The Ministry of Mineral Resources, Green Technology and Energy Security has introduced a security of supply margin of 17.5 thebe per litre on the sale of all petrol and diesel grades effective 11th JuIy 2Ol7.
According to a statement from the Ministry, the purpose of the security of supply margin is to capitalize Botswana Oil Limited (BOL), the national oil company to enable it to undertake projects that address security of supply of petroleum products. “The margin will be part of the price build up for a period of 5 years. The general public is informed that the introduction of this margin into the price build up will not affect pump prices in the short run. The effect will be on the unit rate over/under recoveries.
All importers and resellers of petrol and diesel are required to collect and remit the margin to the Department of Energy,” the statement further states. Botswana imports all her petroleum requirements (approximately 1.2 billion liters per year) from the Republic of South Africa. Government intends to embark on a number of projects that would Botswana Oil Limited add impetus into the economic diversification drive with Botswana becoming fuel self-sufficient and exporting to other southern African countries.
Botswana Oil Limited Projects
From its website, Botswana Oil Limited relays that it will embark on various projects in its endeavour to attain fuel sufficiency for the country, ensure equitable access of petroleum products and optimally manage government reserve stocks and storage facilities.
“These include consideration of environmentally friendly Coal to Liquid (CTL) technologies, execution of the Mobile Filling Station (MFS) initiative, expansion of the Francistown depot and development of the company ICT strategy and business processes. In addition, BOL will execute the Business Readiness project which aims to attain optimisation of company resources,” the company says on the official website.
Although some observers are concerned that the levy will hit hard on consumers who are already depressed financially because of a tight liquidity situation, there is a general view that the Oil industry holds big potential for the country diamond led economy.
Selibe Phikwe might be considered for the multibillion pula Coal Liquefaction Project (CLP) by Botswana Oil Limited, Acting Minister in the Ministry of Mineral Resources, Green Technology and Energy Security, Nonofo Molefhi had recently told Parliament
It is believed that the development of the CTL plant will go a long way in ensuring that Botswana becomes fuel self-sufficient with further potential of being a net exporter of petroleum products in Southern Africa and the African region. Reports from parliament indicate that the coal to liquids projects require substantial investment; it is estimated that the plant which would meet Botswana’s current annual demand of 1.2 billion of petroleum products could costs between US $ 3 – 4 billion (P40 billion) over a four (4) to five (5) year construction period.
Meanwhile Botswana Oil Company is working towards the construction of Tshele Hills oil storage with a capacity of 150 million litres; expansion of Francistown by 30 million litres and construction of Gantsi oil storage facility with 15 million litre capacity to augment the existing two government storage installations currently in use. It is assumed that these projects will need significant funding hence the introduction of the new levy.
A study undertaken by Ministry of Minerals, Energy and Water Resources (MMEWR) between 2012 and 2014 revealed that there are three main petroleum product consumption areas in Botswana – the south eastern area represented by Gaborone; the north eastern area represented by Francistown; and the western area represented by Gantsi/Maun. These areas were found to constitute 57%, 35% and 8% of the overall national consumption of petroleum products respectively.
Botswana Oil Limited is therefore working to expand the existing storage capacity for petrol and diesel in Francistown to meet the government’s strategic storage programme. In addition, BOL seeks to construct an appropriately sized road and rail loading and off-loading gantries to enable effective and efficient supply and distribution of fuel, the company website proclaims.
In addition the company intends to secure premises that are dedicated to tankers for staging purposes. This practice would assist not only in alleviating congestion around depots but also ensure that the depot area’s safety, security and environmental aspects are effectively managed.
Botswana Oil Limited is also constructing a loading facility at the Gaborone bulk strategic petroleum storage depot to address economic contingency plans under the Essential Supplies Regulations by improving the security of fuel supplies to Botswana. “It will increase the citizen oil companies’ participation in the oil sector, improve efficiency of petroleum strategic reserves management (quality assurance in the form of product turning over) and improve efficiency of fuel dispatching during contingency periods,” reads a proclamation on the company website.
The project will result in the construction of two (2) bay loading facility (one handling gasoil and mogas, and the other one handling gasoil, mogas and paraffin), driveway, product pumps, fire pumps, new power DB, prefabricated oil separator, security kiosk and access gate.
Why Botswana Oil Limited…
Botswana Oil Limited was established to support the Government of Botswana to achieve two broad, national economic objectives. These objective are to ensure the security and efficiency of fuel supply to Botswana and promote active citizen involvement in the petroleum industry.
Furthermore it manages state-owned strategic fuel reserve facilities, strategic stocks, bulk storage and distribution of petroleum products; assist emerging companies in the petroleum sector to participate meaningfully in the industry; and to achieve fuel self-sufficiency and diversification of the economy.
The Botswana Oil Limited current customer base consists mainly of citizen owned companies and international oil companies active in the local market. The BOL product range includes Petrol (ULP 93 & 95); Diesel (50 and 500 PPM) and Paraffin on demand.
BOL recently engaged a South African company to optimize its digital transformation to aid growth. Galeboe Mmelesi, ICT Manager at BOL, said at the time that the company recognised that it had to improve its operating model – including processes, data and information management – if it was to drive its performance to new levels.
"Our company is set for tremendous growth over the coming years. However, we had to be ready to scale quickly and efficiently, and for this we needed to establish best-practice processes specific to the oil and gas industry. Our SAP solution now allows us to not only scale our business, but expand into other mid to downstream oil and gas activities, helping us realise our vision of becoming a leader in the integrated oil and gas sector in Africa."
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.