changed like in the past years. He echoed Masisi and Matambo’s last year comments that the upcoming Budget Speech will be mirroring priorities of NDP 11. “That will be the principal of good governance. Government should remain committed to prioritizing ongoing projects first before looking and new commitment,” he said.
Morupisi explained that a budget is prepared by looking at projected revenues and spending which are mostly planned on assumptions. He highlighted that after looking at ongoing projects compulsory payments will be made as in salaries of workers and government debts. Priorities versus Promises. According to the 2019 Budget Strategy Paper one of the Fiscal Policy Objectives is to; manage the fiscal risks in a prudent manner and to ensure fiscal consolidation through expenditure prioritization that will result in quality spending.
Government’s main priority is to keep it’s spending below 4 percent of the GDP in the face of a projected fiscal deficit of P5. 11 billion which is the 2.4 percent of the GDP, according to Morupisi. Also the PSP says top on Matambo’s list will be closing government’s ongoing projects and paying debts and liabilities as well as pay workers’ salaries.Matambo at the Budget Pitso said the projected P5.11 billion budget deficit will be financed through a combination of borrowing, both domestically and externally, and drawing down on government cash balances.
“Government remains committed to pursuing fiscal sustainability and thus, additional measures to raise domestic revenues or trim the planned expenditure during the implementation of the Plan will be considered, if necessary, to restore the fiscal balance to sustainable levels,” says this year’s budget paper. As a self-proclaimed ‘Jobs President’, Masisi has a bigger headache before him, to increase employment while making sure that the jobs he created are decent. In his maiden SONA Masisi highlighted poverty and unemployment “as a matter of urgency.”
Masisi’s administration lives with the promise of increasing jobs. This is why Masisi further announced that his administration has come up with the National Employment Policy (NEP) to address the unemployment problem facing the country and live to his title of ‘Jobs President’. Another promise by Masisi is to increase workers’ salaries or improve their living conditions. This is why the same NEP’s other goal is “to assist the country to achieve productive, gainful and decent employment for all, to contribute to the reduction of income inequality and as well as to support Government’s poverty eradication efforts.
“It is seen that the NEP in this aspect supports the NDP 11 which states that one of the problems facing the country is the decline in total factor productivity, especially labour productivity. NDP 11 complained that, “growth in labour productivity in the country, as measured by value added per person employed, has been declining over the past two decades.” The NEP gets technical and financial support from World Bank. The Draft National Employment Policy for Botswana is expected to be delivered by March 2019, a month after the Budget Speech.
Cresta Marakanelo Holidays Limited, Botswana’s leading hotel group, is battling the catastrophic effects of the Covid-19 pandemic and its far-reaching implications.
The tourism and travel business was by far one of the most hit economic sectors. The key to containing the COVID-19 pandemic was the significant curtailment of movement of the people to reduce the spread of the virus. On the flip side, this delivered a massive blow to the tourism and hospitality business, which largely relies on accommodating travellers.
This week, Cresta released their unaudited condensed consolidated financial results for the half-year period ended June 2021. The Group, which operates 11 hotels in Botswana, reported a significant reduction in losses owing to stringent cost-containment measures deployed by management to ensure the business doesn’t plunge deeper into the negative figures zone.
The Group’s registered a six-month loss before Taxation of P34.1 million, which was P8.4 million lower than the prior-year first six months period, which reported a loss of P42.5 million. Cresta says the COVID-19 headwinds continue to significantly affect the tourism and hospitality industry, and Cresta Marakanelo Limited was not an exception.
During the six months to June 2021, the Government of Botswana continued to implement a raft of measures imposed in December 2020 to curb the spread of COVID-19. These measures, which include restrictions on inter-zonal travel, a ban on alcohol sales, and a limited number of conference guests, have had a direct effect on reducing the level of activity in hotels.
The resort town hotels, which ordinarily generate at least 50 percent of their business from incoming foreign travellers, were significantly affected by the lockdowns in the source countries and low travel sentiment even after the hard lockdown measures were lifted. The first-quarter performance was low in line with the seasonality of the business. However, the performance was further slowed down by the pandemic induced low travel sentiment and pandemic mitigation controls in place.
