Debswana Diamond Company, one of the most successful Public Private Partnerships in the world and global diamond mining giant is back to growing profitability – Managing Director Balisi Bonyongo told stakeholders this week.
According to Bonyongo, the company’s profit improved in the 2016/17 financial year compared to 2015/16 due to the fact that the Global Diamond Market stabilized. “Things have stabilized, profitability improved to 40 percent compared to 37 percent in 2015 and that is significant good business with applauds.”
The former Jwaneng Mine General Manager, Bonyongo further explained that the rise in profitability was due to a number of other factors that influence the international diamond markets. “This was driven by high revenues from stronger rough diamonds demands, improvement in costs and operational efficiencies and favorable exchange rates, these three played a key role in this positive financial figures we experienced last financial year.”
However the man at the helm of Botswana largest foreign income company noted that stability realized doesn’t mean his company is back to its glory days but rather assures growth and positive future outlook. He underscored the need to ensure occupational safety as an ingredient of the company’s operational efficiency. Bonyongo highlighted that though last year the company had a tragic incident which resulted in loss of life, Debswana still receives accolades for safety and high standard ergonomic precautions globally.
“We learned many lessons from this type of an incident and we immediately applied precautions to nullify possibilities of causalities repeating. However despite the accident our safety performance as Debswana continues to improve and our safety record is comparable to the best in the world,” said Bonyongo. In 2010 Debswana contracted Fluor Corporation, an American Multinational Engineering Procurement & Contracts Management (EPCM) giant at a tune of 30 billion Pula to deliver Cut 8 project – a Jwaneng Mine expansion undertaking that will see the mine life span extended to 2024.
Jwaneng Mine is reported to have commenced processing of the ore from Cut 8. The Managing Director revealed that 88 percent of an estimated 500 million tonnes of waste above diamond bearing ore had been stripped away by the end of March. "Cut 8 is on track to meet its objectives and ore from the mine expansion project is now being delivered to the main treatment plant," said Bonyongo. He observed that Debswana will continue pumping more money into projects that will increase their business and life span.
“We have to continue to invest in projects that will in future continue to ensure growth and sustainability of the company,” he said. It was also revealed that Debswana would produce about 20.5 million carats this year, or slightly more as the company continues with its strategy of meeting demand.
“Debswana will also close its 42-year-old Letlhakane diamond mine this year and it will be replaced by a tailings plant, which is expected to be commissioned before June. The Letlhakane mine has come to the end of its life span. We have invested 2.1 billion pula into a tailings plant which is expected to mine about 800,000 carats over 20 years from the dumps," indicated Bonyongo. Debswana Diamond Mining Company is owned by the Botswana Government and De Beers Group in a 50/50 joint partnership.
According to Anglo American, which owns 85 percent of De Beers, Debswana production dropped by a marginal 3 percent to 5.2 million carats in the first quarter of 2017 compared with the same period in 2016. “Jwaneng production decreased by eight percent due to expected lower grades, partly offset by Orapa, which increased by five percent due to expected higher grades,” a statement from Anglo states.
In the period, Orapa produced 2.1 million carats while Jwaneng dug up 2.9 million; Letlhakane (130,00 carats) while Damtshaa remained under care and maintenance. Debswana aims to keep production flat at around 20 million carats this year, while De Beers says it has set a production guidance of 31 to 33 million carats for 2017. According to Bonyongo, Debswana will continue to engage in community projects, partnerships with government and other stakeholders in their Corporate Social Investment (CSI) mandate that seeks to leave a lasting legacy of sustainability and changed life’s especially in the communities the company extract the precious stones.
Debswana invests millions of Pula in CSI projects ranging from sports sponsorships, charitable projects and other impactful socio-economic community investments. Currently Debswana sponsors Botswana Football Association’s First Division League, Botswana Boxing Association Tournaments, Netball , Reba Bona Ha just to name a few.
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.