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African Development Bank blacklists Sinohydro

Integrity in Development Projects: African Development Bank and Sinohydro have reached a settlement agreement on fraudulent practices.  Sinohydro Corporation has agreed to a comprehensive verification of its compliance program by the African Development Bank following the detection of a fraudulent practice in tendering for works contracts in Uganda.

Sinohydro has been awarded contracts in Botswana before and had a protracted conflict with the Botswana Government over the construction of the Sir Seretse Khama International Airport. The project was marred in controversy due to cost overruns, delays and technical glitches.

On June 15th, 2017, the African Development Bank Group (AfDB) announced the conclusion of a settlement agreement with Sinohydro Corporation. An investigation conducted by the AfDB’s Office of Integrity and Anti-Corruption established that Sinohydro Corporation engaged in a fraudulent practice in bidding for works contracts in the context of the AfDB-financed Road Sector Support Project in Uganda.

As part of the settlement, the AfDB imposes a conditional non-debarment for a period of three years, subject to the company enhancing its global corporate compliance program within that period to the institution’s full satisfaction. The AfDB will verify the adequacy of Sinohydro Corporation’s compliance framework and the robustness of its implementation prior to any release decision.

In addition, Sinohydro Corporation committed to cooperate with the Office of Integrity and Anti-Corruption in its investigations of unrelated cases of misconduct in AfDB-financed projects. The period of conditional non-debarment may be reduced to 24 months if Sinohydro Corporation complies with all conditions of the agreement early.  
 

“The purpose of the Bank’s sanctions regime is in equal measures the deterrence of sanctionable practices such as fraud and corruption and the rehabilitation of entities found to have engaged in such”, says Anna Bossman, Director of the AfDB Office of Integrity and Anti-Corruption. “Engaging with companies and ensuring the implementation of robust corporate compliance safeguards is key to avoid recidivism”.

In 2013, Sinohydro Corporation is said to have participated in a tender for works contracts under the Bank-financed Road Sector Support Project in Uganda. The investigation by the Office of Integrity and Anti-Corruption found that Sinohydro Corporation misrepresented its prior project experience by using not yet successfully and substantially completed contracts as references.  

The Office of Integrity and Anti-Corruption of the African Development Bank Group is responsible for preventing, deterring and investigating allegations of corruption, fraud and other sanctionable practices in Bank Group-financed operations.  The investigation by the Office of Integrity and Anti-Corruption of the African Development Bank was conducted by Mohamed KONNEH and Esther Lynn MHONE. African Development Bank staff and the general public can use the Office of Integrity and Anti-Corruption secured hotlines to report sanctionable practices within the Bank or operations financed by the Bank Group.

Since 2006, investment from China has rapidly increased in Africa. According to a World Bank report in 2008, most of the Chinese investment goes to the infrastructure sector, mostly hydropower, railroad, and telecommunications. The hydropower projects are widely blamed for negative impacts on local community and natural environment.

SINOHYDRO AND BOTSWANA GOVERNMENT

Fed up with continual delays and deadline setbacks, the Botswana Government has decided to fire the primary contractor on Gaborone's Sir Seretse Khama International Airport (SSKIA) Expansion Project Phase 2, Chinese state construction firm Sinohydro, with 95% of the works completed.


At some point Sinohydro has been paying daily fines amounting to BWP1.7million (USD$220'000) as a result of the delays in completion, which should have taken in place in June of 2010. Despite assurances given to then Minister of Infrastructure, Science and Technology (MIST) Johnnie Swartz during an on-site inspection in April that the project would be ready for hand over by July 2012 at the latest, it seems the firm was not able to keep its promises which ultimately led to the termination of its contract.

Sinohydro however, disputed the validity of the Ministry's reason for termination of contract, stating  that Government payment delays, constant redesigns and additional works were to blame for Phase 2's delays and escalating costs.
 

Sinohydro also held the reigns during Phase 1 of the project, which also suffered massive deadline setbacks, with its completion date having been pushed back from October 2009 to March 2010 much to the Botswana Government's irritation. At the time of termination of the contract, Sinohydro had completed approximately 90 percent of the project and had been paid about P527 million. MIST Permanent Secretary, Dikagiso Mokotedi had told the Public Accounts Committee that Government’s rushed tendering process for the expansion of the Sir Seretse Khama International Airport (SSKI) was the major factor that led to poor management of the project and its subsequent delays. 


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Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

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.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

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.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

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.

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