BITC fully behind IFSC fiscal framework
Business
Botswana Investment and Trade Centre (BITC), has affirmed that the controversial International Finance Service Centre (IFSC) fiscal framework remains a key instrument in its investment attraction tool. BITC, the country‘s integrated trade and investment promotion agency established to position Botswana as a global business and investment destination
Responding to WeekendPost inquiry this week, BITC communication chief, Kutlo Moagi said the organization actively supports and promotes the IFSC fiscal framework as a key instrument in positioning Botswana as a financial services hub for financial services companies inclusive of International Holding Companies. Compared to the normal 22 percent, the fiscal framework accords beneficiary companies corporate tax of 15 percent, which is one of the lowest in Africa.
The IFSC framework also provides that qualifying and accredited companies denominate capital in any major international convertible currency, with no exchange controls enabling the companies to repatriate profits dividends with no restrictions. The framework which is enjoyed by companies such as Letshego, Motorvac amongst others also provides that no capital gains tax when disposing of fixed assets where shareholding of the IFSC company is in excess of 25 percent.
IFSC companies also enjoy unilateral tax credits of up to 15 percent for taxes incurred in jurisdictions where Botswana does not have a double taxation agreement. Other IFSC benefits are zero rated VAT and no withholding taxes on dividends when distributing to non-resident directors.BITC was established in 2012, birthed from Botswana Export Development & Investment Agency (BEDIA) to house and facilitate all investment, trade and export led economy development initiatives including the IFSC under one roof.
However, the latter has been underscored by various global economic and financial commentators such as the International Monetary Fund (IMF), Organisation for Economic Cooperation & Development (OECD) as a window used by elites to rake in all returns eroding national tax bases and compromising domestic resources mobilisation systems. OECD observes that tax exemptions such as IFSC fiscal framework have little impact on investment attraction but only cripple the country‘s revenue collection vehicles.
OECD contend that under pressure to offer internationally-competitive tax environments, developing countries offer generous tax breaks that undermine their domestic resource mobilization efforts with little demonstrable benefit in terms of increased investment. Botswana has been cited as one good example for such. The underlying concern by OECD is that low income countries often face acute pressures to attract investment by offering tax incentives, which then erode the countries’ tax bases with little benefit even after running for several years.
Contrary to the argument that Botswana loses money on tax cuts to IFSC companies that could otherwise be mobilised for other key economic undertakings such as infrastructure to further enable investment BITC said the IFSC dispensation, despite the financial sector not being labour intensive it has the propensity to create skilled jobs that are synonymous with the sector for Batswana.
“As a consequence of the framework insisting on a physical presence (Office) as opposed to brass plating, indirectly this contributes to business tourism in the form of shuttle services, lodging, dining fees when non-resident directors visit their head offices,” explained BITC Chief Executive Officer Keletsositse Olebile few weeks ago.
The investment promotion boss who championed Botswana ‘s campaign against the tax haven tag in 2014 told this publication this week that as subsidiaries consolidate into Botswana the Botswana Government benefits from Taxes it would not have earned if the IFSC incentive framework was not in Place. “Again, as these companies establish their substantive presence in Botswana, property rentals are also a benefit realised from their presence,” he said.
Olebile also added that some IFSC companies are keen to capital raise in the local bourse which improves growth and liquidity of the local bourse adding that indirect benefits to economy include renting office space, banking services, amongst others. According to BITC, since inception of this fiscal arrangement a total of 56 IFSC companies have set-up in Botswana creating 280 jobs and investing P29 billion.
From 2013 to date, BITC accredited and recommended 18 companies to be IFSC certified by Minister of Finance with 196 corresponding jobs. Letshego Holdings is one of BITC’s flagship IFSC companies. It has been underscored by OECD and European countries led by France that tax incentives and exceptions such as IFSC were a window for exorbitant tax dodging, money laundering and illicit financial crimes, under these sentiments Botswana was accused of having a secretive tax system with tax haven jurisdictions that bleeds the country’s public funds.
Botswana is reported to lose over P80 billion every 10 years , citing from 2003- 2012, due to corporate tax dodging and money laundering, which according to International Finance Organization Oxfam is sometimes encouraged by arrangements such as tax exemptions. The International Monetary Fund (IMF) has also spoken against Botswana’s weak domestic fund mobilisation mechanism. In its report released in June this year, the IMF urged Botswana to reform its entire revenue collection system and framework.
“It would be important to remove many tax exemptions, increase property taxation, and consider making the personal income tax more progressive,” reads the report which was released first week on June this year. IMF advised Botswana that tax was vital in boosting the country’s administrative, fiscal and institutional capacity adding that tax revenue was very essential for any developing country to function.
Business
Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Business
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Business
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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