As the National Innovation Fund Committee Takes Office
Entrepreneur Larry Alton says entrepreneurs face many challenges in today’s ultra-competitive business world. “Entrepreneurship comes with a host of challenges, rewarding challenges, but harsh challenges nonetheless.” He says although the potential rewards for entrepreneurship are great, starting a new business at a young age is especially fraught with risk. For younger people, the challenges are unique, multiplied and particularly difficult to overcome. Lack of experience, inadequate financial resources, and a lack of self-confidence all contribute in one way or another to make it tougher for a young entrepreneur than an older counterpart.
Almost all new ventures require seed capital to support the business through the first rocky months or even years until it can generate cash and turn a profit. This initial investment may come from several sources such as personal savings, love money or soft loans from family and friends, venture capital and angel investors as well as government grants and subsidies.
In small developing economies like Botswana, innovative and talented entrepreneurs struggle to find seed funding from local investors. The Bloomberg U.S. Startup Barometer points to rigid regulations, lagging economies and the high risks of doing business in Africa as factors responsible for the low appetite of venture capitalists and angel investors in these markets. Botswana’s appeal for backup and risk capital for startups is no different.
To close this gap, the government of Botswana in line with the country’s key national priorities of spearheading the drive to using innovation as a lever for economic growth, established Botswana Innovation Hub to coordinate the establishment of a functional and integrated national innovation ecosystem. Key to this development is the creation of a National Innovation Fund that promotes innovation through technology, products and business development in the private sector by providing cash grants to companies and organisations registered with Botswana Innovation Hub.
Established under the Finance Management Act. Statutory Instrument Number 93 of 2017, the National Innovation Fund was created to close the existing gap in early stage financing for key projects of national relevance in the private sector. The fund will specifically, provide cash grants to companies or organisations registered with the Botswana Innovation Hub which may subcontract part of the development work to universities and research organisations.
In addition, the National Innovation Fund serves to encourage companies and organisations awarded funds to transfer skills to citizen employees by providing cash grants to be utilised for institutional training and on the job training programmes. To this end, a governance structure for the administration of the National Innovation Fund has been set up with Botswana Innovation Hub assuming the secretarial role and administrative office of the Fund and a National Innovation Fund Committee has been appointed to provide crucial oversight role in the Funds establishment and implementation.
Speaking at the announcement of the Committee members, the Minister of Tertiary Education, Research, Science and Technology, Dr Alfred Madigele said, “Government is spearheading the drive to use innovation as a trajectory for economic growth. To this end the establishment of the National Innovation Fund would assist to close a gap in early stage financing for key projects of national importance.”
“Government has set aside P12 million pula to be used for funding projects in the current financial year and we have put in place a robust governance framework to allow evaluation and awards from this fund,” he announced. The National Innovation Fund Committee consists of five independent members of the public as well as representation from the private sector and the business community.
Deputy Permanent Secretary in the Ministry of Tertiary Education, Research, Science and Technology, Dr Kekgonne Baipoledi assumes the Chairmanship of the committee. With a career spanning over 25 years, Dr Baipoledi has previously held various senior positions within government, specifically at the Ministry of Agriculture where he has held the posts of Head of National Veterinary Laboratories, Deputy Director, Veterinary Services and Deputy Permanent Secretary responsible for Technical Services.
General Manager of Botswana Vaccine Institute, Dr. George Matlho has been roped in from industry. Dr Matlho possesses vast experience spanning over many years within the veterinary sector with emphasis on research and business development. He has previously held a number of senior positions at Botswana Vaccine Institute and Department of Animal Health and Production.
Dr Thapelo Matsheka has been appointed to the Committee from the private sector. Dr Matsheka is currently Managing Director at Fiducia Services Limited. He is an economist and an academic with vast experience from the University of Botswana before pioneering the establishment of the government-funded Citizen Entrepreneurial Development Agency (CEDA) as Chief Executive Officer. He later moved from CEDA to Aon Botswana as the Managing Director prior assuming his current position.
