Botswana Development Corporation (BDC), government investment arm this week delivered impressive sets of financial results for the year ended June 2018, mirroring a good dispatch of their ongoing five-year strategy which commenced in 2015.
The strategy was set-up by Managing Director Bashi Gaetsaloe who took over the reins in 2014 at a time when the corporation was embattled with corruption, maladministration and failing investments. At a stakeholder briefing hosted by the company in Gaborone this Thursday, Gaetsaloe observed that the 2018 trading period continued to be a challenging year economically both in domestic and global markets explaining that BDC was not spared from this toughened trading environment.
“However in the midst of these external factors, we have continued to make progress. We are now in the fourth year of our five-year strategy and we remain committed to our ambition to double the business in this strategic period,” he said. During the period under review the BDC Group raked in Profit-before-Tax of P187 million, mirroring an increase of 39 percent when gauged against P135 million registered in the prior year ended June 2017. The Group recorded a hike of 5 percent in asset base ending the trading year at 4.1 billion pula compared to 3.9 billion pula in 2017.
BDC also realised growth in interest income of 20 percent to P42million against P35 million reported during the prior year. When delivering these sets of financial figures BDC acting Chief Finance Officer Maranyane Makhondo said this was a reflection of the expected growth in debt assets, a milestone achieved in correlation with the corporation’s business strategy to rebalance the equity/debt asset profile.
“We successfully drove an increase in investment asset values at Group level with financial results for the year under review reporting an accumulative 5 percent year on year growth of Group assets to P4.1 billion,” reiterated Makhondo. Further zooming into the BDC Group’s financial highlights for the period under review indicates that income closed the year at P444 million against last year’s P403 million, reflecting a 10 percent growth year on year.
Company Profit before Tax increased by 18 percent to P244 million in 2018 from P206 million reported in 2017. Managing Director, Bashi Gaetsaloe shared that in addition to the reported financial results, his company also takes pride in the Moody’s Investors Service reaffirmation of their Baa2/Prime2 rating with a stable outlook.
“The rating agency recognised our strong liquidity and capital buffers, and assumption of a high probability of government support hence our issuer ratings entail a standalone credit profile of b1, which balances what Moody’s recognizes as a strong company solvency and liquidity position against a high concentration of strategic participation in large equity investments.”
Gaetsaloe further added that during the year 2018 BDC moved from equity investment to debt instruments with a view to align their portfolio composition to their investment mandate of just being financers and not operators “we shrunk our equity injections and hiked our debt instruments because our job is not to run businesses but just support, thus we took a deliberate stance to minimize our equity skates with a view to allow entrepreneurs , promoters and business owners to run these business so we have been moving with a small minority stake investment wave to archive this” he said.
When updating stakeholders on BDC’s investment portfolio Chief Investment Officer (CIO) Moatlhodi Lekaukau shared that the company has stretched its investment outlook with a view to expand its African footprint and diversity the corporation’s revenue streams and various market reach. He shared that the corporation has closed in on a first international deal as well as upcoming transactions both in East and West Africa.
Lekaukau revealed that in Nigeria BDC is 80 percent wrapping up a lucrative transaction that would see the corporation hold a significant stake in an undisclosed telecommunication company that operates consumer based mobile business. “We are excited about this transaction, the company is one of the top five in Nigeria, and we know the country hosts a large vibrant market so we a looking at impressive returns from this deal,” explained Lekaukau adding that an investment in the Ghana energy sector is also in the offing.
The Chief Investment Officer also shared that in Uganda, BDC will be investing in an oil refinery business, “we are cautious with this offshore investments, but they are key to our diversification strategy which seeks to expand our footprints into other vibrant and bigger markets and East Africa as well as West Africa presents that, especially in the energy and telecommunication sectors” said Lekaukau.
Commenting on these investments Managing Director Gaetsaloe added that BDC’s investments outside boarders of Botswana present a great opportunity for the company’s ambitions of being a window for Botswana’s economic aspiration. “Once we take a Botswana investment company outside our boarders we send a good image of Botswana’s economic capacity and ability, as we close these deals we create linkages with some of these companies to come and explore possible joint ventures here in Botswana with local companies as well as explore other potential business opportunities” said the BDC MD.
