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X-ray view into Matambo’s briefcase

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.

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Business

Slight growth in GDP as economy battles return

28th July 2021
Peggy-Serame

Botswana’s economy showed slight growth signs in the first quarter of 2021, following a devastating year in 2020.

During 2020, the entire second quarter was on zero economic activity as the country went on total lockdown in an effort to curb the spread of the virus.

Diamond trade plummeted to record low levels as global travel restrictions halted movement of both goods and people and muted trade.

The end result was a significant decline for the local economy, at an estimated 7 percent contraction, just marginally below the 2008/09 global financial crises.

According to figures released by Statics Botswana this week, the country’s nominal Gross Domestic Product for the first quarter of 2021 was P47.739 billion compared to a revised P45.630 billion registered during the previous quarter.

This represents a quarterly increase of 4.6 percent in nominal terms between the two periods.

During the quarter, Public Administration and Defence became the major contributor to GDP by 18.4 percent, followed by Wholesale & Retail by 11.4 percent. The contribution of other sectors was below 6.0 percent, with Water and Electricity Supply being the lowest at 1.6 percent.

Real GDP for the first quarter of 2021 increased by 0.7 percent compared to a contraction of 4.6 percent registered in the previous quarter.

The improvement in the first quarter 2021 GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.

The real GDP increased by 0.7 percent during the period under review, compared to an increase of 1.2 percent in the same quarter of 2020.

The recovery in the domestic economy was observed across majority of industries except Accommodation & Food Services, Mining & Quarrying, Manufacturing, Construction, Other Services and Agriculture, Forestry & Fishing.

The overall slow performance of the economy was mainly due to the impact of measures that were put in place to combat the spread of the COVID-19 pandemic.

The Non-mining GDP increased by 4.1 percent in the first quarter of 2021 compared to 4.0 percent increase registered in the same quarter of the previous year.

Agriculture, Forestry and Fishing industry decreased by 2.0 percent in real value added during the first quarter of 2021, relative to a contraction of 5.2 percent registered during the same quarter of 2020.

The main driver of the unfavorable performance stems from a decrease in real value added of Livestock farming by 3.0 percent.

Mining and Quarrying registered a decrease 11.4 percent in the real value added, this was mainly influenced by the drop in the Gold and Diamond real value added by 17.5 and 12.5 percent respectively.

Diamond production in carats went down by 12.1 percent while the tonnage of Gold produced went down by 17.5 percent.

The poor performance of the diamond sub-industry is attributed to the reduction in production due to a lower grade feed to the plant at Orapa in response to heavy rainfall and operational issues, including continued power supply disruptions.

With regard to Gold is due to diminishing resource base which affect production.

The Manufacturing industry recorded a decline of 7.4 percent in real value added during the first quarter of 2021, compared to a decrease of 2.3 percent registered in the corresponding quarter of 2020.

The deep low performance in the industry is observed in the two major sub-industries of Beverages & tobacco and Diamond cutting, polishing and setting by 57.0 and 38.5 percent respectively.

The reduction in Beverages is attributed to alcohol sale ban imposed during the quarter under review in order to reduce the spread of the COVID-19 virus. On the other hand, exports of polished diamonds went down by 24.9 percent compared to a decrease of 11.5 percent registered in the same quarter of the previous year.

The construction industry recorded a decline of 4.8 percent compared to an increase of 4.3 percent realized in the corresponding quarter in 2020.

This industry comprises of buildings construction, civil engineering and specialized construction activities. The industry is still showing signs of the consequences of COVID-19 pandemic. The industry recorded a negative growth of 7.4 percent in the previous quarter.

Water and Electricity Water and Electricity value added at constant 2016 prices for the first quarter of 2021 was P506.2 million compared to P378.2 million registered in the same quarter of 2020, recording a growth of 33.8 percent.

In the first quarter of 2021, Electricity recorded a significant growth of 62.4 percent compared to a decrease of 67.6 percent recorded in the corresponding quarter of 2020.

The local electricity production increased by 22.4 percent while Electricity imports decreased by 33.3 percent during quarter under review. The water industry recorded a value added of P231.3 million compared to P209.0 million registered in the same quarter of the previous year, registering an increase of 10.7 percent.

Wholesale and Retail Trade real value added increased by 11.4 percent in the first quarter of 2021 compared to an increase of 5.5 percent registered in the same quarter of the previous year. The industry deals with sales of fast moving consumer goods.

Diamond Traders recorded a significant growth of 112.7 percent as opposed to a decline of 22.7 percent recorded in the corresponding quarter last year. The positive growth is due to improved demand of diamonds from the global market.

