Connect with us
Advertisement

Volatility and survival of the fittest – Adapt to the new normal

Volatility is the new normal in the mining industry, says pan-African consulting firm africapractice founder and CEO Marcus Courage. “Companies must adapt. They must become agile by identifying their core competencies and where to play and manage the politics,” he states.


Courage notes that global economic output continued to affect the mining industry in 2016. Sluggish economic growth among G7 and G20 nations led to weak demand and soft commodity prices. Companies continued to write off debts and make impairments. The capitalisation of the world’s largest mining houses remained less than half of what it was at the start of the decade. Financial discipline remained the order of the day. Companies had no choice but to cut back on new developments and reduce costs.


In addition to this, a number of political events have heightened volatility and regulatory uncertainty. “A Trump administration, Brexit, assertive Russian diplomacy, a leadership contest in South Africa and the Big African economies of Egypt and Nigeria contending with unprecedented currency woes – none of these events give me any confidence about the outlook for political stability in 2017,” says Courage.


“We are seeing small recoveries in market capitalizations and commodity prices – but there’s still a long way to go and a lot of volatility. Politics and regulation temper my confidence in a sustained recovery,” he notes. At the helm of the consultancy, which he founded in 2003 to help African companies and global investors understand shifting political, policy, regulatory and societal trends on the continent and to equip them to identify the opportunities and manage the risks these present for their operations, Courage and his over 75 team members supply risk advisory, public affairs and stakeholder engagement solutions to many of the largest companies, investors and foundations operating in Africa today.


While the mining industry will continue to face significant market challenges and constraints in 2017, there’s deal-making to be done also, Courage believes. Some of the world’s biggest mining companies – Anglo American, Glencore, Freeport McMoRan and others – have been divesting to shore up their balance sheets, affording newer entrants such as Neal Froneman’s Sibanye and Kennedy Bungane’s South African based industrial holding company Pembani Group to capture value for their stakeholders.


“The onus in 2017 will be on governments to make the environments for investing more attractive, and for mining firms to identify efficiencies and to carefully manage costs. Those firms with their eyes firmly fixed on the long-term rewards and their corporate radars trained on monitoring and adapting to political risk will be the beneficiaries,” Courage notes. Rentier African economies will continue to struggle, says Courage, noting that only those nations, like Botswana, which have forged a deliberate industrial policy to build domestic and cross border value chains and diversify their economies to serve domestic and regional consumers, will flourish.


“Firms need to understand what is important to their customers, employees, communities and host government and build their business strategy in a way which delivers value to all. By taking a long-term view and demonstrating authentic commitment to creating what at africapractice we call Shared Advantage (for the many and not for the few), companies can navigate political risk and play a first mover role in markets that others may dismiss as the opportunity doesn’t come neatly packaged.


“Frontier waters may be choppy but if you understand the winds, you’ll move quickly,” says Courage. He advises that rather than lamenting heavy-handed regulation, firms must proactively engage governments to build understanding of their business models and the contribution that their industry and their company can make towards catalysing economic development and creating new sub-sectors of economic activity. “It’s a critical step in bridging the trust deficit that often undermines mining investments.”


Marcus Courage, africapractice Founder & CEO mcourage@africapractice.com

Continue Reading

Business

Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

This content is locked

Login To Unlock The Content!

Continue Reading

Business

Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

This content is locked

Login To Unlock The Content!

Continue Reading

Business

Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

Continue Reading
Do NOT follow this link or you will be banned from the site!