BDC’S FIVE- YEAR STRATEGY
Speaking to the five-year strategy Gaetsaloe explained that the strategy was bearing fruits. “We believe that our five-year strategy has delivery results, over the cause of the last four years we have returned BDC to profitability with cumulative profits of P784 million pula, paid off debt of P500 million and transferred P285 millions of listed stock to the public. We have also transferred business and assets worth over P300 million pula to local firms and Batswana, and reduced our loss making subsidiaries from nine to two. This are commendable sets of achievements,” he said.
During the last four year BDC approved P952 million to fund new projects and creating over 1200 new jobs. The government investment arm established a Reserved fund and an Investment Fund which are capitalized at over P230 million. “We have always wanted to have a buffer fund to accommodate possible shocks, that way our funders and lenders have confidence in our borrowings, to say if there was a shock to our income streams we would continue to meet our repayments obligations,” he said. Going forward, Gaetsaloe reiterated that BDC would be aligned directly to the national vision 2036 of achieving a high income economy for Botswana.
“We are a self-funding company that strives to pay-out an increasing dividend to our shareholder, being government, on year-on-year basis, we gather our funding by borrowing from local banks and capital market so that we can invest on commercial projects that drive industrialization, and create employment for Batswana,” he said.
BDC paid dividends to Botswana Government for the past three trading years since 2015 after a decade of loss making. “We raise funds, deploy fund and look after these funds to achieve shareholder value and for the year under review we have successfully driven growth across the business including significantly net worth by P700 million since 2014,” said Gaetsaloe.
Stanbic Bank Botswana Quarterly Economic Review indicates that Botswana will fail to meet some of its Vision 2036 targets, particularly unemployment reduction and reaching high-income status.
The report says this is mainly due to the slow economic growth that the country is currently experiencing. This Quarterly Economic Review focuses on the 2020 Budget Speech.
The first paper reviews the entire budget with its key observations being that this budget is prepared as prescribed by the Public Finance Management Act; the priorities it seeks to address are drawn from Vision 2036 and the eleventh
The 2020 budget Speech, which was the maiden speech by the Minister of Finance and Economic Development, Dr. Thapelo Matsheka, and the first after the 2019 general elections, was delivered to Parliament on the 4th of February 2020.
It has been well received by the labour unions, business community, and the public at large as well as international organisations such as the International Monetary Fund (IMF).
It mainly derived its support from key facets including, emphasis on changing the business-as-usual approach to development; outlining the transformation agenda; fiscal reform that minimizes the negative impact on economic development and human welfare, competiveness and the decision to implement the 2019 negotiated and agreed public sector.
The budget’s progress review shows that economic growth was consistent with the NDP 11 projections, with growth of around 4 percent. At this growth rate, the country would neither ascend to a high-income status nor reduce unemployment towards the Vision 2036 target of a single digit.
Simple calculations of this review confirm that the economy will need to grow the Vision 2036’s target of 6 percent over the next 16 years for per capita income to increase from around USD 8,000.00 to above USD 12,000.00 in current prices.
Further, the population is anticipated to grow by only 2 percent per annum.
For this reason, the focal areas for the forthcoming FY’s budget include measures to increase economic growth towards an average of 6 percent per annum.
Economic diversification is reportedly progressing fairly well. The report says, the share of the non-mining private sector in value added has risen to 66 percent in 2018 from to 63 percent in 2015.
The sectoral pattern of growth showed that the performance of services sector (particularly transport & communications, trade, hotels & restaurants, and finance & business services) has been the silver lining and that of mining sector was subdued whilst the utility sector disappointed.
The drive towards the service sector of the economy, especially to low-productivity activities (tourism, public administration, wholesaling and retailing) does not bode well for the country’s development aspirations.
In the previous versions of this Quarterly Review, it was noted that there is need for the rethinking of economic diversification. Since the country’s domestic market is small, it is inevitable that economic diversification not only focus on broadening the product mix, but also the composition of exports and markets.
This understanding of economic diversification has not been embraced by this year’s budget. Consequently, Botswana’s exports are still overwhelmingly diamonds, which means that the rest of economic sectors are still highly dependent on foreign-exchange earnings from diamonds. Thus, “the transformation programme requires a review of the country’s entire ecosystem”.
The budget review of the economic context also depicts that an economy with positive medium-term prospects, with growth expected to recover to 4.4 percent in 2020 from the expected growth of 36 percent in 2019 largely due to faster growth of services sectors and, thereafter, to slow-down to 4 percent in 2021.