The Transport and Storage value added increased by 0.6 percent in the first quarter of 2021, compared to a 2.4 percent increase recorded in the same quarter of the previous year.

The slight improved performance of the industry was mainly attributed to the increase in real value added of Road Transport and Post & Courier Services by 4.3 and 2.1 percent respectively.

The slow growth was influenced by a significant reduction in Air Transport services of 69.7 percent due to reduced number of passengers carried. Rail goods traffic in tonnes went down by 6.4 percent and passenger rail transport was not operating during the quarter under review.

Accommodation and Food Services Accommodation and Food Services real value added declined by 31.7 percent in the first quarter of 2021 compared to a decrease of 4.4 percent registered in the same quarter of the previous year. The reduction is largely attributed to a decrease of 42.1 percent in real value added of the Accommodation activities subindustry.

The suspension of air travel occasioned by Covid-19 containment measures impacted on the number of tourists entering the borders of the country and hence affecting the output of Hotels and Restaurants industry. COVID-19 restriction measures resulted in reduced demand for leisure and conferencing activities, as conferences are largely held through virtual platforms.

Finance, Insurance and Pension Funding industry registered a positive growth of 8.3 percent due to the favorable performance from monetary intermediation and Central Banking Services by 16.4 and 5.4 percent respectively during quarter under review.

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Business

Chobe Holdings secures P16 million for dark days

28th July 2021
Chobe Holdings

It is still tough in the tourism industry — big players in this sleeping giant are not having it easy, but options are being explored to keep the once vibrant multibillion Pula sector alive until the world gets back to normalcy.

One of the primary measures against the spread of Covid-19 is to stay home; this widely pronounced precaution against the global contagion that has claimed over 4 million lives across the world is however a thorn in the flesh of one of the major industries in the global economy — the tourism sector .

This sector is underpinned by travel – an act which is the virus‘ number one mode of spread, especially across borders.

Chobe Holdings Limited, one of Botswana’s leading high end eco-tourism giants said its survival strategies are underpinned by well-crafted stakeholder engagements in the mist of these unprecedented times of muted trading activity.

“Throughout the COVID-19 pandemic, Chobe continued to invest in and strengthen its relationships with key stakeholders in both its traditional markets and the SADC region,” the company directors updated shareholders this week.

To keep the business afloat, the company which owns and operates some of the exquisite tourism destinations along the banks of the mighty Chobe said it has triggered its existing available debt financing avenues.

Chobe revealed that its current overdraft of BWP 25 million has been extended on favourable terms.

The company shared that it has negotiated a further USD 1.5 million (over P16 million) standby loan with a flexible settlement terms and preferable cost implications to the bottom line.

“We are confident that the Group has sufficient cash inflows, cash reserves and un-utilized prearranged borrowing in place to settle any liabilities falling due and support the smooth recovery of operations in the short and medium term,” the company directors said, noting that they will retain the flexibility to vary operations should market conditions change.

Early this year, Chobe announced that the ongoing crisis in the tourism industry forced the company to draw from its prearranged overdraft facility of P25 million to the extent of P11.6 million.

Last year Chobe’s occupancy levels around its lodges and hotels went down 89 percent. This resulted in unprecedented revenue decline of 93% to P27.78 million from the P373.94 million in the previous year ended February 2020.

Operating profits went down 159% with profit after tax down 170%, mirroring a loss of over P67 million.

Chobe management said during the last half of the financial year they have done all they could to contain costs across the company’s operations.

During the last half of the year Chobe’s marketing and reservations teams continued to pursue the “don’t cancel but defer policy”.

“We thus continue to hold advance travel receipts, to the value of about P34 million at the financial year end,” the company revealed early this year.

Chobe said it continues to engage Government, through HATAB and BTO to prioritize the vaccination of workers in the tourism sector.

“Throughout the pandemic we have ensured that employees are trained in and comply with COVID-19 infection mitigation protocols as well as ensuring that all visitors to our remote camps and lodges as well as our staff and contractors are tested for COVID-19 before reaching the camp or lodges,” the company said.

However, the company said vaccinating the tourism staff will provide the best way to ensure that both employees and guests are protected from the virus.

“We continue to manage our cashflow through stringent cost control measures, balanced against the protection of the Group’s physical assets and the wellbeing and retention of its people,” the company said.

Chobe has successfully retained its top management through the pandemic.  To this end the company directors continue to closely monitor the Group’s recovery from COVID-19 and adjust salary reductions to support operations and aid retention.

Domestic and regional travel resumed during the second quarter of the 2020/21 financial year with the Group opening a strategic mix of camps and lodges.

