Ministry of Finance and Development Planning (MoFDP) has hinted this week that the 2017/18 budget will likely be unfavourable. The budget for the next financial year will be the first since the adoption of NDP 11 and Vision 2036.
According to the 2017/2018 Strategy Paper presented by MoFDP on Thursday in Gaborone, the major downside risks to the budget outlook includes the “continued slow recovery in the global economy, undiversified revenue base, and unforeseen emergency expenditures to address water and electricity supply challenges, and natural disasters like drought and outbreak of animal diseases.”
In addition it states that among the risk to the budget outlook include the continued and sluggish global economic developments which impact on the domestic economy through low commodity prices translating into decreased diamond export earnings and lower revenues for government as well as continued reliance on diamond earnings.
According to the strategy paper, the other risks include “water and electricity shortages which pose a threat to value addition of other economic sectors, public expenditure pressures, especially personnel emoluments under recurrent expenditure.”
It also says that the expansion of guarantees issued to back up parastatals’ loans and weak monitoring, evaluation and implementation of development programmes and projects as well as natural disasters such as recurring drought and animal disease outbreak are other notable risks highlighted in the strategy.
Health costs arising from test and treat initiatives and increased provision of drugs to HIV/AIDS; and Increase in Tertiary Education Funding, were also pointed out as contributing to high risk in the anticipated budget.
In terms of the budget outlook, it was said the financial year is projected to result in among others a “budget deficit of P6.8 billion” or -4.1 percent of GDP.
The paper goes on to explain that this is attributable to the projected “modest growth” in revenues, and “continued pressures” arising from the implementation of the much talked about Economic Stimulus package (ESP).
It further states that: “the expected growth in the real GDP of 4.0 percent in 2017/2018 is insufficient in addressing the development challenges of unemployment, poverty, and income inequality.”
“Despite this projected unfavourable 2017/2018 budget outlook, the Budget strategy paper posits that government remains committed to maintaining fiscal sustainability in the medium term. Thus, additional measures to raise domestic revenues or trim the planned expenditure during the implementation of the NDP 11 will be considered, if necessary, to restore fiscal sustainability.”
Moreover it says there is a need to use the impending financial year budget, which will be first financial year subsequent to the adoption of the crucial NDP 11 and Vision 2036, to align the implementation of the two documents, with a view to promoting growth, economic diversification, and employment creation.
It is understood that the preparation of the 2017/2018 Budget Strategy Paper drew from the national priorities identified in the draft NDP 11, while taking into account the country`s fiscal policy parameters.
The strategy paper maintained that: “however, there was also need to ensure that the implementation of the ongoing ESP is continued during 2017/2018 financial year, despite the budgetary pressures.”
The Budget Strategy Paper was prepared under continued difficult domestic economic conditions, with moderate growth expected due to weak recovery in the global economy.
2015/2016 Budget Outturn
The 2015/2016 budget outturn indicates that a total of P48.29 billion was collected as revenues and grants during the year; of which P35.76 billion was tax revenue, while P12.39 billion was non-tax revenue and P0.14 billion was grants. Figure 4 shows the share of tax revenue by major items. Of the amount collected as tax revenue, Customs & Excise accounted for the largest share of 44.0 percent, while non-mineral income tax contributed 26.0 percent.
Tax revenue collected in 2015/2016 was 2.0 percent above the estimate of P35.05 billion in the revised budget. Non-tax revenue, on the other hand, was 24.0 percent lower than the revised budget estimate of P16.38 billion. This was mainly due to low mineral royalties and dividends payments, which make up over 90.0 percent of non-tax revenue. Seventy-two percent or P9.98 billion was paid as royalties and dividends during the fiscal year, compared to the revised budget estimate of P13.84 billion, due to the operational difficulties faced by several mines in the country. Grants received were also low, amounting to P0.14 billion against estimated grants of P0.34 billion, due to a decline in recurrent grants.
