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.
The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.
Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.
Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.
The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.
Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.
The finalists will compete for a share of US $1.5 million in grant money.
The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.
The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.
During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.
The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.
The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.
The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.
Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.
Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.
On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.
Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.
A week later Lucara announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.
In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.
Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.
Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.
Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.
Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.
Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.
Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.
The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.
Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.
Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.
Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.
In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.
Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.
GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER
Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.
As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.
“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.
Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.
The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.
The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.
These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.
The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.
Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).
The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.
The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.
Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.
“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”
Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.
“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.