The second quarter saw a rise in the performance of the business when compared to the first quarter, contributing 60% of the revenue generated for the six months ended 30 June 2021. The business enjoyed a steady month-on-month increase in revenues from January to June 2021.
Under the adverse operating conditions for the industry, Cresta Directors boast of the P8.4 million loss cut. This, according to a commentary alongside financials, was mainly driven by the cost reduction measures implemented, some of which will be continued in the long term, even after the pandemic has been contained.
Revenue for the period under review was P96.5 million, 4% (P3.3 million) higher than the same period last year. Earnings before interest, tax, and depreciation and amortization (EBITDA) achieved during the period was P2.2 million, an improvement on the prior year’s loss incurred of P2.5 million.
The reduced market base has seen a surge in price wars in the industry, a variable that further puts pressure on the company’s revenues. Cresta management noted that the Group would continue to focus on cost containment to ensure the business’s survival through this difficult pandemic season.
In a drive to reduce the operating leverage of the business to ensure the company continues to be a going concern, several measures were implemented, including the suspension of all non-critical capital expenditure projects and freeze on all discretionary expenditure. In addition, Cresta negotiated with staff, landlords and other strategic suppliers to reduce contractual obligations. Following these measures, Cresta was able to minimize the reduction in cash balances during the period.
From 31 December 2020, cash balances declined by P29.1 million for the six months to 30 June 2021, compared to a decline of P42.1 million during the same period in 2020 on largely the same level of revenue mirroring successful cash preservation. In assessing the ability of the Group to continue as a going concern, management performed a sensitivity analysis on a 12-month cash flow forecast which the Board of Directors reviewed to their satisfaction.
A range of possible outcomes related to the COVID-19 pandemic were considered, and it was concluded that Cresta Marakanelo Limited would continue as a going concern. The single most significant assumption was that the business should make a turnaround for the better within 12 months period on the back of vaccination programmes both in the source market countries and locally.
Vaccination enhances travel sentiment for the market, and it is on its strength that most paid guests are opting to postpone their bookings rather than cancel altogether. The company has also secured an additional working capital facility of P25 million. This will provide extra headroom while the business levels are low.
Based on the review of the Group’s cash flow forecasts, the Directors believe that the Group will have sufficient resources to continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the interim financial statements have been prepared on the going concern basis.
Last month Cresta announced that they had decided not to renew the lease for the Cresta Golfview Hotel in Lusaka, Zambia, which comes to an end on 31 January 2022. The landlord of the property will continue to run the hotel under a different brand, and preparations are currently underway for a smooth handover of the property, with the least possible impact to staff, suppliers and guests.
During the half-year, P11.7 million (2020: P25.8 million) was utilized in operating activities, primarily due to the subdued revenues. Net cash used in investing activities amounted to P2.5 million (2020: P14.4 million).
The reduction in cash outflow on investing activities was because of the capital expenditure freeze. With regards to financing activities, P15.2 million (2020: P4.1 million) was utilized, split between bank loan repayments of P3.7 million (2020: P1.5 million) and leasing hotel properties P11.5 million (2020: P11.6 million).
In the future, Cresta pins its full recovery hopes on the vaccination plan, which is envisioned to cultivate revived travel sentiment significantly. “As seen in other countries whose vaccination programmes were embraced by a significant part of the population, vaccination is expected to see the removal of conferencing restrictions, alcohol sale ban and lifting of travel restrictions,” the company said.
The International Renewable Energy Agency’s (IRENA) latest Renewables Readiness Assessment of Botswana has made it known that the country enjoys considerable renewable energy potential. Notably, solar, wind and bioenergy are more prevalent. However, these remain largely untapped, despite the country’s ambitious plans for integrating renewable energy into its energy system.
According to the report, Botswana’s total primary energy supply (TPES) is fossil-based and largely reliant on oil products and coal, complemented by biomass and waste energy. In the Integrated Resource Plan (IRP) launched in December 2020, it was announced that renewable energy should account for at least 15% of the energy mix by 2030, whilst the country’s Vision 2036 calls for a 50% renewable energy contribution to the energy mix by March 2036. The ambitions are arguably aloof given the insufficient critical actions that could significantly impact the energy transition in Botswana.
