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For Botswana, a reciprocal investment method is key for development

China’s latest play for greater influence in Africa involves advancing $60 billion in aid and loans to African nations. Announced at the Forum on China-Africa Cooperation (FOCAC) last month in Beijing, the summit drew the attendance of more than 40 African Heads of State, including H.E President Mokgweetsi E.K Masisi –  the first visit by a Motswana head of state in over 12 years.

The summit came hot on the heels of high-profile state visits to Africa by key Western leaders, including the UK’s Theresa May, Germany’s Angela Merkel and France’s Emmanuel Macron. For most observers, these developments are clear signals that competition for influence in Africa is intensifying. Over the past few months the continent has played host to Heads of State and senior diplomats from Brazil, Argentina, Russia, India and Turkey, to name just a few.

Botswana can leverage off this competition for her own advantage, but to truly understand Botswana’s options today, we must look beyond the East vs West dichotomy and first consider Botswana's own needs and ambitions. Like most countries on the continent, Botswana has a clear development and growth strategy but faces complex political and operational challenges in executing its plans.

What is less well understood is the array of options Botswana now has in addressing some of these challenges. Between 2010 and 2017, more than 65 countries increased their overall trade with sub-Saharan Africa, according to data from the International Trade Centre. All these countries, despite their divergent interests, seem to understand one thing: the future of their nations is linked to the partnerships they forge in Africa today.

This is a continent where 60% of the population is below 25 years of age and expected to double from 1.2 billion in 2017 to 2.4 billion in 2050 (representing a quarter of the world’s population), with 60% of the world’s uncultivated arable land, and which is growing robustly against the backdrop of tepid global economic growth – six of the ten fastest growing economies in 2018 are African, according to the IMF.

There are obvious challenges to overcome, which require proper policy and planning to address the urgency of job creation, climate change mitigation and adaptation and dismantling systemic inequality; but the fundamentals are compelling, particularly when viewed long term.

Amidst the surge in foreign interest in Africa, traditional partners such France and the US are finding it harder to protect and expand their spheres of influence on the continent. Aggressive nationalism within the current US administration has shaped a more inward-looking policy agenda which can appear indifferent – often even hostile – to interests outside US borders.

Meanwhile, the UK is trying to marry complex negotiations around Brexit with a concerted push to lay the foundations of stronger trade and investment ties outside Europe, including Africa, where the UK has set a goal to become the largest  investor among the Group of seven most industrialized nations (G7) by 2020.  The UK’s pivot away from Europe and her reinvigorated focus on partnerships with other parts of the globe – including Africa – presents good medium and long-term opportunities for nations like Botswana. It is noteworthy that President Mokgweetsi E.K Masisi  will visit the UK this week.

In such a crowded landscape, competitive edge among bilateral partners will not be determined purely by capital or favourable trading terms but also by meaningful commitments to reciprocity. Nations and companies that want to succeed in Africa will need to think beyond what they want to export and access, and must seek to address the priorities of their African partners.

Botswana's long held agreement with DeBeers and the creation of Debswana remains a model which many seek to this day, For their part, foreign partners eager to gain traction in African markets should align their strategies with that of their local partners, and in so doing they will build the grounds for sustainability. They will experience less friction, build more brand equity and find doors open for constructive dialogue on  operational issues, policies and regulations.
 

Companies’ ability to design and promote strategies that recognise the need for developmental impact and long-term commitment over quick-wins and fast-bucks will perform better. Such an approach moves relationships from transaction to transformation. Investors and senior management teams must put people, not just numbers, at the heart of decision-making and be equipped to communicate impact and create buy-in from the right stakeholders – governments, suppliers and communities. For their part, African governments must spend more time looking at long term development impact, not just short term commercial terms and outcomes.

Manufacturing holds great trans-formative potential for societies, provided the right approach is taken. In Gabon at the start of the decade, President Ali Bongo Ondimba announced the cessation of exports of raw timber. His announcement was met with a lot of criticism, but eight years later the benefits are clear for everyone to see. Manufacturers of processed wood and finished goods have emerged and new local value chains have been created for foreign investors and Gabonese SMEs, resulting in 10,000 new jobs. Gabon's shift in policy was accompanied by government interventions to equip the labour force with suitable skills for the industry.

