Minister of Mineral Resources, Green Technology and Energy Security, Advocate Sadique Kebonang believes Botswana can go beyond just diamond extraction and further exploit her great potential through other untapped natural resources such as coal and uranium.
According to the minister, Botswana and other African countries can leverage on their mineral resources endowment to achieve their visions and aspirations. Kebonang made these remarks when officially opening the 10th annual General Meeting (AGM) of the Organization of African Geological Surveys (OAGS) in Gaborone last week.
He highlighted that Botswana’s coal deposits are far more than those of any other country in Southern Africa adding that other minerals like uranium which he said are very scarce were actually present in Botswana in very large quantities underground. The demand for coal in the southern African region continues to grow with prices increasing on an ongoing basis. The July 2017 McCloskey Coal Report highlights that South African domestic prices are 51% higher than the same period in 2016 and there is strong demand from the cement, industrial and paper industries.
Minister Kebonang noted that Botswana could explore possibilities of becoming a coal producing hub for regional, continental and international coal markets. Current explorers on coal deposits apart from Morupule and Australian Minergy indicate that Botswana has a significant role to play in the sea borne thermal coal market due to its large untapped coal resources and its close proximity to the South African coal export infrastructure.
Currently Richards Bay Coal Terminal (RBCT) and Transnet Freight Rail (TFR) together have a capacity of 84 million tons per annum. However, in 2016 only 72.6 million tons of coal was shipped through RBCT. Forecasts are for this number to remain steady leaving excess capacity of 11.4 million tons of coal per annum that Botswana is ideally suited to utilize. These figures give Minister Kebonang the confidence that coal can be the next thing for Botswana after diamonds.
The Minister also told attendants that despite the challenges faced by mining companies due to the fall in base metal prices which led to the closure of traditional giant companies like BCL, the copper belt in North West Botswana was an area they want to encourage investment in as it is capable of providing other means of diversification within the mining sector and consequently the economy.
“As far as diamond beneficiation was concerned steps were taken to ensure that the relocation of diamond aggregation and sales from London to Gaborone in 2013 and the Jwaneng cut 8 mine expansion project which started producing diamonds this year, expand our economy,” Kebonang said.
The minister further said that the base metal beneficiation study “which is still at feasibility stage was also undertaken in 2016”. He also underscored that restructuring of his ministry to improve efficiency and effectiveness of service delivery was underway, revealing that a number of state owned companies and parastatals were established such as Botswana Geo Science Institute (BGI) which is also still at formative stage; citing also the Botswana Energy Regulatory Authority. The BGI was established to primarily carry out research and deliver quality service as well as advice to the mining fraternity and the government on sustainable minerals development.
OAGS president, Alex Nwegbu said that geological surveys were national institutions mandated to provide geological data and information required by stakeholders in mining, engineering and other sectors. Nwegbu said OAGS was established in February 2007 to harness and optimise the effectiveness of various national geological surveys and ensure they contributed effectively at regional and continental levels. He said OAGS was aware of the impact of the mining value chain in the economy of Botswana, adding that the momentum could be only sustained through the involvement of a strong Botswana Geological Survey as it was applicable with other national geological surveys.
Botswana heavily relies on the diamond sector to sustain its economy. To ensure sustainable income from the diamond and mining sector even after Diamond is depleted in Botswana, the government established Botswana Diamond (BOD) as an investment arm in the global diamond industry to broaden Botswana’s footprint in the lucrative multibillion dollar industry. BOD has an active joint venture with Alrosa, the world’s biggest diamond company.
Alrosa is using their exclusive exploration technology on the BOD ground in Botswana. South Africa Exploration Vutomi Earn-In Project 20 high-interest kimberlites already identified on the various prospecting rights 10 prospecting rights encompassing nearly 50,000 hectares of highly prospective ground. The Botswana government also owns 15 % of De Beers of which the rest is owned by Anglo American. De Beers and Botswana also own 50-50 shares on Debswana Diamond Company which operates Orapa Letlhakane Damtshaa and Jwaneng Mines. Botswana and De Beers also jointly own Diamond Trading Company Botswana (DTC).
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Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”