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Tough immigration regulations cost BCL P270 million

Tightening of immigration regulations in recent years has cost BCL, and Botswana government, an estimated P270 million in 2015. Government is the sole shareholder in BCL.

According to the economic think tank, E-Consult in its quarterly economic review publication, BCL has made large financial losses in 2015. This, the Keith Jeffries led outfit attributes to among others BCL’s high costs of production hence its failure to turn a profit at the current low nickel prices.

BCL’s diversification into steelmaking and exploration for iron ore and diamonds is also cited as a factor and was said to have diverted management attention, instead of focusing on BCL’s core business of mining and smelting nickel and ensuring that it is a competitive, efficient and low-cost producer.

More telling of the factors that led to BCL bleeding funds is the closure of the smelter for refurbishment last year. The closure lasted far longer than anticipated, and according to E-Consult, was due, in part, to BCL’s inability to secure short-term work permits for the specialised workers needed for the refurbishment. “This delay is reported as costing BCL, and hence the government, P270 million. Hopefully, this painful experience will help to convince the government that it’s tightening of immigration regulations in recent years imposes huge costs on business, and on itself,” writes E-Consult.

The 2015 Global Competitiveness Report by the World Economic Forum also showed that the restrictive labour regulation variable rose 2%. This is attributable to the increasingly stringent regulations around immigration regulations where scores of foreigners are being denied work permits by government.  Several quarters have previously raised concern against the point based work permit system claiming that it was abused with reputable business people and professionals being denied permit renewals.

The Chinese are among those that sounded the bell on the tight immigration regulations.

Deputy Head of Mission at the Chinese Embassy, Li Nan told a local newspaper that several Chinese companies were disadvantaged by the regulations when they needed to bring skilled personnel to run their operations in the country. He cited Huawei, an ICT solutions company, among those that were disadvantaged. “Huawei was denied permits when they needed permits to bring seven engineers to the Gaborone office, something that can impact daily operations of the company,” said Nan. He added that the stringent immigration regulations have forced Chinese companies that wanted to invest in Botswana to seek alternative investment destinations.

Minister of Labour and Home Affairs, Edwin Batshu says their hands are clean. Fielding questions from this reporter regarding the BCL loss of money due to its inability to get short term work permits, Batshu referred this reporter to BCL to establish what really transpired. “Why were the permits rejected? Had BCL met all the requirements?” he asked rhetorically. Batshu emphasized that BCL was critical to the economy and they are interested in seeing it do it well. “We wouldn’t just punish it,” he retorted. Batshu says their permit rejection rate is 11% and argued that it compares fairly with that of other countries.

“No country has a 100% permit approval rate,” he suggested, further pointing out that people whose applications for permits get rejected either pose a threat to the security of the country, or came in under the pretext that they are investors and upon assessment is discovered that they do not add any value to the economy. “Some are outright criminal elements that we cannot tolerate as a country,” he said.

The BCL has admitted to losing P270 million as a result of the extended smelter shutdown. The BCL Acting Public Relations and Marketing Manager, Ofe Motiki confirmed to The WeekendPost that the extended smelter shutdown led to 50 days loss of production in 2015 valued at P230 million for the BCL Metal Revenue and P40 million for the Nkomati Toll Revenue, adding up to a total revenue loss of P270 million. “It’s worth noting that the whole smelter shutdown value was P754 million. The decline in commodity prices where nickel dropped from a 10 year average of $9.2 a pound to $4.0 a pound, resulting in a 57% loss in value, has not made the situation any easier,” she said.

On the issue of the delayed work permits, Motiki admitted that the issuing process by government authorities was indeed delayed. She, however, underscored that “required submissions were made on time.” She lamented that the delays affected project timelines hence the extended period. In response, Motiki says BCL is engaging on a business reorganisation exercise which objective is to improve operational efficiencies, functions, processes and structures throughout the business.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status.  The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.

This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago.  In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.

However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced.  Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.

The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April.  For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.

Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.

Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).

“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.

Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.

This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.

For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.

Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers.  “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.

‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’

According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.

Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.

“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.

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