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Botswana still nursing tax haven blister

Botswana remains stuck in European Union (EU)’s grey-list of tax havens and it is closely monitored by Brussels as it promised to reform its tax structures since last year. Furthermore, Botswana is still an uncooperative tax territory in France mind as it is placed high on the blacklist of ‘Uncooperative Territories and French Tax Consequences of the Blacklisting.’

Being grey-listed by EU means a country will be under constant monitoring and checkups from Brussels. But it is better than being in the blacklist where a country faces EU sanctions as well as getting a dent in international reputation. The tax haven tag on Botswana was first placed by France President Nicholas Sarkozy in 2011 who then declared that the international community should shun Botswana as it is a tax haven.

The IFSC burden

The Minister of Finance and Economic Development Kenneth Matambo in July this year said government will constantly engage EU to remove the perception of tax haven on its neck. In a commitment letter written by Matambo to EU November last year, the minister suggested that the EU’s Forum on Harmful Tax Practices (FHTP) raised a red flag on this country’s tax regulations, especially the controversial International Financial Services Centre (IFSC) tax incentive framework under which IFSC accredited and qualifying firms enjoy a 15% corporate tax rate while other companies face the normal 22 % tax. Tax experts concluded that IFSC regime is one of the sources of Botswana’s tax haven tag.

The International Monetary Fund (IMF) also warned since last year that Botswana should remove its many tax incentives and IFSC was the main culprit. This prompted Matambo to tell the EU in a recent letter this year that Botswana is working on introducing legislative amendment to address the harmful effects of IFSC. “We undertake to complete the necessary legislative actions to amend the regime by December 2018 as agreed by the Forum on Harmful Tax Practices,” wrote Matambo to EU.

While tax pundits and the IMF advises that IFSC should be abolished, Matambo remains unmoved on the tax initiative, telling reporters July this year that, “the IFSC framework basically provides a lower level of tax to companies under the mandate of the IFSC. For us it is an incentive to grow the financial sector. The purpose of this lower level of tax is to provide an incentive but the OECD countries for their own reasons look at it differently, we disagreed with them that we are not a tax haven. We do tax companies that make an income in this country.”

In the 2018/19 Budget Speech, Matambo promised that government will review IFSC in order to remove any perception that Botswana is a tax haven.  “The review will be undertaken as part of the Income Tax (Amendment) Bill scheduled for presentation to Parliament during 2018,” he said.

Secrecy another source of EU blacklisting

According to Tax Justice Network Africa’s Financial Secrecy Index 2018, Botswana is one of the most secretive tax jurisdictions. It says “information sharing remains limited, enabling companies and wealthy foreigners to get away with tax avoidance and evasion by avoiding detection in their home countries or where business activity takes place.

According to Tax Justice Narrative on Botswana, this country comes in at 103rd place in 2018 Financial Secrecy Index.  It further states that the country has a relatively high secrecy score of 68, but has an insignificant market for offshore financial services. “There may be limited information on the way Botswana’s IFSC is used for illicit and criminal practice,” said the Tax Justice Network.

In February this year in his 2018/19 Budget Speech, Matambo said to deal with issues of secrecy the Financial Intelligence Act and Regulations which will address the shortcomings identified by the Mutual Evaluation Review for Botswana by the Eastern and Southern Africa Anti-Money Laundering Group in May 2017 will be dealt with this year.

Botswana walking at a snail’s pace in tax regime amendments

However the tax structure amendment by Botswana which was promised to be done this year has since been deferred to next year leaving the country’s tax haven label stuck on its neck. In a recent interview Ministry of Finance and Economic Development Spokesperson Fenny Letshwiti revealed that the ministry is working on amending the Income Tax Act and the Value Added Tax Act and to enact a new Tax Administration Act. He further revealed that the Bills will be presented to the February 2019 Parliament for approval.

While Botswana wrote to EU November last year committing to Brussels that it will work on its tax regime or all the tax reforms this year December, it appeared to be a pipeline dream as the ministry recently revealed that the amendments are slated for next year. This means this country will have to wait for a while to be removed from any blacklist or grey-list.

Botswana not a tax haven – just an EU Big Brother perception?

Some pundits and politicians make the tax haven tag on Botswana appear as a mere neocolonial or Western big brother body check on this country. But EU remains the biggest player in the international trade market as it is the major exporter of Botswana’s beef. Botswana also exports diamonds to Europe. On the other hand Botswana imports manufactured goods, transport equipment, machinery, electrical machinery and pharmaceuticals or chemicals.

 Local tax expert Jonathan Hore in an interview with BusinessPost said Botswana is not technically a tax haven but it is just that the EU has strict standards regarding the disclosure and sharing of information with other countries. “The tax haven tag was first placed on the country in 2011 when Nicholas Sarkozy first publicly declared that the international community should shun tax havens. In that year, the country did not have any information disclosure arrangements with other countries. The country has also made many information disclosure agreements with many countries in order to comply with international transparency rules.

Despite Botswana’s bad reputation of being among the bad boys of the international arena, this country has been defensive of its tax administration and dismissed the notion of it being a tax haven.  Last year during the 19th meeting of the African the then Minister of Investment, Trade and Industry Vincent Seretse said Botswana is not a tax haven and does not deserve to be in any blacklist. Seretse attacked France’s constant “unsolicited” blacklisting of this country. He said Botswana complies with all the international tax standards and has a transparent tax jurisdiction.

Minister of Finance and Economic Development Matambo also rejects the tax haven brand on Botswana and in his Budget Speech he suggested calling Botswana a tax haven is just a mere perception by Europe. In the July press conference he said “we disagree with them, that we are not a tax haven.”


 Recently, Minister of Investment, Trade and Industry Bogolo Kenewendo was confident that this country being called a tax haven is a thing of the past. Caribbean Pacific –European Union, the then Minister of Trade Vincent Seretse rejected France’s notion that Botswana is a tax haven. Botswana adopted a seemingly sovereign and bold stance through Seretse who called the EU blacklisting “unsolicited.”

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Business

The  Bulb World CEO selected for Africa’s prestigious award

22nd July 2021

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.

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Business

Mining production down 12 % IN Q1 2021

14th July 2021

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.

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Gov’t awards mining licence for Gantsi Copper Mine

14th July 2021
Moagi

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.

MINING CONTRACT

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.

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