Expenditure performance during 2015/2016, on the other hand, was satisfactory, with total expenditure and net lending amounting to P54.92 billion, or 98 percent of the revised budget estimate. This comprised: P40.93 billion recurrent expenditure; P12.77 billion development expenditure; P0.76 billion lending from the Public Debt Service Fund to state owned enterprises; P0.55 billion equity injections into state owned enterprises; and P0.07 billion of loans repayment. A further analysis of the two major components of expenditures shows that, Recurrent Expenditure stood at 98.0 percent of the revised budget estimate of P41.72 billion, while Development Expenditure was 89.0 percent of the revised estimate of P14.32 billion.
As a result of the revenue and expenditure performance, the overall fiscal balance for the 2015/2016 financial year was a deficit of P6.63 billion, or -4.5 percent of GDP. Whereas total expenditure remained within the projected threshold in the revised budget estimates, then deficit was mainly occasioned by the revenue shortfall, which underperformed by P3.47 billion or 6 percent, compared to the revised budget estimate of P51.8 billion.
Sefalana released their best ever half year financial results. Revenue grew by 2.3% to BWP2.91 billion (HY 2019: BWP2.85 billion). Gross profit increased by 17.4% to BWP215.1 million (HY 2019:
BWP183.3 million) yielding an improved gross profit margin of 7.4% (HY 2019: 6.4%). Administrative expenses went up by 7.8% to BWP97.0 million (HY 2019: BWP90.0 million). EBITA shot up by 31.5% to BWP138.6 million (HY 2019: BWP105.4 million) translating to EBITA margin of 4.8% (HY 2019: 3.7%).
Investment income was BWP22.8 million (HY 2019: BWP28.2 million). Profit before tax increased by 22.8% to BWP148.7 million (HY 2019: BWP121.1 million). Effective tax rate was lower at 23.9% (HY 2019: 28.4%) translating to a 30.7% hike in profit after tax to BWP113.2 million (HY 2019: BWP86.7 million).
Local Trading consumer goods segment was resilient despite a marginal decline in revenue. Revenue declined by 1.6% to BWP1.59 billion (HY 2019: BWP1.62 billion), however a 2.0% decline in cost of goods sold offset decline in revenue to see gross profit increase by 7.6% to BWP75.6 million (HY 2019: BWP70.3 million), an improved gross profit margin of 4.8% (HY 2019: 4.3%) was realized as a result.
Profit for the period was down 2.4% to BWP34.8 million (HY 2019: BWP35.7 million) mainly impacted by restrictions on liquor sales which have been in place for the entire reporting period. At the beginning of the financial year, the group manned 4 Hyper Stores (“Sefalana Hyper”), 25 Cash& Carry stores (“Sefalana Cash& Carry”) and 29 supermarket retail stores (“Sefalana Shopper”).During the period, Sefalana Shopper retail store in Shakawe, Sefalana Liquor outlet in Tlokweng were opened, and Sefalana Shopper Molepolole store was refurbished.
Lesotho has seen its revenue increase by 30.9% to BWP295.7 million (HY 2019: BWP225.8 million). Profit before tax spiked 162.4% to BWP1.9 million (HY 2019: -BWP3.1 million). Namibia has performed well to place it as the largest contributor to profit before tax. The segment’s revenue increased by 5.5% to BWP896.8 million (HY 2019: BWP850.2 million). Gross profit rose by 25.4% to BWP60.9 million (HY 2019: BWP48.6 million) translating to an improved gross profit margin of 6.8% (HY 2019: 5.7%). Profit before tax went up by 40.6% to BWP39.8 million (HY 2019: BWP28.3 million).
The Manufacturing arm had an excellent performance. Revenue rose by 26.7% to BWP125.0 million (HY 2019: BWP98.7 million). Gross profit increased by 39.4% to BWP28.6 million (HY 2019: BWP20.5 million), producing a gross profit margin of 22.9% (HY 2019: 20.8%). Profit before tax shot up by 96.5% to BWP16.0 million (HY 2019: BWP8.1 million). The profitability of this business is largely driven by the timing of orders placed by Government for its various feeding schemes and availability of raw material.