Representing academia is Vice Chancellor of the University of Botswana, Prof David Norris. Previous to his appointment at UB, Professor Norris was Deputy Vice Chancellor, Research and Innovation at BIUST. Prof Norris has more than 20 years in Research and Innovation where he has published extensively and attracted much research funding. Before his appointment to BIUST, Prof Norris worked in different positions in Botswana, South Africa and the USA.
Also representing the private sector on the Committee is Oteng Sebonego. Sebonego is currently Investment Principal at NORSAD Finance and Founder at CabIT Africa an innovative venture. He bring on board, broad experience in assessment of project investments portfolio to ascertain their commercial level readiness. His experience in business enterprise development spans from both a local and regional perspective.
Heading the National Innovation Fund secretariat as Innovation Fund Coordinator is Sithembile Dingake. Dingake is trained in financial management and has worked extensively in the banking industry, development and enterprise finance and in fund management in Botswana and South Africa. Her experience straddles organizations such as Enablis Finance Corporation, Industrial Development Corporation of South Africa and Barclays Bank.
Among the Innovation Fund Committees roles and responsibilities is the approval of the fund guidelines, procedures for operation of the Fund, approval of grant application processes and subsequent applications. The Committee will also be responsible for appointment of special experts, auditors and receiving and approving of reports from audits, programme evaluation reports and reports on grant applications and approvals.
Hon. Dr Madigela said, “The Fund’s grant scheme shall follow an annual plan approved for implementation each year with agreed set targets. The criteria for funding shall take into consideration several factors which include Intellectual Property (IP), sustainability, social impact and scalability among others. He emphasized that the Fund is intended to provide grant funding to deserving projects which promote innovation through technology, product and business development in the private sector.”
Botswana Innovation Hub target sectors are Mining Technologies, Clean Technologies, BioTechnologies, Information and Communications Technologies (ICT), Indigenous Knowledge Systems and Knowledge Intensive Business Services. Hon. Dr Madigele urged the Committee to, “Hit the ground running to ensure that the first grants are disbursed during the current financial year to give financial support to eligible entrepreneurs in the technology and innovation space.”
The partnership between Debswana and Botswana Oil Limited (BOL) which was announced a fortnight ago will create under 100 direct jobs, and scores of job opportunities for citizens in the value chain activities.
In a major milestone, Debswana and BOL jointly announced that the fuel supply to Debswana, which was in the past serviced by foreign companies, will now be reserved for citizen companies. The total value of the project is P8 billion, spanning a period of five years.
“About 88 direct jobs will be created through the partnership. These include some jobs which will be transferred from the current supplier to the new partnership,” Matida Mmipi, Head of Stakeholder Relations at Botswana Oil, told BusinessPost.
“We believe this partnership will become a blueprint for other citizen initiatives, even in other sectors of the economy. Furthermore, this partnership has succeeded in unlocking opportunities that never existed for ordinary citizens who aspire to grow and do business with big companies like Debswana.”
Mmipi said through this partnership, BOL and Debswana intend to impact citizen owned companies in the fuel supply value chain that include transportation, supply, facilities maintenance, engineering, customs clearance, trucks stops and its support activities such as workshop / maintenance, tyre services, truck wash bays among others.
“The number of companies to be on-boarded will be determined by the economics at the time of engagement,” she said. BOL will play a facilitatory role of handholding and assisting emerging citizen-owned fuel supply and fuel transportation companies to supply Debswana’s Jwaneng and Orapa Letlhakane Damtshaa (OLDM) mines with diesel and petrol for their operations.
“BOL expects to increase citizen companies’ market share in the fuel supply and transportation industries, which have over the years been dominated by foreign-owned suppliers. Consequently, the agreement will also ensure security of supply for Debswana operations, which are a mainstay of the Botswana economy,” Mmipi said.
