We are still digesting the shocking news which we woke up to on the weekend of the 8th of October; “BCL mine placed under provisional liquidation.
” The news which we have been dreading to hear all along finally came. We all knew that BCL, just like any other mine have been facing challenges mainly due to the depressed commodity prices on the international market. We never thought it would come to this level. One thing which is certain is that the closure of the mine will send ripple effects not only in the mining town of Selibe Phikwe, Francistown and surrounding areas but the whole economy of Botswana. Francistown will be affected even more as Tati Nickel Mine, a subsidiary of BCL has also been closed. Palapye and surrounding areas will also feel the pinch as the Morupule coal mine will be affected given than BCL was the major consumer of Morupule coal.
The placing of BCL under provisional liquidation comes at a time when we are still recovering from the closure of Boseto and African Copper mines throwing many workers into the streets. The negative multiplier effects will be severe and will have long lasting effects on the whole economy at large. It will no longer be business as usual.
Brief history of BCL
BCL formation can be traced back to August 1956 when a meeting, arranged by John Buchanan, Chairman of Minerals Separation Limited, took place between Tshekedi Khama, Regent of the Bangwato Tribe in the Bechuanaland Protectorate (The Republic of Botswana) and Sir Ronald Prain, Chairman of Roan Selection Trust (RST). At the meeting an agreement was reached between the two men, which was later signed on the 2nd of June 1959 and subsequently ratified by the British House of Lords and led to the formation of Bamangwato Concessions Limited (later to be renamed BCL Limited), to prospect, explore and mine Copper and Nickel ore discovered in the present day township of Selebi Phikwe.
BCL produces two types of finished matte containing nickel, copper, and cobalt and to a smaller extent precious and platinum group metals. It is the second largest private sector employer in the country with a labour force of +/-4200. It consumes just under 20% of total electricity usage in Botswana or 43% of BPC’s own power generation. The aftershock effects
The direct effect is the loss of jobs and income for some +/-4200 workers who were employed by the mine. Companies that were subcontracted will also close further putting more workers on the streets. The indirect jobs that will be lost are even more. Palapye town will be affected as Morupule Coal mine will probably downsize operations as BCL was the biggest user of its coal. The hospitality sector around Selibi Phikwe and Francistown areas will be crippled, if not likely close altogether in the case of Phikwe. The retail sector will face a significant decline in business activity and most will be forced to relocate from Phikwe. This in turn will reduce the business activity of the town ie the transport sector, education sector, food outlets, fuel suppliers, property sectors etc.
The property sector will be affected as the decline in occupancy and property demand will have an effect on valuations. The list is endless and the negative multiplier effects will be severe. Government revenue in the form of taxes will also be constrained due to the reduced business activities that will follow. This will have an impact on the government fiscal balance at a time when diamond prices are not doing very well. Already Lerala Diamond mine is reportedly planning to scale down production and retrench.
The country’s current account and Balance of Payments positions will also worsen. The mining sector at large contributes over 35% towards government revenue. Banks not spared either. The banking sector is not spared either. Impairments are likely to spike especially from unsecured facilities extended to the mine directly, mine employees and other related companies exposed to BCL. The list is endless and the negative multiplier effects will be severe. Some of government enterprises will not be spared either.
Already Botswana Railways is reportedly facing a P20mn reduction in business revenue from BCL. Water Utilities Corporation will also have to scale down its operations as it has been supplying bulk water to the mine. Where to from here…
The liquidator report is likely to come up with 2 recommendations. (1) Complete shutdown of the mine (which is highly unlikely) (2) Scaling down of the mine operations and closure of some of the shafts which are unprofitable. (This is highly likely, although we cannot rule out some job losses) Lessons learnt
There are many lessons to be derived from the placing of BCL mine under provisional liquidation. Once again this has shown the need to speed up the diversification of the country’s economy away from the mining sector. Although there has been some movements in this regard as shown by the growth of the non-mining sector over the years and the decline of the mining sector contribution to the economy from levels around 31% of GDP in 2004 to levels around 13% of GDP as at 31 December 2015. What we can agree is that the speed of the diversification process is not moving at a pace that we want. The pace has been slow. BCL smelter can be the game changer
BCL has been making losses for some years, but we believe there is still value in the copper/nickel mining company and some of the shafts that are not profitable have to be shut down if the mine is to operate efficiently and profitable. The BCL smelter is one of the project we believe has the potential not only to contribute positively towards the profitability of BCL but also turn Botswana into a hub for the smelting and refining of copper/nickel in the region. With a capacity to treat up to 850 000mt of nickel/copper concentrates per annum, the smelter is large enough to absorb all the smelting requirements of all nickel/copper miners in the region as it is the only copper/nickel smelter in the region.
