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NPF saga degrades Engen Botswana cash reserves

Engen Botswana Limited, a subsidiary of Petroleum Investment Holdings Limited has announced a decline in the cash reserves of the group. The company which engages in selling, distributing fuels and lubricant alongside property letting has revealed that 2017 was not a good year as the company has been greatly affected by the inability to recover the amount being owed by the Government of Botswana through the National Petroleum Fund (NPF).

The NPF which is still on hold following the corruption revelations is said to have had major effect in the dealings of the company. Engen notes that the NPF started accumulating the funds from December 2016 to December 2017.The just released results indicate that the company remains hopeful that the Government will attend to the matter of the slate –under-recovery refund without further delay.

The results show that the commercial side of the business continued to deliver strong results in spite of the challenges faced by the mining, and agriculture sectors of the economy. Having registered an 8.9 percent growth for profit before tax and costs from 186 million to 202 million for the year ending December 2017, Engen has continued praising the commercial section of their business.

It is further noted that distributors and lubricants continued to play an influential role in the good financial performance of the said channel. Health, Safety and Environmental (HSE) Key Performance Indicators for the year under review are reported to have been met and in many cases exceeded. The results highlight that this continues to be a key focus area in the daily business and there is zero tolerance to acts or behaviour that compromise the company’s set HSE standards. The company highlights that efficiency continued to be enhanced in the distribution part of its business in order to ensure on time and in full deliveries and to manage the cost to serve.

In spite of the challenging economic conditions within Botswana resulting from subdued mining activity, the group in 2017 exceeded many of the operating parameters achieved in 2016. Fuel supply into Botswana was disrupted during the second half of 2017 due to the unplanned shutdown of some refineries in the Republic of South Africa (RSA). Crude oil prices gradually increased during the course of the year from around 55 USD / BBL at the beginning of the year to 75 USD/BBL at the end of 2017, which resulted in significant inventory revaluation gains.

The Group says that it managed to stream in “new to industry”, retail outlets towards the end of 2017 which they note did not contribute in any significant way to the increase in sales volumes due to the short period they were in operation. While competition in t he retail space across the industry intensified, the Group cites that it managed to grow its retail sales by 3 percent in the year under review mainly from its base network. Engen Botswana notes that it has continued to offer outstanding customer service at their retail outlets and the results are evident in their achievement of Net Promotor score of 84 percent the retail sales channel and 100 percent in the commercial sales channel.

A substantial amount of their capital expenditure resources is reported to have been utilized to grow the Group’s retail and convenience network, which in return managed to set them apart from competitors. Engen Botswana further states that throughout all this it has embarked on a program to refresh some of its retail outlets in order to enhance the motoring public’s perceptions of their brand.

Engen is optimistic that the high levels of operational efficiency, good corporate governance and responsible conduct business in line with values will stand in good stead to surmount the challenges that they may encounter in the future. They also note that this will help deliver strong results for shareholders and make a meaningful contribution to the economic prosperity of Botswana. The group cited that it remains optimistic about the operating environment and continue to espouse its long-term strategic intent to grow the Engen brand in the Botswana market and to be the leading brand of choice in this market.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status.  The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.

This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago.  In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.

However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced.  Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.

The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April.  For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.

Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.

Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).

“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.

Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.

This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.

For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.

Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers.  “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.

‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’

According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.

Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.

“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.

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