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Currency mismatch hinders renewable energy funding

Botswana just like many other African countries has developed interest on finding alternative sources of energy to replace or reduce dependence on the traditional non-renewable sources.

This is also fuelled by the global conversation of going green, a campaign that trickles down from the increasing concern of climate change, global warming and depletion of the earth’s desirable climatology attributes.  In this discourse, Botswana is said to be even better placed to become a leading space of renewable energy and is constantly underscored as sitting on a lucrative solar energy sector that has potential of being one of the world’s largest and booming.

This emanates from the fact that Botswana receives one of the most abundant solar resources in the world due to its high temperatures and semi-arid climate condition. However, the impeding factor to developing the country’s renewable energy sector and turning the hot and semi-desert country into a solar energy hub is lack of adequate financing.

 Though the cost of setting-up solar energy infrastructures has been significantly declining as per global commodity prices of solar panels and related equipment for a developing country, it remains a capital-intensive undertaking that requires significant private sector participation and investor appetite. Energy sector stakeholders, investors and experts reiterated at the 2nd Renewable Energy and Power Infrastructure Investors Conference held in Gaborone last week Friday that with its high number of clear days in a year, Botswana provides an excellent solar resource, adding that a logical conclusion can be reached that solar could provide a meaningful contribution to Botswana's energy demands.

The increasing cost and unreliability of power from Eskom in South Africa provided the impetus for the Botswana government to research renewable energy, with the most obvious contender being solar.   Recently the South Africa’s State-owned power producer signalled possibility of cutting its supply to foreign clients owing to challenges it is facing at its power plants thus not producing enough power for even its domestic demand. Challenges at Eskom which is the region’s largest power producer and one of Africa’s largest, has pushed its clientele countries to find alternative sources of energy.

In early 2017, the Botswana Power Corporation (BPC) decided to start a programme to procure 100MW of solar energy and exploit the plentiful natural resource. When presenting on Europe’s support to the development of renewable energy in Africa Ambassador of EU Delegation to Botswana Jan Sadek said sola power solutions have become far more affordable and commercially viable over the past few years adding that many issues that plagued solar have also been resolved.

 Sadek explained that the introduction of hybrid systems using more sophisticated battery technology and diesel generation to store energy and boost production at peak times has resolved a constraint that solar power could only be generated during the day. Tiago Almeida an energy investment expert from Rand Merchant Bank Group explained that a key stumbling block to funding solutions of renewable energy in Africa is a possible currency mismatch, which comes about when investors invest in US Dollar and the collection of tariffs is done in the local currency.

According to Almeida, solutions should be considered to originate the financing solutions in the local currency, which prevents countries from being exposed to potential harmful swings in the dollar related exchange rates. Almeida further shared   RMB‘s efforts on financing renewable energy projects “Being the largest commercial bank in Botswana and with our experience in structuring these Power Purchase Agreements (PPA), we believe we could assist to provide expertise in defining the "bankable" risk allocation for the PPA, boosting investor and banks appetite for the programme and also create solutions in underwriting the deals in Pula," noted Almeida.

Based on the pivotal role RMB played in South Africa's REIPPP, the bank says its further well positioned to assist BPC to move their renewable energy programme forward. Almeida believes that with the buy in of the Botswana government to procure some 100MW of power through solar and innovative funding solutions, the country could forge a path to a sustainable energy source for thousands of homes.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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