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Revenue pool under pressure

Economist, Dr Keith Jefferis

Renowned Economist Dr Keith Jefferis has emphasized the need to mobilize more revenue from domestic sources as the country’s revenue pool is under pressure.

Speaking in Gaborone this week, Jefferis said the revenue pool is under pressure due to the countries over dependency on minerals revenue and SACU customs pool.

Minerals particularly diamonds are still by far the largest contributor to the country’s revenue.

“Government revenues are under pressure hence there is need to mobilize revenue from domestic sources and diversify the export base,” he said.

This year’s projected revenues of around P51.7 billion are 6.5 percent lower than those forecasted in the original budget and are lower than those for the past year. The decline in revenues reflects lower revenues from minerals by P1.85 billion, Value added tax by P1.17 billion from the Southern African Customs Union.

“The continued dominance of revenues from minerals especially diamonds and the SACU pool poses a systemic risk on the economic growth,” he said.

Recently, the World Bank also warned that Botswana will remain heavily exposed to external shocks for as long as its growth is heavily dependent on commodity exports and public sector activity.

It said the slowdown in China and falling global prices for commodities caused the mining sector to contract sharply in the third and fourth quarters of 2015, with the mining gross domestic product (GDP) having contracted by 21 percent for the year.

In addition, the bank said slowing revenue growth over coming years, partly reflecting declining Southern African Customs Union (SACU) receipts, requires careful management of expenditure pressures, especially in relation to the wage bill.

The fall in mining revenue is expected to gradually recover as developed economies stabilise. However, SACU transfers are expected to remain soft mainly due to a weak economic outlook for South African growth to near 1 percent through 2017.

Further- on, Jefferis poured cold water on the enthusiasm over coal which he said ‘could not replace diamonds’.

There is a widely believed notion that coal could replace diamonds as a mainstay of the economy.  To him coal offers “a narrow window of opportunity” defined by increased international efforts to reduce greenhouse gas emissions and renewable energy (solar and wind) getting cheaper.

“Coal cannot replace diamonds as the coal margins and profitability of even a large coal industry would not generate anything like the volumes that diamonds had generated,” said Jefferis.

The economist said the barriers to seaborne coal export would require a big ramp up of the rail, but the $15-billion investment needed was not likely to be made at current low coal prices and general uncertainty around coal.

 Fortunately, diamond production looked set to continue at 25-million carats a year for two decades, but with an outlook of diminishing profitability. Tourism is now completely eclipsing copper and nickel, which were once Botswana’s second largest source of export revenue.

Touching on the closure of mines in Botswana, Jefferis placed emphasis on the absolute necessity for low-cost mining production.

 “If we think we can continue as a mining country without being a low cost producer, that will be a big mistake,” Jefferis.

The real challenge was to ensure that mines could survive in tough times to enable them to thrive in times of plenty. Drawing attention to the precarious state of a still-operating Botswana nickel mine, which was struggling to produce at the correct cost level, Jefferis said the many mines that had closed in recent years highlighted the lack of focus on low cost production.

 “Being a low cost producer is absolutely essential, copper and nickel had a dismal 2015 on the smelter closure at BCL and the closure of two copper mines. 2015 was a bad year for mining,” the economist commented.

The generation of new jobs was hugely challenging with only 1 000 new jobs created for 40 000 students coming out of the education system.

“Mining won’t solve the unemployment problem,” he said, adding that jobs would have to come from elsewhere.

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China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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