The milling division has for all six months manufactured and supplied in full to the Government, however only one third of the total contract volumes was awarded to the business in respect of the 24 month contract issued in April 2020. Raw materials have been procured and contracts entered into for procurement of grain to fulfill any additional volumes that the Government might require.
Beverages division was awarded a 24 month supply of milk tender to the Government for the children’s feeding scheme in March 2019 which is currently being fulfilled. There has been a shortage in raw materials in the region due to a reduced number of dairy cows during the pandemic as farmers placed more focus on meat production. Despite an underway catch up on reinstating dairy cow population the business expects shortages to continue in early 2021.
The Trading others segment experienced a decline on its top and bottom line figures. Revenue went down by 43.9% to BWP42.2 million (HY 2019: BWP75.2 million). Gross profit went down by 23.9% to BWP11.5 million (HY 2019: BWP15.1 million). Profit before tax went down 56.8% to BWP3.2 million (HY 2019: BWP7.4 million). The segment was impacted by a reduction in sales of motor vehicles as customers prioritized spending on essential goods and services.
The Property segment in Botswana performed well, with all most all properties tenanted for leases ranging between two-six years. Setlhoa site is complete, comprising of Sefalana Shopper store, petrol station and rentals to Ital Tiles and CTM. Just over 5000sqm of land remains vacant. The space initially set out for the group’s Motor Dealership will be considered for other alternative options in a bid to optimize return from the site. In contra, Zambia performed below the previous period as the past two years elapsed in search of replacement tenants for their premises due to an influx of similar properties.
A 3000sqm warehouse space is expected to commence development in February 2021 to house bottled water and fruit juice plants. Milling division anticipates expansion by the end of 2021, the expansion is to include a wheat milling plant which will leverage on existing infrastructure and complement existing milling activities.
A phase 2 investment in Australian business is expected in May 2021. Five more stores will be acquired through this investment to bring the stores to a total of 12 in that market. The investment amount is anticipated to be around P80 million, to be funded through existing cashflows.
The preference share agreement on the South African consortium matures in July 2022. The group’s appetite for conversion of its investment in to a 30% equity stake will be influenced by the covid-19 pandemic impact. As such a decision will be made closer to maturity date.
The group maintains that its 40% interest in Grow Mine Africa (Pty) Limited, the Preferred Bidder in the National Lottery remains in place. According to management, the judgement of urgent application was in favor of Grow Mine and the formal ruling by the courts will be issued next week. Accordingly, further negotiations with the Gambling Authority are expected in quarter one of 2021.
Botswana Diamond PLC, a Botswana Stock Exchange (BSE) listed exploration company has moved a step closer towards developing it’s much talked about gem deposits around the Central Kalahari area in Botswana.
On Tuesday the company notified its shareholders through a circular published on the BSE, that it has entered into a cooperation agreement to fund exploration of its prospecting licence assets in Botswana with Diamexstrat Botswana Pty Ltd (DESB), which in turn has an alliance agreement with Burgundy Diamond Mines Limited, an Australia Stock Exchange (ASX) listed mining company.
BOD’s prospecting assets comprise the recently acquired Sekaka Diamonds Exploration Pty Ltd (Sekaka) database and Prospecting Licenses, as well as the Prospecting Licences held by BOD’s subsidiary, Sunland Minerals Pty Ltd (Sunland Minerals).
According to the statement from Botswana Diamond, Diamexstrat Botswana and its partner, Burgundy would earn up to a 70% interest in BOD’s Botswana Sunland Minerals and Sekaka’s Prospecting Licences.
On the other hand BOD can earn a 15% interest in Prospecting Licences held by Diamexstrat and its partners on the first US$1.5m spent on exploration by Diamexstrat where BOD’s database assists in the discovery of a primary kimberlite.