These projected growth rates are comparable to those of the IMF staff’s baseline scenario of 4.2 percent in 2020 and 4 percent in 2021. Thus, the business-as-usual scenario produces growth rates that are still too low to achieve Botswana’s development objectives and create enough jobs to absorb the new entrants into the labour market.
Trade tensions between the two major markets for diamond exports, viz., the United States of America and China, is one of the factors that are cited as contributing to, indeed, undermining not only the domestic growth, but also the fiscal position.
Another notable downside risk to both global and domestic growth is outbreak of the coronavirus in China around January 2020. This has been declared as a global health emergency. In an attempt to contain the spread of the novel coronavirus pneumonia, the Chinese authorities have ordered city lockdowns and extended holidays, of course, at the expense of near- term economic growth, according to the new Stanbic Bank Botswana report.
According to Nomura Holdings Inc., fewer migrant workers returned for work than in previous years and business activities have been slow to pick up. The havoc wreaked by the virus on the world’s second largest economy is likely to spill over to the global economy. In fact, it has resulted in a glut in crude oil and, thereby placed oil markets into a contango, i.e., a market structure where near-term prices trade at a discount to future contracts.
It also presents significant risks one of Botswana’s main drivers of economic growth, diversification and foreign exchange earnings. According to the Financial Times (February 13, 2020), Chinese tourists spent $130 billion overseas in 2018. Regardless of whether the growth materializes, the projected domestic growth rate would not transform the economy to a high-income one.
Progress towards reduction of unemployment, to a target of single digit, and poverty and achieving inclusive growth has also been relatively slow, the Stanbic Bank Botswana Review says.
Ministry of Presidential Affairs, Governance and Public Administration (MOPAGPA) has through the Office of the President (OP) proposed to avail Orapa House for use by private training institutions as well as research institutions involved in the area of technology development.
For a very long time the monumental building located in the heart of the city has been a white elephant, despite government purchasing it for nearly P80 million from De Beers in 2012.
However, government has now identified a productive use for the iconic building. “The overall vision is for the building to be transformed into a hub for digital technology research and development to be carried-out by institutions, such as; Limkokwing University, BIUST, BITRI and other relevant stakeholders.”
The decision was taken as government traverse a new path of transforming the economy from a mineral led economy to a knowledge based economy through the promotion of research and innovation. However, the facility will need major maintenance to be carried-out in order to meet the requirements of the proposed change in use.
“The work will include provision of laboratories, work stations, production areas and seminar rooms; audio visual centre, high speed internet connectivity, exhibition areas and offices,” reads the proposal note for the development.
These developments will be done through the refurbishment and maintenance of the main building, workshop, and ablution block, gate house, parking area, grounds, and access control and security service.
“There will be minimal modifications to the structure as it stands. The project is estimated to cost approximately P50, 000, 000,” says the report. In this regard, it is said, the initial scope of the OP facility will be modified to accommodate the envisaged digital technology research and development hub.
With funds needed to improve the building, OP has requested that; “the 2020/21 annual budget provision for Orapa House will need to be increased by P37,500,000 from P2,500,000 to P40,000,000 to kick start the maintenance works.” Funds will be sourced from the projects that have been delayed due to Covid-19 protocols during the 2020/21 financial year.
The building has been a thorny issue for government for years. Initially, OP was expected to move there but the move never materialised. At one point it was a question of whether the Office of the President and the Ministry of Finance and Economic Development were planning to override a decision by Parliament which rejected the proposal to buy Orapa House under the belief that government may be buying its own property. The building was to be bought at a negotiated cost of P79 million.
Again in 2012, Government had wanted to buy Orapa House for a negotiated P79m but the Finance and Estimates Committee of Parliament had rejected the request because of the inconsistencies realised in the supporting documents of the proposed procurement. The valuation of the building was put at P74 million.
The Ministry of Lands and Housing had initially offered De Beers P73, 000,000 as the purchase price. However, De Beers countered with P85, 000,000. On negotiation and converging of the minds, the selling price was finally agreed at P79, 000,000.
Auditor General, Pulane Letebele, has expressed discontentment at the worrying and deteriorating state of brigades in the country.