This is because it will be uneconomical for other small mining companies in the region to build their own refineries given the large capital outlay that is required to build one. It is estimated that the current BCL smelter has a replacement value of between US$2bn and US$3bn.
Mowana Copper Mine in Dukwi will finally pay its former employees a total amount of P23, 789, 984.00 end of this month. For over three years Mowana Copper Mine has been under judicial management. Updating members, Botswana Mine Workers Union (BMWU) Executive Secretary Kitso Phiri this week said the High Court issued an order for the implementation of the compromise scheme of December 9, 2021 and this was to be done within 30 days after court order.
“Therefore payment of benefits under the scheme including those owed to Messina Copper Botswana employees should be effected sometime in January latest end of January 2022,” Kitso said. Kitso also explained that cash settlement will be 30 percent of the total Messina Copper Botswana estate and negotiated estate is $3,233,000 (about P35, 563,000).
Messina Copper was placed under liquidation and was thereafter acquired by Leboam Holdings to operate Mowana Mine. Leboam Holdings struck a deal with the Messina Copper’s liquidator who became a shareholder of Leboam Holdings. Leboam Holdings could not service its debts and its creditors placed it under provisional judicial management on December 18, 2018 and in judicial management on February 28, 2019.
A new company Max Power expressed interest to acquire the mining operations. It offered to take over the Mowana Mine from Leboam Holdings, however, the company had to pay the debts of Leboam including monies owed to Messina Copper, being employees benefits and other debts owed to other creditors.
The monies, were agreed to be paid through a scheme of compromise proposed by Max Power, being a negotiated payment schedule, which was subject to the financial ability of the new owners. “On December 9, 2021, Messina Copper liquidator, called a meeting of creditors, which the BMWU on behalf of its members (former Messina Copper employees) attended, to seek mandate from creditors to proceed with a proposed settlement for Messina Copper on the scheme of compromise. It is important to note that employee benefits are regarded as preferential credit, meaning once a scheme is approved they are paid first.”
A savingram the Ministry of Local Government and Rural Development sent to Town Clerks and Council Secretaries explaining why councilors across the country should not have access to their terminal benefits before end of their term has been revealed.
The contents of the savingram came out in the wake of a war of words between counselors and the Ministry of Local Government and Rural Development. The councilors through the Botswana Association of Local Authorities (BALA) accuse the Ministry of refusing to allow them to have access to their terminal benefits before end of their term.
This has since been denied by the Ministry. In the savingram to town councils and council secretaries across the country, Permanent Secretary in the Ministry of Local Government and Rural Development Molefi Keaja states that, “Kindly be advised that the terminal benefits budget is made during the final year of term of office for Honorable Councilors.” Keaja reminded town clerks and council secretaries that, “The nominal budget Councils make each and every financial year is to cater for events where a Councilor’s term of office ends before the statutory time due to death, resignation or any other reason.”
The savingram also goes into detail about why the government had in the past allowed councilors to have access to their terminal benefits before the end of their term. “Regarding the special dispensation made in the 2014-2019, it should be noted that the advance was granted because at that time there was an approved budget for terminal benefits during the financial year,” explained Keaja. He added that, “Town Clerks/Council Secretaries made discretions depending on the liquidity position of Councils which attracted a lot of audit queries.”
Keaja also revealed that councils across the country were struggling financially and therefore if they were to grant councilors access to their terminal benefits, this could leave their in a dire financial situation. Given the fact that Local Authorities currently have cash flow problems and budgetary constraints, it is not advisable to grant terminal benefits advance as it would only serve to compound the liquidity problems of councils.
It is understood that the Ministry was inundated with calls from some Councils as they sought clarification regarding access to their terminal benefits. The Ministry fears that should councils pay out the terminal benefits this would affect their coffers as the government spends a lot on councilors salaries.
Reports show that apart from elected councilors, the government spends at least P6, 577, 746, 00 on nominated councilors across the country as their monthly salaries. Former Assistant Minister of Local Government and Rural Development, Botlogile Tshireletso once told Parliament that in total there are 113 nominated councilors and their salaries per a year add up to P78, 933,16.00. She added that their projected gratuity is P9, 866,646.00.
A surge in consumer spending is expected to be a key driver of Botswana’s economic recovery, according to recent projections by Fitch Solutions. Fitch Solutions said it forecasts household spending in Botswana to grow by a real rate of 5.9% in 2022.