On 3rd party Prospecting Licences where targets are identified in BOD’s database, a joint earn-in will be negotiated at the time. For new Botswana Prospecting Licences, Diamexstrat, and its partner, Burgundy can earn up to 70%. Under the Agreement, the parties have agreed to utilize BOD’s diamond exploration database, which it acquired in last year as part of the acquisition of Sekaka Diamonds Exploration Pty Ltd (Sekaka).
The database contains the results of work undertaken by Sekaka’ former owner, Petra Diamonds, since 2005, and includes data in respect of airborne, including the Falcon survey, and ground magnetics (including gravity and EM), in addition to heavy mineral sampling.
DESB has six months to conduct an initial review of BOD’s database , in order to identify exploration targets within any of BOD’s existing Sunland and Sekaka Prospecting Licences (excluding the KX36 Kimberlite held by Sekaka) (the “Designated PL”).
DESB will be entitled to earn a 50% interest in a Designated PL by meeting the annual minimum exploration expenditure commitment on the Designated PL and in addition either discovering a kimberlite through the intersection of kimberlite in any drill holes or a potential secondary diamondiferous alluvial deposit through the intersection of gravels in a drill hole or pit.
DESB shall be entitled to earn an additional 1%, to hold 51% in any Designated PL, by proving the primary kimberlite or alluvial deposit to be diamondiferous through funding the required micro-diamond analysis or bulk sampling.
DESB will also be entitled to earn a further 19%, to hold 70% in the Designated PL, by subsequently funding and delivering a bankable feasibility study. Any Prospecting Licence not selected by DESB at the end of the six-month period will remain wholly-owned by BOD.
Where it is agreed that geological data present in the database that was not previously available to DESB has assisted in the discovery of a kimberlite or a secondary alluvial deposit within the Exploration Area , BOD shall be granted a 15% free carry for the initial approved US$1.5 million of Exploration Expenditure by DESB on the discovery. Once the Exploration Expenditure has been incurred, each party will contribute funding in accordance with its interest or be diluted pro-rata.
Sunland Minerals holds 12 active Prospecting Licences in the Gope/CKGR (Kalahari) area. As at 30 June 2020, the audited carrying value of BOD’s Sunland Minerals assets amounted to £1.1 million and Sunland’s loss before tax amounted to £43,101.
In the year ended 30 June 2020, Sunland’s Exploration Expenditure, mainly comprising licence fees and the costs of maintaining the licence in good standing, together with agreed fixed costs and expenses, amounted to £65,760.
On 30 November 2020, Botswana Diamonds completed the acquisition of Sekaka which holds three Prospecting Licences in the Central Kalahari Game Reserve in Botswana, PL169/2019, PL058/2007 and PL224/2007, which includes the KX36 kimberlite pipe.
The acquisition also included an extensive database. The consideration comprised a cash payment of US$300,000 and a 5% royalty on future revenues. The first deferred consideration cash payment of US$150,000 will be payable on 27 November 2021, being the first anniversary of completion of the acquisition and the balance on or before 27 November 2022.
In Sekaka’s audited annual financial statements for the year ended 30 June 2019, Sekaka reported a loss before taxation of Pula 16,875,179 (equivalent to approximately £1.16 million, which included a non-cash foreign exchange loss of Pula 11,688,432 (equivalent to approximately £0.8 million) on the carrying value of the historic intercompany debt which was extinguished on acquisition.
As at 30 June 2019, Sekaka had audited total assets of Pula 6,565,700 (equivalent to approximately £425k). Diamexstrat is a privately owned company focused on diamond exploration in Botswana chaired by Gerard de la Vallee Poussin and with Barry Bayly as the Chief Executive Officer. Both Gerard and Barry have extensive experience in the exploration for diamondiferous kimberlites in Africa.
Commenting on the cooperation between BOD and Diaexstrat , James Campbell, Managing Director, of BOD said the partnership will progress the extensive and highly prospective exploration assets in Botswana which comprises Sekaka Diamonds and with our own drill-ready prospects in Sunland Minerals.