Access to electricity stands at 65%, with 81% of urban areas illuminated and 28% of rural regions electrified. As of 2017, the country’s total energy supply of 2.9 million tonnes of oil equivalent consists of oil products (35%), coal (44%), (traditional) biofuels and waste (19%) and imported electricity (2%). The IRENA has established that electricity is mainly produced from coal or petroleum products imported from South Africa.
As is the case in most regions, Botswana’s power system is characterised by an unreliable power supply, lack of investment, poor maintenance, and high service costs. To meet its peak power demand, Botswana imports power from the Southern Africa Power Pool (SAPP) – mainly from South Africa – and when imports are not available, resorts to costly backup diesel power plants.
In 2013, the International Energy Agency’s (IEA) Clean Coal Centre found that Botswana has estimated coal resources of 40 gigatonnes (Gt) or 40 trillion Kg. In 2014, the only two measured coal reserves were Morupule and Mmamabula basins, with a capacity of 7.2 Gt. IRENA believes this abundant resource is underexploited as only a single coal mine, Morupule, is currently operating.
Already established, Botswana relies heavily on fossil fuels for its electricity generation. As shown by the country’s installed generating capacity of 893.3 megawatts (MW), comprising 600 MW from the coal-fired Morupule B, 132 MW from the also coal-burning Morupule A, 90 MW from Orapa power plant, which is a diesel peaking plant, 70 MW from Matshelagabedi power plant (diesel peaking plant) and 1.3 MW from Phakalane solar photovoltaic power plant, according to the then Ministry of Mining, Minerals, Energy and Water Resource (MMERW) in 2017, now under a new name.
IRENA posits that although the installed capacity can cover the country’s peak demand estimated at 610 MW, the Botswana Power Cooperation’s (BPC) interconnected system faces several challenges. According to the power parastatal, in 2017, Morupule A did not produce electricity and was closed down for refurbishment. It produced 25 gigawatt-hours (GWh) in 2018 but had to be shut down again to remedy defects identified during commissioning.
Morupule B has been running under capacity since its commissioning in 2013 due to plant breakdown and system failures. BPC is currently undertaking remediation, which is expected to be completed in 2023/24, with all units running 100% production.
As for the diesel power plants of Orapa, producing 90MW and Matshelagabedi’s 70MW, which are rented to Alstom, they were conceived to support peak load but are being used for regular electricity supply BPC reports. The Corporation’s two diesel power stations were not used during 2018 and remained on standby. The lack of capacity to satisfy electricity demand requires regular imports from surrounding countries.
Botswana relied on electricity imports to cover up to 94% of its demand until the progressive recovery of the Morupule B plant. IRENA noted that the share of electricity imports in total supply decreased to about 17%, or 594 gigawatt-hours (GWh) in 2018 from 1 297 GWh in 2017 due to lower demand from the mining sector.
BPC has been in a precarious financial state for many years due to high import costs, operational difficulties and inoperative assets and has been kept afloat by government subsidies. Botswana has an exceptionally high rate of solar irradiation, making solar energy a promising renewable energy source in the country.
The semi-arid country has an estimated 3 200 hours of sunshine per year. According to a MMEWR study, the yearly solar resources from global horizontal irradiation (GHI) range from 2 050 to 2 920 kilowatts received in one hour by one square meter of a surface (kWh/m²). For comparison, these irradiation levels are similar to those in California, which is amongst the most competitive solar market today.
Botswana is also endowed with a range of bioenergy resources that could be used for energy production. Wood fuel remains the dominant cooking fuel for rural households, as 42% of the population relies on it. A 2016 World Bank study based on a government study from 2007 to assess biofuel production and use in Botswana revealed the potential for biodiesel production from Jatropha curcas and bioethanol from sweet sorghum and sugarcane crops.
The Central district presents the highest biodiesel potential from Jatropha production, while the North-West district’s bioethanol potential from sweet sorghum is mainly located in the Ngami sub-district. However, another study coordinated by IRENA found that Jatropha is not suitable to cultivate in Botswana, as 100% of the land is restricted due to protected areas, wetlands, existing agricultural lands or urban areas, as well as additional exclusion areas and other restrictions in terms of market access and water availability. Sugarcane crops were only viable if irrigated, and the extent of production could reach 9% of the land.