“Furthermore, BOL will, under this agreement, transfer skills to citizen suppliers and transporters during the contract period and ensure delivery of competent and skilled citizen suppliers and transport companies upon completion of the agreement.”
Mmipi said the capacitating by BOL is limited to providing citizen companies oil industry technical capability and capacity to deliver on the requirements of the contract, when asked on helping citizen companies to access funding.
“BOL’s mandate does not include financing citizen empowerment initiatives. Securing funding will remain the responsibility of the beneficiaries. This could be through government financing entities including CEDA or through commercial banks. Further to this, there are financial institutions that have already signed up to support the Debswana Citizen Economic Empowerment Programme (CEEP),” Mmipi indicated.
While BOL is established by government as company limited by guarantee, it will not benefit financially from the partnership with Debswana, as citizen empowerment in the petroleum value chain is core to BOL’s mandate.
“BOL does not pursue citizen facilitation for financial benefit, but rather we engage in citizen facilitation as a social aspect of our mandate. Citizen facilitation comes at a cost, but it is the right thing to do for the country to develop the oil and gas industry,” she said.
Mmipi said supplying fuel to Debswana comes with commercial benefits such as supply margins. These have traditionally been made outside the country when supply was done by multi-nationals for a period spanning over 50 years. With BOL anchoring supply for Debswana, this benefit will accrue locally, and BOL will be able to pay taxes and dividends to the shareholders in Botswana.
PwC Africa has presented the eighth edition of the VAT in Africa Guide – Africa re-emerging. This backdrop of renewal informs on the re-emergence of African economies and societies which have been affected by the COVID-19 pandemic.
In this edition, which has been compiled by PwC Africa’s indirect tax experts, covers a total of 41 African countries. It is geared towards sharing insight with our clients based on the constantly changing tax environments that can have a significant impact on business operations.
Within Africa, governments continue to focus on expanding the tax net by improving revenue collection through efficient compliance systems and procedures. PwC Africa has observed that revenue authorities also continue to take a keen interest in indirect taxes as part of revenue mobilisation initiatives.
Maturing VAT system and upskilling SARS
“In South Africa, VAT is becoming more relevant as a revenue source for the government,” says Matthew Besanko, PwC South Africa’s Indirect Tax Leader. “Strides have been made to upskill South African Revenue Service (SARS) staff and identify VAT revenue leakages, particularly in respect of foreign suppliers of electronic services to people and businesses in South Africa.”
Broadening the tax base and digital economy
In the past year, South Africa, Mozambique and Zimbabwe saw updates to their VAT legislation, or introduced specific legislation targeting electronically supplied services (ESS), which is in line with the global trend of attempting to tax the digital economy. “The expectation is that Botswana will also introduce VAT legislation in due course, while the National Treasury in South Africa has also made mention of revising the rules to account for further developments in the digital economy,” Besanko says.
South Africa’s National Treasury has also drafted legislation with the intention to introduce a reverse charge on gold, which is expected to come into effect later in 2022. While in Zimbabwe, revenue authorities have introduced a tax on the export of raw medicinal cannabis ranging between 10% and 20%, which came into effect on 1 January 2021.
ESG and carbon tax
Key strides have also been made within the Environmental, Social and Governance (ESG) space. “ESG leadership, strategising and reporting is essential now for organisations that wish to flourish and remain relevant,” Kabochi says. He adds that companies need to consider how ESG and tax intersect, since tax is a significant value driver when businesses need to deliver on their ESG goals.
In South Africa, a carbon tax regime, which is being implemented in three phases, has been adopted. The second phase was scheduled to start in January 2023, however phase one was extended by three years until 31 December 2025.
Until then, taxpayers will enjoy substantial tax-free allowances which reduce their carbon tax liability. At the beginning of 2022, the South African government increased the carbon tax rate to R144 (about US$9), which is expected to increase annually to enable South Africa to uphold its COP26 commitments.