In an audit inspection which was carried out at Tshwaragano Brigade in Gabane, a number of observations showed weaknesses and shortcomings in the conduct of the financial affairs of the institution.
According to Letebele’s report, former students of the brigade had been engaged to carry out maintenance works on the school premises, comprising of painting, tiling, plumbing and electrical works, which covered the period from July 2017 to June 2018.
Although the agreed maintenance period had elapsed, the works had not been completed because of unavailability of funds and this situation had persisted up till the time of inspection in November 2019.
Auditor General says arrangements should have been made in time for funds to be available to complete these relatively minor works even before the works commenced.
Various contractors had been engaged for clearing the bush and for the supply of concrete stones, pit and river sand and hiring equipment for digging the trench towards the construction of an auto mechanics workshop, the report said.
It stated that the cost of services and supplies provided totalled P117 949.80. However, despite the services and the supplies having been paid for, the construction works had not commenced for a long period afterwards, resulting in the trench filling back in.
The audit inquiries had not elicited satisfactory responses as both the institution and the Ministry had not accepted the responsibility for the project, although orders for the provision for the supplies had been made. For their part, the Ministry had stated that they had sub warranted funds for the purchase of porta cabins.
Letebele indicated that it is therefore confusing that a project which is critical to the functioning of an institution such as this one would commence without a well-defined plan.
Furthermore, the accounting and maintenance of records for the supplies items were not of the standard prescribed by the Supplies Regulations and Procedures in that the supplies ledger cards, the main accounting records for Government assets, were not properly maintained for the recording of receipts and issues.
This had resulted in significant discrepancies between physical and ledger balances, while in other instances the supplies items had not been recorded at all.
The report says 24 of the 91 new computers found in the computer laboratory at Kumakwane ABC campus were not recorded anywhere, as were the other computers in the storeroom which could not be counted due to the disorderly storage conditions.
The institution had entered into a contract agreement with a security company for the provision of security services at Tshwaragano Brigade, ABC and Horticulture campuses at Kumakwane for a 2-year period which ended in June 2018, WeekendPost learnt.
After the contract expired in June 2018, an extension was granted till the 30th September 2018. Since then, there has been no security service coverage for the institution to-date. According to Auditor General, in the face of prevailing crimes, it is of paramount importance that government properties be protected by provision of security services at all times.
At Tlokweng Brigade, it was noted that the kitchen staff were working under difficult conditions as the kitchen facilities and equipment, such as the cold room, tilting pot, food warmers and solar power for hot water were dysfunctional. The kitchen roof was leaking and men’s restrooms was not working. All these need to be brought to a reasonable and functional state of repair.
The kitchen staff should use a purpose-designed Rations Ledger for the recording of receipts and issues of foodstuffs to reflect the usage of those items. As far back as 2014 the Department of Buildings and Engineering Services had found that the house occupied by the bursar was uninhabitable on account of structural defects, the report said.
A site visit during the audit had established that the house was indeed unfit for occupation as there were cracks on the walls, power switches were not working and the roof was leaking. On a sadder note, there were a number of finished items of clothing, such as dresses, shirts, and jackets from students’ practical exercises from the Fashion Design Textiles Workshop.
Auditor General shared her take on this, saying: “I have not been able to ascertain the policy on the disposal of products from these practicals. A trace of 103 green acid-proof overalls which had been purchased in August 2018 had indicated that there was no record of these items having been recorded or issued, nor were they available in stock. I was not able to obtain any explanation for this situation.”
Kgatleng brigade was also audited and inspected by Auditor General who observed that the brigade has 26 institutional houses at Bokaa, both old campus and new campus. Some of these houses are very old and dilapidated, with two declared uninhabitable. The condition of the houses is a clear indication of lack of care and maintenance of these properties.
At the time of the audit, there was no contractor engaged for the provision of security guard services at the new campus, after expiry of the previous one in July 2019. It is hoped that steps would be taken to safeguard the security of the premises and government properties against any acts of hooliganism.
In August 2019, there was a break-in at the electrical and at the plumbing maintenance workshops and a number of high value items, such as drilling machines, bolt cutters, spanners and cables, were stolen. The break-in and theft were reported to the police.
“However, at the time of writing this report I was not aware of the outcome of the police investigation, nor of any loss report submitted in terms of the Supplies Regulations and Procedures,” Letebele said.