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Alcohol Levy has failed – BIDPA report

President Mokgweetsi Masisi and other relevant stakeholders are expected to seriously consider findings of a consultancy report carried out by government think-tank Botswana Institute for Development Policy Analysis (BIDPA) on the alcohol levy.

A 171 paged report titled: A study to evaluate the National Interventions against Alcohol Abuse in Botswana, has punched holes on the imposed government alcohol interventions with specific interest on Alcohol Levy. The study which was carried out last year as per the recommendations of Ministry of Health and Wellness (MoHW) has labelled the levy as redundant and costly for the economy.

Originally introduced in 2008, the alcohol levy was raised every year until 2015 at point which it was sitting at 55 percent. The levy has since been revised to between 50 and 55 percent depending on the alcoholic volume of the liquor. This year it was reported that the levy made P2.6 billion. Generally, it is said, the drinking behavior has not changed much since the introduction of the alcohol levy and its associated interventions such as restrictions in the hours of sale.


However, it is also clear that a combination of the intervention has potential and can make significant impact overtime. “An insignificant 2.5 percent attributed their change in drinking pattern to the imposition of the alcohol levy as a confirmation that the alcohol levy had very little impact on reduction of alcohol abuse in Botswana.”

The alcohol levy did not affect the decision of members to drink or reduce the numbers of households with at least one-member drinking. In terms of consumption expenditure, alcohol and tobacco remained among the top four commodities after food, transport and housing costs. It has been therefore concluded that the alcohol levy has resulted in a slight decrease in expenditure on alcohol and tobacco (0.4 percentage points) at national level which may have a positive effect on household well-being.

 “However, in rural areas the effect has been negative since expenditure has been shifted from food to compensate for the increase in alcohol prices due to the levy, and this has negatively impacted on the livelihoods of members of such households especially children and the elderly.”

BIDPA as per the research says the levy which was intended to curb excessive alcohol consumption has in fact increased consumption. People, as per the perception that alcohol is expensive have resorted to other means of getting themselves intoxicated.

“People are now drinking more, using money meant for basic households needs such as food, clothing, school uniform etc. to buy alcohol, drinking cheaper home brews, and increasingly using other substances such as glue sniffing and marijuana to sustain addiction,” the report read in part.

 As consumers switch to alcoholic beverages with high alcohol content and spirits, the local brand, St Louis has suffered as it has low alcohol content. In addition, the report states, the alcohol producer and distributors have observed that consumers have switched to buying in bulk as this is relatively cheap. “For instance, consumers have switched from buying 330 ml to 440 ml cans and more importantly to 750 ml bottled beer.”

BIDPA says before the implementation of this, there was need to be based on evidence. “The industry players argue that when the alcohol levy and other measures introduced to curb excessive alcohol consumption were introduced there was no research to back the interventions or benchmarking undertaken to ensure their effectiveness.” Further the report argues that “alcohol Levy Fund should be used for its original purposes such as building of rehabilitation centers to help those already addicted.”

The effect of the levy on household cannot be underestimated. “The reality on the ground is that since the introduction of the different measures to curb alcohol abuse many people who drink alcohol in excess have resorted to diversion of household income to alcohol at the expense of other pressing needs such as food switching to and drinking low cost alcohol resorting to the use of drugs such as marijuana mixing alcohol with drugs to get the maximum effect.”

The alcohol levy has made poor people poorer, according to the report. All their income is spent on buying alcohol. “All the money received is blown in one day … to buy nothing but this devil,” one respondent was quoted saying. The report which is expected to guide policy makers on other interventions reveal that the levy did not lead to a reduction in alcohol consumption. “Instead, people who drink continued to drink the same way they did before the imposition of the levy, some drink even more.”

 The alcohol levy, reduction in trading hours and other interventions meant to reduce excessive alcohol consumption have not been effective. Some of the interventions such as reduction in trading hours have been rendered ineffective because people have resorted to buying beer in bulk, mainly at bottle stores where it is relatively cheap, to later drink at bars outside the stipulated trading hours or at their homes.

 “A simulation exercise to analyses the impact of alcohol levy introduced in 2008 based on 50 percent temporary increase in alcohol prices and a 50 percent permanent increase in alcohol prices indicate that the levy had a slightly small impact on the demand for alcohol. In light of the results we can conclude that more investigations are needed to explore the real impacts of the alcohol levy,” report says.

The reasons as to why people drink varied from as high as 50 percent for those who drink alcohol in order to socialize. Other reasons that push people into drinking include, among others, enjoy the taste (31 percent) to get drunk (22 percent).
 Other reasons for alcohol consumption rated below 20 percent were; the urge to be mentally alert, relieve pressure and tension, as well as to forget about social problems and painful memories.

EFFECTS OF THE LEVY ON EMPLOYMENT

According to the research KBL indicated that after the introduction of the levy in 2008 and subsequent increase in 2010, job losses were minimal as they were able to absorb the costs through the sales of sorghum beer (Chibuku). However, the introduction of the Traditional Beer Regulations in 2012 resulted in loss in employment starting from 2013.

The traditional beer regulations made it mandatory for chibuku to be sold in licensed premises. Before the regulations were introduced the majority (over 80 percent according to KBL) were selling chibuku from their homes without licenses. After the introduction of these regulations the majority of the retailers, most of whom are women closed down their businesses because they could not comply with the law.

 As a result of their low income status they could not find suitable places to sell their chibuku and hence could not get licenses to do so. This drastically reduced (80 percent) the amount of chibuku sales by KBL and hence revenue. KBL had to close some of its distributions depots (Selibe Phikwe and two breweries one in Palapye and another one in Lobatse). This led to direct job losses, which KBL estimates at between 150-200 people.

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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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