With effect from 1 January 2023, carbon tax payers in South Africa will also be required to submit carbon budgets and adhere to the provisions of the carbon budgeting system which will be governed by the Climate Change Bill. Where set carbon budgets are exceeded, the government plans to impose penalties. “At PwC, we are continuously focused on our renewed global strategy, ” The New Equation,” Kabochi says. “Through this strategy, a key focus area for PwC Africa is to support clients in adding value to their ESG ambitions and building trust through sustained outcomes.”
The New Equation is also an acknowledgement of the fundamental changes in the business environment in which PwC’s clients and other stakeholders operate. PwC continues to reinvent and adapt to these changes as a community of problem solvers, combining knowledge and human-led technology to deliver quality services and value.
Local and international economists have lowered their projections on Botswana’s economic growth for 2022 and 2023, saying the country is highly likely to fail to maintain high growth rate recorded in 2021 hence will not reach initial forecasts.
Economists this week lowered 2022 forecasts for Botswana’s economic growth rate, from the initial 5.3% to 4.8% and added that in 2023 growth could further decline to 4.0%. The lower projections come on the backdrop of an annual economic growth that recovered sharply in 2021 with figures showing that year-on-year real Gross Domestic Product (GDP) growth increased to 11.4%, up from a contraction of 8.7% in 2020.
Economists from the local research entity, E-consult, this week stated that the 2021 double digit growth that exceeded projections made at the time of the 2022 budget may be short lived due to other developments taking place in the global economy. E-consult Economist Sethunya Kegakgametse stated that the war in Ukraine has worsened supply problems in the global economy and added that before the war, macroeconomic indicators were seen as improving and returning to pre-COVID levels.
According to the economist the global economy was projected to improve in 2022 and 2023. Recent figures show that global growth projections have been revised downwards from the initial forecast of 4.9% in 2022 with the World Bank’s new estimate for global growth in 2022 at 3.2%.
The statistics also shows that International Monetary Fund revised their growth projections for 2022 and 2023 down by 0.8% and 0.2% respectively, falling to 3.6% for both years. “The outbreak of war has severely dampened the global recovery that was under way following the COVID-19 pandemic,” said the economist.
She stated that despite Botswana being geographically removed from the conflict, the country has not and will not be exempt from the disruptions in the global economy. “The disruptions to global supply chains resulting from the war will have a negative effect on both Botswana’s growth and trade activities.
The economic sanctions against diamonds from Russia will add uncertainty to the market which will have knock on effects to Botswana’s growth, exports, and government revenues,” said the economists who added that the disruptions are driving prices up and result with very high inflation in the local economy.
Kegakgametse projected that in an attempt to limit inflation Bank of Botswana will be forced to raise interest rate “Should the sharp increase in both global and local inflation persist, Bank of Botswana much like other central banks around the world will be forced to raise interest rates in a bid to control rising prices. This would mean an end to the expansionary monetary policy stance that had been adopted post COVID-19 to aid economic growth,” she said.
In the latest projections, the UK based economic research entity Fitch Solutions lowered 2022 real GDP growth forecast for Botswana from 5.3% to 4.8% “In 2023, we see economic growth rate decelerating to 4.0%,” said Fitch Solutions economists who also noted that the 2022 and 2023 economic growth projections may come out lower than the current forecasts, as it is possible that new vaccine-resistant virus variants may be identified, which could result in the re-implementation of restrictions. “In such circumstances, we cannot rule out that Botswana’s economy may post weaker growth than our baseline scenario currently assumes,” said the economists.
According to the projections, Fitch Solution stated that there is limited scope for Botswana government to increase diamond production and exports, following the economic sanctions imposed on Russian diamond mining companies operating in Botswana. The research entity added that De Beers is unlikely to scale up diamond output from Botswana in order to prop up diamond prices.