Furthermore, an analysis conducted by IRENA and United States-based Lawrence Berkeley National Laboratory (LBNL) for the Africa Clean Energy Corridor depicts some suitable zones for wind turbine power deployment, which are mainly located in the southern part of Kgalagadi district near Tsabong and the Southern region, with a technical potential of up to 1.5 GW.
In the foreword of Botswana’s Renewables Readiness Assessment, the Minister for Mineral Resources, Green Technology and Energy Security, Lefoko Moagi, said the release of the report coincides with the recent adoption by Parliament of the Botswana National Energy Policy – a key, strategic instrument for the successful and economic development of the local energy sector.
A prominent objective of the Policy is to achieve a substantive penetration of new and renewable energy sources in the country’s energy mix; the goal is to attain adequate economic energy self-sufficiency and security, as well as to position Botswana to fulfil its vision of becoming a regional net exporter, especially in the electricity sector. Director-General for IRENA Francesco La Camera said Botswana possesses considerable potential for renewable energy development.
In the introduction of the assessment, La Camera stated that the report presents clear and practical steps to maximise the country’s use of renewables in driving sustainable economic growth for Botswana. The extensive document identifies the need to adopt a broader range of renewable energy technologies to diversify Botswana’s power generation away from coal, generate socio-economic value and fulfil the country’s environmental and climate commitments.
Joint venture between De Beers and Government of Republic of Namibia announces new plan, supporting economic, commercial, employment and community benefit, following receipt of royalty relief Namdeb Diamond Corporation (Proprietary) Limited (‘Namdeb’), a 50:50 joint venture between De Beers Group and the Government of the Republic of Namibia, today announced the approval of a new long-term business plan that will extend the current life of mine for Namibia’s land-based operations as far as 2042.
Under the previous business plan, the land-based Namdeb operations would have come to the end of their life at the end of 2022 due to unsustainable economics. However, a series of positive engagements between the Namdeb management team and the Government of the Republic of Namibia has enabled the creation of a mutually beneficial new business plan that extends the life of mine by up to 20 years, delivering positive outcomes for the Namibian economy, the Namdeb business, employees, community partners and the wider diamond industry.
As part of the plan, the Government of the Republic of Namibia has offered Namdeb royalty relief from 2021 to 2025, with the royalty rate during this period reducing from 10% to 5%. This royalty relief has in turn underpinned an economically sustainable future for Namdeb via a life of mine extension that, through the additional taxes, dividends and royalties from the extended life of mine, is forecast to generate an additional fiscal contribution for Namibia of approximately N$40 billion. Meanwhile, the life of mine extension will also deliver ongoing employment for Namdeb’s existing employees, the creation of 600 additional jobs, ongoing benefits for community partners and approximately eight million carats of additional high value production.
Bruce Cleaver, CEO, De Beers Group, said: “Namdeb, a shining example of partnership, has a proud and unique place in Namibia’s economic history. This new business plan, forged by Namdeb management and enabled by the willingness of Government to find a solution in the best interest of Namibia, means that Namdeb’s future is now secure and the company is positioned to continue making a significant contribution to the Namibian economy, the socio-economic development of the Oranjemund community and the lives of Namdeb employees.” Hon. Tom Alweendo, Minister of Mines and Energy for the Government of the Republic of Namibia, said: “Mining remains the backbone of our economy and is one of the largest employment sectors within our country.
Government understood the fundamental impact of what the Namdeb mine closure at the end of 2022 would have had on Namibia. Therefore, it was imperative to safeguard this operation for the benefit of sustaining the life of mine for both the national economy as well as preserving employment for our people and the livelihoods of families that depend on it.”
Riaan Burger, CEO, Namdeb Diamond Corporation, said: “After more than a century of production, these operations were approaching the end of their life, but the creation of this new business plan means we can continue to deliver for Namibia for many years into the future. This is great news for the hardworking women and men of Namdeb, as well as for all our community partners who we are proud to have worked with over the years. We now look forward to starting a new chapter in Namdeb’s proud history.”