“I look forward to working with the Diamexstrat and Burgundy teams made-up of complimentary highly experienced and leading experts in the field of diamond exploration and project development”. John Teeling, Chairman of Botswana Diamonds Board of Directors said Botswana is one of the world’s best addresses for diamond exploration. He explained that the combination of a fresh approach and advanced technology, supported by a recovering diamond market, presents both parties with significant opportunities.
“I am delighted to announce this partnership with experienced Diamexstrat, and its ASX listed-partner, Burgundy, which expands and deepens our exploration work.”
As countries continue to battle climate change which is a result of increased carbon dioxide in the atmosphere, local coal-bed Methane (CBM) exploration outfit, Tlou Energy this week revealed intent to make the Lesedi Power project the first carbon neutral power project in Botswana.
The multi-listed company, which is focused on generating cleaner power in Botswana for supply into the local and regional power markets said they have already negotiated land access and leasing agreements with relevant land-holders for the power generation facility and new field operations camp.
According to a statement from Botswana Stock Exchange (BSE) listed energy entity, there have been recent steps taken to acquire additional land for carbon sequestration and there is also availability of land and labour within the Lesedi project which favours Tlou Energy in developing carbon neutral power project.
Carbon sequestration involves capturing and storing carbon dioxide from the atmosphere so that it potentially reduces its contribution to global warming. It is essentially the long-term storage of carbon in soil, plants, and geological formations. Carbon sequestration can occur naturally and as a result of human activities and typically refers to the storage of carbon that has the immediate potential to become carbon dioxide gas.
Tlou Energy Managing Director, Tony Gilby commented: “There is considerable scope for using the savanna ecosystem of the Lesedi region for carbon sequestration by protecting it from burning and intensive grazing leading to an increase in the ability of the vegetation to store carbon over time.” “This will assist Tlou to be able to supply carbon neutral power to the considerable number of potential customers in the region.”
Gilby also revealed that the regional power consumer, Orapa diamond mine operated by Debswana and located north of Tlou’s gas fields has publicly stated their objective to decrease their carbon footprint. According to Tlou Energy MD, the Lesedi project area is considered as shrub savanna containing various tree species. He however noted that subdivisions found within Tlou’s project area are predominantly rural with most of the land being deployed due to livestock agriculture.
“Tlou is in the process of negotiating the acquisition of land to reduce livestock numbers and implement fire mitigation measures. This will substantially increase the amount of available woody biomass which can be used to claim carbon credits within the project area,” he said.
The company said carbon credits will be offset against the carbon dioxide associated with Lesedi’s gas fired power generation component noting that the gas will in any event produce considerably less carbon dioxide compared to the ones generated by coal and diesel.
“Carbon reduction is part of Tlou’s commitment to the environment and part of the company’s Environmental, Social and Governance (ESG) program aimed at enhancing the lives of the local population and regional communities,” said Tlou energy MD.
“Tlou has a track record of supporting local charities and youth groups and looking to grow local employment with investment in community ventures. This includes programs aimed at growing higher nutritional value crops for local livestock so grazing could be reduced and biomass preserved, as well as promoting wildlife.”
Meanwhile, last month Botswana Government through Ministry of Mineral Resources, Green Technology & Energy Security (MMGE) underscored its intention to support power generation through Coal-Bed- Methane (CBM). Tlou’s MD Gilby commented, “It is great to see that Botswana is open for business and the Government is motivated to get the gas industry up and running.
Gilby revealed that his company plans to start development of the Lesedi project as soon as possible noting that “confirmation of the Government’s enthusiasm to provide the necessary support to ensure commercial development of CBM is very well received.” “In addition, we have also recommenced negotiations with Botswana based project financiers this month as we aim to close a deal for funding as soon as possible.
After what was an extremely challenging year the Company is already making progress in 2021 and anticipate further advancement on all fronts in the coming term. We look forward to updating the market with further developments in due course,” he concluded.