In Botswana, economic diversification and manufacturing sector growth are being pursued with rewed vigor by this administration. They are matched by efforts to forge greater alignment between the private sector and government priorities. The last decade witnessed China becoming an increasingly active manufacturer in Africa. Western firms are following suit – their global strategies increasingly feature African nations as markets to service and export from.

Much of the appeal of African nations is being created by shifts in the economies of India and China. China’s evolution from an investment-led economy to a consumption-led economy has led to domestic wage growth, resulting in manufacturers leaving the country for other low-cost destinations. China is expected to lose between 85 million and 100 million low-cost labour-intensive manufacturing jobs by 2030, according to the World Economic Forum.

Some of the Chinese companies leaving the country are establishing operations in Africa, where the Chinese government has already rolled out infrastructure projects that make it easier for Chinese companies to do business and price their products competitively for global markets. In this vain, Zhao Yambo, the Chinese Republic's ambassador to Botswana recently encouraged Botswana to take advantage of China’s Belt and Road Initiative. This multi-billion dollar plan will see Chinese companies engaging in construction work in Africa and globally, on a scale never seen before.

The quest for jobs in Botswana, where the aspirations of Batswana youth are still not catered for by the employment market, has forged a deep desire by the Botswana government to play a more active role in diversifying the nation's economy.
 This is where the Chinese approach sometimes has its limits. Although China readily builds badly-needed infrastructure, they use their own financing, contractor firms, technology and even labour in some instances from end-to-end.

This deprives Batswana of meaningful stakes in projects or ownership of certain value chains and can fuel resentment and mistrust. There are many anecdotes about Chinese firms paying their employees offshore and sourcing goods and services from China. The extension of Sir Seretse Khama airport and Morupule B power station are two well-publicized examples of disaffection. While China has funded over 40 major projects in Botswana and is one of the country’s largest project contractors, Chinese companies have created 2,000 jobs in local communities- a small number given the scale of these projects.

Western companies generally have a better track record of working with local staff, including integrating them in key management positions. By being purposeful about skills, knowledge and technology transfer, and by asking African governments and companies what they need, then creating the right business models, products and services to achieve these goals, these companies will prosper. Only companies that exhibit these traits and deliver against them, should be granted access to African resources and markets, I believe.

Foreign companies wishing to succeed in African markets today must evolve their models of doing business from traditionally extractive ones, to ones that are additive. African governments that secure these terms of trade will take up their positions as a globally significant manufacturing hubs, consumer markets, talent pools and trading partners. With so much competition, it behoves African governments to establish clear visions for their economies and be selective when choosing their partners.

The stellar  economic performance of Rwanda, Morocco and Ethiopia over the last decade did not happen by chance. It resulted from deliberate and concerted measures by their governments to pursue policies and strike agreements that opened new  growth opportunities and export markets for their industries and their citizens.

About the authors:

Natalie Maule is a London-based Director at africapractice Group, a pan-African advisory firm headquartered in Botswana. Tigele Nlebesi is an Analyst at africapractice, based in Gaborone.

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Botswana records first trade surplus since January

7th October 2021
Botswana-records-first-trade-surplus-

Botswana has recorded its first trade surplus for 2021 since the only one for the year in January.

The country’s exports for the month of July surpassed the value of imports, Statistics Botswana’s July International Merchandise Trade data reveals.

Released last Friday, the monthly trade digest reports a positive jump in the trade balance graph against the backdrop of a series of trade deficits in the preceding months since January this year.

According to the country’s significant data body, imports for the month were valued at P7.232 billion, reflecting a decline of 6.6 percent from the revised June 2021 value of P7.739 billion.

Total exports during the same month amounted to P7.605 billion, showing an increase of 6.1 percent over the revised June 2021 value of P7.170 billion.

A trade surplus of P373.2 million was recorded in July 2021. This follows a revised trade deficit of P568.7 million for June 2021.

For the total exports value of P7.605 billion, the Diamonds group accounted for 91.2 percent (P6.936 billion), followed by Machinery & Electrical Equipment and Salt & Soda Ash with 2.2 percent (P169.7 million) and 1.3 percent (P100.9 million) respectively.

Asia was the leading destination for Botswana exports, receiving 65.2 percent (P4.96 billion) of total exports during July 2021.

