Government’s stake in the Mining Sector, particularly in mining and mineral processing companies is being transferred to state owned Mineral Development Company Botswana (MDCB) and the process is almost complete, Minister of Mineral Resources, Green Technology and Energy Security, Sadique Kebonang has told parliament.
Mineral Development Company, MDCB (PTY) LTD is a company wholly owned by the Botswana Government. The mandate of MDCB is the effective management and optimization of the government mineral investment portfolio in the mining industry. Established in 2015, MDCB fully fleshed and resourced will manage all government shares in the lucrative mining sector. When delivering his Ministry Budget last week in parliament Kebonang said capacitating of the MDCB to fulfill its mandate was ongoing.
“An adequately capacitated MDCB will enable the company to effectively manage Government shareholding in mineral companies,” he said. The Lobatse youthful legislator told parliament that transactions for the transfer of assets from Government of Botswana to MDCB have been completed for Morupule Coal Mine, Debswana Investment SA and BCL.
“The process of transferring the remaining assets namely, Diamond Trading Company Botswana (DTCB), Debswana Diamond Company and Botswana Ash have just started,” revealed Minister Kebonang.He further told parliament that the process was expected to be concluded during 2017.
Under the Mineral Development Company it is expected that managing the government’s mineral sector portfolio would be made easy and more effective as the government stake and interest will be in the hands of a private sector setup that understands the processes and technical knowhow of profit making assets management better. “Capacitating the company is also ongoing with a board in place, the Chief Executive Officer already appointed and recruiting of other staff to build a reputable mineral & mining assets management corporation is in good progress,” Kebonang told WeekendPost in an interview this week.
When it commenced operations MDCB immediately took over government shares in BCL, a move said to have been easy as Botswana Government was the largest shareholder with a controlling stake of over 90 %. Mid 2016 before the shocking news of BCL liquidation MDCB bought out Botswana-DeBeers joint venture Debswana Mining Company from Morupule Colliery Mine (MC).
According to ongoing plans theCorporation willsoon sit in a boardroom with Anglo American as it isreplacing government in Debswana Diamond Mining Company, one of the wealthiest mining companies in the world. The Government of Botswana owns a 50% stake in Debswana which owns Jwaneng Mine which is the world’s richest mine by value and Orapa Letlhakane & Damtshaa Mines. Orapa plant is the World’s largest diamond processing plant. Once the transfer of Shares is Complete MDCBwill also control Botswana’s 50% stake in Diamond Trading Company, Botswana Ash as well as 15% of Botswana Government in the De Beers Group.
Mineral Development Company Management
Reginah Sikalesele-Vaka is the Board Chairperson of Mineral Development Corporation. Vaka is a renowned financial expert and insurance industry guru and the founding Chief Executive of Bona Life, Botswana’s 1st citizen owned Life Insurance Company. Vaka is expected to guide the Botswana mineral sector lucrative ship to diversity and maximum beneficiation. Once MDCB holds all government shares in the mining sector the company is expected to transform the entire mineral sector and also make investments to create wealth and increase state revenues.
Other MDCB Board members include former State President Sir Ketumile Masire’s son Mmetla Masire. Masire, an environmental engineering guru by academic qualifications is currently also handling a task with a day to day job of transforming Botswana’s national water supplier, Water Utilities Corporation (WUC ) which is currently holding a record of one the most perennial loss making businesses in Botswana.
Vaka also sits with Sebetlela Sebetlela, one of Botswana’s renowned mining experts. Sebetlela currently is chairman of BPC board, he has literally captained all mining companies in Botswana, from Orapa, Tati to Jwaneng just to name a few.Other MDCB board members include MatomeTsholetsa, Country Manager for Joy Global Inc.
The Chief Executive Officer of MDCB is Paul Smith, a renowned mining sector profit maximizing guru with footprint across Africa. Smith made his name in South Africa’s lucrative Platinum mining sector. Last year, immediately after government acquired a 50 % stake of Morupule Colliery Mine, Smith allegedly got the ball rolling to mastermind the liquidation of Botswana’s oldest Mining Company, BCL. BCL was put under provisional liquidation on October 9th 2016.Smith, according to media publications is one of, if not the highest paid CEOs in Botswana alongside BPC Chief Executive Officer with over P100 000 as take home per month.
Minerals sector performance
According to Minister Kebonang the mining industry experienced a global commodity price downturn over most of the first two quarters of 2016, in mainly the base metals and energy minerals. However, diamond markets improved during the first quarter of 2016 and this resulted in actual sales exceeding production due to sale of inventory from the year 2015.
“Mineral revenue (dividends and royalties) for 2016 increased by 63% when compared to 2015. The average percentage contribution of minerals to GDP during second quarter of 2016 was 21.8% compared to 18.4% in 2015,” parliament heard last week. Debswana Diamond Company produced 20.9 million carats in 2016 compared to 20.4 million carats in 2015. Sales were 26.3 million carats compared to 14.7 million carats in 2015. Revenue from these sales was USD 3.9 billion and this compared favourably to USD 2.4 billion in 2015.
Kebonang also reported that Boteti Mining Company produced 307 thousand carats in 2016 compared to 377 thousand carats in 2015. “Boteti upgraded their processing plant, which enabled them to recover exceptionally large stones. Despite the volatile diamond markets, Boteti mine continue to perform well,” he said.
Ghaghoo Diamond Mine produced 20.6 thousand carats in 2016. Lerala Mine resumed production in April 2016 and has so far produced 58.5 thousand carats and so far made two sales. The performance of base metal mines continued to decline in 2016 due to depressed commodity prices.
Copper and nickel prices showed improvement from US$ 2.06/lb to US$ 2.65/lb for copper and US$ 3.80/lb to US$ 5.20/lb for nickel respectively from December 2015 to December 2016. However the prices remain a challenge for the marginal operations. BCL and Tati Nickel Mining Company were placed under provisional liquidation in October 2016 due to severe financial distress.
Kebonang is of the view that there are notable developments in the energy minerals sub-sector as companies continue to show interest in the energy minerals. “For instance, A-Cap Resources and African Energy Resources Botswana have acquired mining licenses for uranium at Sese and coal at Makomoto, respectively.”
Kebonang said MDCB will be looking to invest inorder to diversify government revenue within the mining sector to reduce dependence in the Diamond segment. Soda Ash and Salt sales were 288.5 thousand tonnes and 435 thousand tonnes respectively in 2016 compared to 258.9 thousand tonnes and 368.9 thousand tonnes for corresponding figures in 2015. Currently Production of soda ash and salt continues to be constrained by low off-take.
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.