The bullish Fitch Solutions noted that “This is a considerable deceleration from 9.4% growth estimated in 2021, it comes mainly from the base effects of the contraction of 2.5% recorded in 2020,” adding that, “We project total household spending (in real terms) to reach BWP59.9bn (USD8.8bn) in 2022, increasing from BWP56.5bn (USD8.3bn) in 2021.” According to Fitch Solutions, this is higher than the pre-Covid-19 total household spending (in real terms) of P53.0 billion (USD7.8bn) in 2019 and it indicates a full recovery in consumer spending.
“We forecast real household spending to grow by 5.9% in 2022, decelerating from the estimated growth of 9.4% in 2021. We note that the Covid-19 pandemic and the related restrictions on economic activity resulted in real household spending contracting by 2.5% in 2020, creating a lower base for spending to grow from in 2021 and 2022,” Fitch Solutions says.
Total household spending (in real terms), the agency says, will increase in 2022 when compared to 2021. In 2021 and 2022, total household spending (in real terms) will be above the pre-Covid-19 levels in 2019, indicating a full recovery in consumer spending, says Fitch Solutions. It says as of December 6 2021 (latest data available), 38.4% of people in Botswana have received at least one vaccine dose, while this is relatively low it is higher than Africa average of 11.3%.
“The emergence of new Covid-19 variants such as Omicron, which was first detected in the country in November 2021, poses a downside risk to our outlook for consumer spending, particularly as a large proportion of the country’s population is unvaccinated and this could result in stricter measures being implemented once again,” says Fitch Solutions.
Growth will ease in 2022, Fitch Solution says. “Our forecast for an improvement in consumer spending in Botswana in 2022 is in line with our Country Risk team’s forecast that the economy will grow by a real rate of 5.3% over 2022, from an estimated 12.5% growth in 2021 as the low base effects from 2020 dissipate,” it says.
Fitch Solutions notes that “Our Country Risk team expects private consumption to be the main driver of Botswana’s economic growth in 2022, as disposable incomes and the labour market continue to recover from the impacts of the Covid-19 pandemic.” It says Botswana’s tourism sector has been negatively impacted by the Covid-19 pandemic and the related travel restrictions.
According to Fitch Solutions, “The emergence of the Omicron variant, which was first detected in November 2021, has resulted in travel bans being implemented on Southern African countries such as South Africa, Botswana, Lesotho, Namibia, Zimbabwe and Eswatini. This will further delay the recovery of Botswana’s tourism sector in 2021 and early 2022.” Fitch Solutions, therefore, forecasts Botswana’s tourist arrivals to grow by 81.2% in 2022, from an estimated contraction of 40.3% in 2021.
It notes that the 72.4% contraction in 2020 has created a low base for tourist arrivals to grow from. “The rollout of vaccines in South Africa and its key source markets will aid the recovery of the tourism sector over the coming months and this bodes well for the employment and incomes of people employed in the hospitality industry, particularly restaurants and hotels as well as recreation and culture businesses,” the report says.
Fitch Solutions further notes that with economies reopening, consumers are demanding products that they had little access to over the previous year. However, manufacturers are facing several problems. It says supply chain issues and bottlenecks are resulting in consumer goods shortages, feeding through into supply-side inflation. Fitch Solutions believes the global semiconductor shortage will continue into 2022, putting the pressure on the supply of several consumer goods.
It says the spread of the Delta variant is upending factory production in Asia, disrupting shipping and posing more shocks to the world economy. Similarly, manufacturers are facing shortages of key components and higher raw materials costs, the report says adding that while this is somewhat restricted to consumer goods, there is a high risk that this feeds through into more consumer services over the 2022 year.
“Our global view for a notable recovery in consumer spending relies on the ability of authorities to vaccinate a large enough proportion of their populations and thereby experience a notable drop in Covid-19 infections and a decline in hospitalisation rates,” says Fitch Solutions. Both these factors, it says, will lead to governments gradually lifting restrictions, which will boost consumer confidence and retail sales.
“As of December 6 2021, 38.4% of people in Botswana have received at least one vaccine dose. While this is low, it is higher than the Africa average of 11.3%. The vaccines being administered in Botswana include Pfizer-BioNTech, Sinovac and Johnson & Johnson. We believe that a successful vaccine rollout will aid the country’s consumer spending recovery,” says Fitch Solutions. Therefore, the agency says, “Our forecasts account for risks that are highly likely to play out in 2022, including the easing of government support. However, if other risks start to play out, this may lead to forecast revisions.”