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Parastatals with overlapping mandates to be merged

Government has already started a process to rationalize and merge some parastatals with overlapping mandates, Minister of Investment, Trade & Industry (MITI), Vincent Seretse revealed to Parliament on Wednesday.

This is predominantly in the interest of reducing weight from government as the parastatals cost government hundreds of millions of pula. Seretse revealed to parliament that 80% of his ministry’s total recurrent budget allocation goes to funding these parastatals. Stakeholders and economic experts, as well as some politicians have been calling for an extensive review of parastatals and State Owned Enterprises (SOEs).

Seretse was responding to a question asked by Specially Elected Member of Parliament Bogolo Kenewendo. She asked Seretse to state the number of parastatals and government owned companies under his ministry and if there were plans to streamline and merge some. In his response the Minister revealed that MITI housed eight parastatals and three state owned enterprises, making it a total of eleven.

Parliament was made aware that in the 2017/18 financial year MITI channelled over 753 million pula to its nine parastatals which include Citizen Entrepreneurial Agency (CEDA), Botswana Investment and Trade Centre  (BITC) and Local Enterprise Authority (LEA) amongst others compared to P721 563 220 spent in the previous financial year being 2016/17.

Figures indicate that CEDA has been receiving the largest share of this money from the past five financial years. In 2013/14 CEDA received over 340 million pula and in the ending financial year (2017/18) the agency received over 298 million pula.
Further responding to Kenewendo, Minister Seretse underscored that under the context of CEDA which is a financing agency to promote entrepreneurship amongst locals suggestions were already made proposing its merger with Botswana Development Corporation (BDC) and /or National Development Bank (NDB). NDB is under the Ministry of Finance and Economic Development.

For the past five years, BDC has not received any subvention from government and has declared a dividend of over P113 million to government whereas NDB has been making losses and is constantly bailed out by government. Meanwhile Minister Matambo revealed in the 2018 budget speech that across all government ministries, parastatals and state owned enterprises were not doing well.

Matambo said state-owned enterprises (SOEs) exist to support Government’s development efforts adding that their performance was  critical in achieving Government’s broad development objectives of boosting economic growth, promoting economic diversification, and creating employment opportunities.

Matambo conceded the fact that government, like any other shareholder, expects a return on investment in some of these organizations. “It is therefore important that these organizations are held accountable for the public resources entrusted to them by requiring them to provide a certain minimal return on capital, and contribute to economic growth and employment creation,” he said.

Matambo shared that last year,  Botswana Telecommunications Corporation Limited registered  a  net profit of P237.3 million, compared to a net loss of P370.8 million in 2016; Botswana Housing Corporation also performed well  with a net profit of P48.5 million in 2017, compared to P27.9 million in 2016; Botswana Communications Regulatory Authority made a profit of P50.8 million in 2017, compared to P43.6 million in 2016; and Botswana Savings Bank (BSB) made a profit of P15.5 million in 2017, compared to P12.8 million in 2016.

However the perennial loss making State-owned enterprise that has become a cause of national concern is Botswana Meat Commission (BMC) with a net loss of P229.7 million in 2016, compared to a net profit of P332.6 million in 2015. The net profit realized in 2015 was due to a Government cash injection of P600 million.

NDB also recorded a net loss of P168.2 million in 2017, compared to a net loss of P21.2 million in 2016, whereas Botswana Power Corporation registered a net loss of P140.2 million in 2017, compared to a net loss of P99.6 million in 2016. Water Utilities Corporation (WUC) on the other hand, recorded a net loss of P137.6 million in 2017, from a net profit of P119.4 million in 2016, while Air Botswana, improved its performance with a net loss of P12.4 million in 2017, compared to a larger net loss of P86.1 million in 2016.

Minister Matambo said the continued loss making by some state-owned enterprises was a major concern to Government sharing and that in an effort to address this, Government established institutions such as Public Enterprise Evaluation and Privatization Agency (PEEPA) and Botswana Accountancy Oversight Authority (BAOA).

“These institutions are expected to monitor the financial performance and governance of SOEs in meeting their objectives and targets, using information obtained from the audited financial statements and annual reports of such enterprises. Going forward, Government will work closely with PEEPA and BAOA to strengthen the performance monitoring mechanisms for State-Owned Enterprises to ensure that they deliver on their mandates and that the country derives value-for-money from their existence,” he said.

Meanwhile, in his response to the Budget Speech, Leader of Opposition Advocate Duma underscored that the financial crises realised at these parastatals was largely attributed to leadership crises at the same. He said from the level of governing boards, some state owned enterprises boards’ composition was contradictory to business.

“Some of these board members own businesses directly competing with these state companies, how then you expect them to make sound business decisions in the interest of the state companies?” Boko also said the leadership was not credible since some were political appointments made out of merit.

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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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