These exports mostly went to the UAE and India, having received 26.3 percent (P1. 99 billion) and 18.7 percent (P1.422 billion) of total exports, respectively. The top most exported commodity to the regional block was Diamonds.

Exports destined to the European Union amounted to P1.64 billion, accounting for 21.6 percent of total exports.

Belgium received almost all exports destined to the regional union, acquiring 21.5 percent (P1.6337 billion) of total exports during the reporting period.

The Diamonds group was the leading commodity group exported to the EU. The SACU region received exports valued at P790.7 million, representing 10.4 percent of total exports.

Diamonds and Salt & Soda Ash commodity groups accounted for 37.8 percent (P298.6 million) and 6.2 percent (P48.7 million) of total exports to the customs union.

South Africa received 9.8 percent (P745.0 million) of total exports during the month under review. The Diamonds group contributed 39.9 percent (P297.4 million) to all goods destined for the country.

 

In terms of imports, the SACU region contributed 62.7 percent (P4.534 billion) to total imports during July.

The topmost imported commodity groups from the SACU region were Fuel; Food, Beverages & Tobacco, and Machinery & Electrical Equipment with contributions of 33.3 percent (P1.510 billion), 17.4 percent (P789.4 million) and 12.7 percent (P576.7 million) to total imports from the region, respectively.

South Africa contributed 60.1 percent (P4.3497 billion) to total imports during July 2021.

Fuel accounted for 32.1 percent (P1.394 billion) of imports from that country. Food, Beverages & Tobacco contributed 17.7 percent (P772.0 million) to imports from South Africa.

Namibia contributed 2.0 percent (P141.1 million) to the overall imports during the period under review. Fuel was the main commodity imported from that country at 82.1 percent (P115.8 million).

During the months, imports representing 63.5 percent (P4.5904 billion) were transported into the country by Road.

Transportation of imports by Rail and Air accounted for 22.7 percent (P1.645 billion) and 13.8 percent (P996.2 million), respectively.

During the month, goods exported by Air amounted to P6, 999.2 million, accounting for 92.0 percent of total exports, while those leaving the country by Road were valued at P594.2 million (7.8 percent).

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The 2021/2022 Stanford Seed Transformation Program Begins

7th October 2021

Founders from twenty companies have been accepted into the program from Botswana, Namibia, and South Africa

The 4th Cohort of the Stanford Seed Transformation Program – Southern Africa (STP), a collaboration between Stanford Graduate School of Business and De Beers Group commenced classes on 20 September 2021. According to Otsile Mabeo, Vice President Corporate Affairs, De Beers Global Sightholder Sales: “We are excited to confirm that 20 companies have been accepted into the 4th Seed Transformation Programme from Botswana, Namibia, and South Africa. The STP is an important part of the De Beers Group Building Forever sustainability strategy and demonstrates our commitment to the ‘Partnering for Thriving Communities’ pillar that aims at enhancing enterprise development in countries where we operate in the Southern African region”. Jeffrey Prickett, Global Director of Stanford Seed: “Business owners and their key management team members undertake a 12-month intensive leadership program that includes sessions on strategy and finance, business ethics, and design thinking, all taught by world-renowned Stanford faculty and local business practitioners. The program is exclusively for business owners and teams of for-profit companies or for-profit social enterprises with annual company revenues of US$300,000 – US$15million.” The programme will be delivered fully virtually to comply with COVID 19 protocols. Out of the 20 companies, 6 are from Botswana, 1 Namibia, and 13 South Africa. Since the partnership’s inception, De Beers Group and Stanford Seed have supported 74 companies, 89 founders/CEOs, and approximately 750 senior-level managers to undertake the program in Southern Africa.

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Minergy overcomes challenges – improves revenue and produces record breaking coal sales to date

7th October 2021
Minergy

Minergy, the coal mining and trading company with the Masama coal mine, this week released results for the year ended 30 June 2021. The company achieved revenue of P193 million (2020: P81 million) with significant improvement in sales volumes surpassing 415 000 tonnes sold for the year.

The performance was divided into two distinct periods with very different operating environments. The first eight-month period (July 2020 – February 2021), was negatively impacted by delayed funding, COVID-19 impacts and excessive rain; and the last four-month period (March – June 2021), was a more stable production environment moving toward nameplate capacity.

