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.
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.
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.
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.