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Masisi-China new romance boosts Shumba investment dreams

Shumba Energy chairman Alan Cleg suggested that President Dr Mokgweetsi Masisi regime’s appreciation of the controversial One China policy and the recent opening of further trade and investment opportunities with the second biggest economy will help in improving coal markets.

Masisi’s predecessor Lt Gen Dr seretse Khama Ian Khama was seen as a threat to One China policy after refusing to block Tibetan spiritual leader Dalai Lama’s visit to Botswana.  In One China policy, China sees Tibet as an autonomous region of itself and the Dalai Lama is a stern advocate of Tibet independence (why he is seen as an enemy to China and should be rejected by country with ties to the Asian superpower).

 Khama then accused China of trying to colonise Botswana by threatening to sabotage the country’s relations with other countries. Many expected the worst, China completely stopping trade with Botswana. But Masisi rekindled the China-Botswana romance which has been in existence for almost six decades. “We have renewed our relationship with China and we stand firm to our recognition of One China Policy,” said Masisi.

In Shumba Energy’s annual report which was released this week, company chairman Cleg said lamented that regional mineral economy politics is still largely led by emergence of resource nationalism in Africa and this is what brought continued negative arbitrage on prospective risk investment in the coal sector.

“However, regime changes in South Africa and Zimbabwe offer something of a hopeful light for future re-opening of that sentiment within the next year or two. While even in Botswana the government change has brought recognition of the one China policy and opening of further investment opportunity for the Chinese Dragon that was closed before,” said Cleg.

Shumba to increase Auditor’s remuneration

In Shumba’s next Annual Meeting to be held on 28 December 2018, the company is expected to approve the remuneration of its external auditor, Grant Thornton, for the year ended 30 June 2019. Shumba is expected to give Grant Thornton around P27 500 next year after decreasing the fee by P865. In 2017 Shumba gave the auditor P26, 450 while this year it became P25, 585. Almost all the board members are expected to be re – elected in the next AGM.

According to the latest annual report released this year, Grant Thornton has indicated their willingness to continue in office and a resolution concerning their re-appointment will be proposed at the Annual Meeting. Shumba is also going to approve the remuneration of the directors. According to the annual report, all remuneration of the members have been duly reviewed or recommended by the Remuneration and Risk Committee and to be approved by the Board before any disbursement has been done. Director’s fees have decreased from P 114,730 in 2017 to P106 216 this year.  

Shumba’s operating expenses have however increased to P1, 053,408 from P1, 003,706 in 2017. According to the annual report, total expenditures on projects and asset development during the year were around USD 500,000. On the other hand, net assets at the end of the year were USD 10.4m, an increase year on year of 18% reflecting the acquisition and development expenditures. Cash and Cash Equivalents of the Group as at the reporting date were USD 1.35m, a decrease year on year of 45% resulting from the acquisitions made during year.

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

21st September 2020

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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