A comprehensive domestic, regional and international marketing plan was put in place to support these openings.

International travel resumed in the first quarter of the 2021/22 financial year with occupancies forecast to steadily increase, albeit from a low base, through the second quarter.

The company is optimistic that forward bookings are strong for the 2022/23 financial year.

“There is pent-up demand from our traditional source markets to travel now, but this is tempered by uncertainty and access constraints,” the company stated.

“Both the domestic and international markets are sensitive to such uncertainty, and it is critical that both the private and public sector work together to develop and publish clear, authoritative and consistent travel information in order to build confidence”

Chobe entered the pandemic with the Shinde camp rebuild in progress — one of its high end camps and this was completed in the first half of the 2020/21 financial year accounting for the majority of the Group’s capital expenditure for that period.

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Business

De Beers Q2 production jumps in response to strong rough diamond demand

28th July 2021
De-Beers -jwaneng-mine

De Beers Group, the world’s leading rough diamonds producer by value and Botswana’s partner in the diamond business, ramped up its production in the second quarter of 2021, in response to stronger demand for rough diamonds in the global markets.

The London headquartered diamond mining giant revealed in its production report this week that rough diamonds output  increased by 134% to 8.2 million carats in the three(3) months  of quarter 2 2021, “reflecting planned higher production to meet stronger demand for rough diamonds”.

This was against the backdrop of curtailed demand in the same quarter last year, mirroring the impact of Covid-19 lockdowns across southern Africa during that period.

In Botswana, where De Beers sources majority of its rough diamonds through partly government owned Debswana, production increased by 214% to 5.7 million carats. The percentage jump mirrored planned low production in the second quarter of 2020 where output was adjusted to market demands and implemented Covid-19 protocols.

Debswana operates four (4) Mines: Jwaneng Mine- being its flagship producer and largest revenue contributor. Jwaneng Mine which is the wealthiest diamond mine in the world by value is envisaged for multi-billion expansion to an underground operation in future to stretch its existence by few more decades.

The underground project which is anticipated to cost a whooping P65 billion will be the world‘s largest underground diamond mine.

The company which accounts for over 65 % of De Beers’s global production also operates Orapa Mine- one of the world’s largest by area, Letlhakane Mine currently a tailings treatment operation and Damtshaa Mine which is under care and maintenance following market shrink in 2020.

Namibia production decreased by 6% to 0.3 million carats, primarily due to planned maintenance of the Mafuta vessel which was completed in the quarter and another vessel remaining demobilized.  In Namibia De Beers sources diamonds both in land and marine through Namdeb and Debmarine respectfully.

In South Africa-the spiritual home ground of De Beers Group, production increased by 130% to 1.3 million carats, due to planned treatment of higher grade ore from the final cut of the Venetia open pit, as well as the impact of the Covid-19 lockdown in Q2 2020.

Production in Canada increased by 14% to 0.9 million carats, primarily reflecting the impact of the Covid-19 measures implemented in Q2 2020.

De Beers said consumer demand for polished diamonds continued to recover, leading to strong demand for rough diamonds from midstream cutting and polishing centers, despite the impact on capacity from the severe Covid-19 wave in India during April and May.

Rough diamond sales totaled 7.3 million carats (6.5 million carats on a consolidated basis), from two Sights, reflecting the impact of the reduced Indian midstream capacity on Sight 4, compared with 0.3 million carats (0.2 million carats on a consolidated basis) from two Sights in Q2 2020, and 13.5 million carats (12.7 million carats on a consolidated basis) from three Sights in Q1 2021.

The H1 2021 consolidated average realized price increased by 13% to $135/ct (H1 2020: $119/ct), driven by an increased proportion of higher value rough diamonds sold.

While the average price index remained broadly flat, the closing index increased by 14% compared to the start of 2021, reflecting tightness in inventories across the diamond value chain as well as positive consumer demand for polished diamonds.

Full Year Guidance Production guidance is tightened to 32–33 million carats (previously 32-34 million carats (100% bases)), subject to trading conditions and the extent of any further Covid-19 related disruptions.

When commenting to 2021 quarter 2 production figures, Mark Cutifani, Chief Executive of Anglo American- De Beers parent, said the entire Anglo American Group delivered a solid operational performance supported by comprehensive Covid-19 measures to help safeguard the lives and livelihoods of its workforce and host communities.

“We have generally maintained operating levels at approximately 95% of normal capacity and, as a consequence, production increased by 20% compared to Q2 of last year, with planned higher rough diamond production at De Beers” he said.

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