According to Minergy CEO, Morné du Plessis, production and sales initially recovered in July and August 2020 with the easing of COVID-19 restrictions and recoveries were further bolstered by the successful launch of the rail siding. Delays experienced in concluding the funding contributed to contractors limiting operations to manage arrears.

“However, the heavy rains we experienced from December 2020 through February 2021 flooded the mine pit making access difficult and impacting both production and sales. Fortunately, the rain subsided in March 2021, and we entered a more stable environment, with a positive impact on operations. Good recoveries in production and sales were experienced during the last four-month period of the year, with the mine moving closer toward a breakeven position.”

“Despite these operational constraints, including the effects of COVID-19 on logistics and manning of shifts, we expect to reach consistent nameplate capacity in the 2022 financial year,” du Plessis added.

FINANACIAL REVIEW

In addition to the revenue reported above, the company incurred costs of sales of P256 million (2020: P150 million) with operating costs of P23 million (2020: P31 million). This effectively resulted in an operating loss of P86 million (2020: P100 million). Finance costs of P51 million (2020: P17 million) were incurred, bringing the net loss before taxation to P136 million (2020: P117 million).

Du Plessis explains that the adverse conditions in the first eight-month period contributed to 86% of the gross loss, while the more stable four-month period alone contributed to 50% of total sales value, helping to decrease monthly gross losses, albeit below breakeven levels.

The company benefited from a strengthening in the South African Rand (“ZAR”) supporting higher back-on- mine sales prices.

“As announced, we’re pleased to have secured P125 million of additional convertible debt funding through the Minerals Development Company Botswana (Proprietary) Limited (“MDCB”). Minergy remains grateful for this support.”

He added that the first tranche of additional funding provided by the MDCB had been received in December 2020, which allowed Minergy to settle the majority of the contractor’s arrears and allowed their teams to be remobilised. The second and final tranche was paid post the financial year-end and will allow the business to reach nameplate capacity in the new financial year.”

COAL SALES AND MINE PERFORMANCE

Sales volumes increased by 110%, supported by increased sales in Botswana and internationally in South Africa and Namibia. Sales for June 2021 exceeded 56 000 tonnes, a record since the inception of the mine, with pricing increasing late in the financial year on the back of buoyant international prices and a strengthening ZAR.

Minergy also concluded a further 12-month off-take agreement to the existing off-take agreement, with a further agreement finalised post year end.

Overburden moved during the reporting period increased by 86% and extracted coal by 50%. Coal mined in June 2021 alone exceeded 100 000 tonnes. “This is a good performance considering the challenges faced such as sacrificing pre-stripping activities for a period to manage arrears, excessive rain and COVID-19,” du Plessis indicated.

“The wash plant was initially starved of coal due to the factors noted already. Despite this, overall plant throughput performance was 37% higher than 2020. Consistent output was supported by the completion of the Stage 2 rigid crushing section as well as the water saving dewatering screen with filter press contributing to a reduction in water usage of 60% per tonne of coal. A record throughput of more than 84 000 tonnes was achieved in March 2021 and this consistency has been maintained.”

OUTLOOK

According to du Plessis, the completion of Stage 4 of the Processing Plant, the rigid screening and stock handling section, remains a key optimisation step, which has associated benefits. “The completion was unfortunately delayed by a southern African wide shortage of structural steel but was commissioned post year-end.”

Minergy expects the positive momentum in international coal pricing for southern African coal to remain in place. Higher coal prices have resulted in coal being withdrawn from the inland market in favour of lucrative international markets. Du Plessis added that the regional market is currently under- supplied with sized coal, which supports higher pricing and new customer opportunities for Minergy.

“Our objective for the 2022 financial year is to achieve nameplate capacity by completing final ramp-up of operations. This will enable the company to generate sufficient cash flow to stabilise the business at breakeven or better. The bullish coal market is also providing support. COVID-19 will still be closely managed, and we look forward to the lifting of the State of Emergency, as announced, and trust that vaccination programmes will achieve herd immunity in Botswana during the next 12 months.”

Du Plessis expressed his excitement on prospects stating that, “The Eskom due diligence process is continuing, and we are hopeful of receiving feedback during the current financial year. In addition to this opportunity, Minergy is also investigating participation in the request by the Government of Botswana to provide a 300MW power station for which the company has been shortlisted.”

The approved process to issue shares for cash is showing positive leads and he concluded by saying that a listing in London is still being investigated.

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