The biggest ever financial scam of all times was perpetrated by a financial services firm. Bernard Madoff, shook the American regulation regime from its deep slumber.
The big ponzi scheme, which involved the staggering amount of $50 billion (P500 billion), was perpetrated by a person once a non executive director of the NASDAQ stock exchange, who was widely regarded as the epitome of clean business. Madoff used a scheme, which lures investors in by guaranteeing unusually high returns. The name originated with Charles Ponzi, who promised 50 percent returns on investments in only 90 days.
Ponzi schemes are run by a central operator, who uses the money from new, incoming investors to pay off the promised returns to older ones. This makes the operation seem profitable and legitimate, even though no actual profit is being made. Meanwhile, the person behind the scheme pockets the extra money or uses it to expand the operation. To avoid having too many investors reclaim their "profits," Ponzi schemes encourage them to stay in the game and earn even more money.
Bringing it back home, Botswana has not experienced misconduct in the pension fund sphere, “by the grace of God,” as an observer has put it.
And now the pension fund sector will be required to be more transparent, communicate better and be more explicit in laying out how it operates, because of new legislation.
Parliament last year, approved the Retirement Funds Bill of 2014 which will regulate pension funds in Botswana. The Act will repeal the Pension and Provident Funds Act and re-enact it under a new name, the Retirement Funds Act.
The latest available figures show that management companies and asset managers held total Assets Under Management of P59.7 billion as at March 31, 2014 being a 7 percent growth from P55.9 billion recorded as at March 31, 2013.
In a question and answer session with BusinessPost, the organisers of a workshop aimed at familiarizing industry stakeholders with the new Act, gave some insight on the new Act.
“The big stick here is that those who breach this Act will face punitive action,” said Jeremy Andrew, the facilitator of the workshop, who had an integral role in the drafting of the new law.
“Many will say that NBFIRA is toothless; this new law gives it the power to perform its oversight role,” Andrew said succinctly.
“What has impressed me most is that code of conduct as it has come to make the trustees to look more inwardly and ask themselves if they are doing the right thing,” explained Edna Dambe, CEO of Money Matters, the facilitators of workshop to school local service providers in the pension fund spectrum, on the ramifications of the new legislation.
“It is a service they have promised and they are going to append their signatures to this promise. If you look at how the required communications, investment and risk policy feed into each other, they really offset the possibility of making risky investments with members’ monies,” said Dambe.
Juliana White, an independent consultant said that the new Act would not only bring transparency, it will ensure that there are no perceptions of malpractice.
“Investment strategies should be laid out so that there are no questions about investments that are made; members of the funds will see for themselves that investments made are in line with the investment policy,” said Mrs White.
In the period ended December 31, 2013 there were ninety-three (93) active Standalone Pension Funds licensed in Botswana, including six (6) Umbrella Funds with two hundred and fourteen (214) sub-funds. On the part of asset managers, Afena Capital managing director, Bakang Seretse, said that they “highly embrace new Act as it improves the whole ecosystem of retirement funds.”
Seretse said that with the law requiring service providers to be locally domiciled or having their principal offices in Botswana, it gives the regulator the power to perform its role of oversight.
“Botswana is approaching a period of transition and structural changes. So the challenge for pension funds, regulators, service providers such as ourselves, and Government is to reassess how to best achieve the investment objects of retirement fund long-term savings with a consideration for the long-term development objectives of the country,”
“Yes, pension Funds are already being used in Botswana to finance infrastructure projects, real estate development and other forms of private equity. Yet, the average asset allocation to these alternative asset classes is still relatively low for most pension funds at below 2 percent so there is definitely scope for more “new investments” to be designed to create long term, sustainable opportunities,” Seretse said.
However, a public servant who preferred to remain anonymous, told this publication that the reduction of the number of board members is actually a reduction in the representation of employees as the public service is a very broad constituency that needs represented well.”
“I prefer the Namibian model that sets out two boards for every fund; one that oversees governance and another that oversees investments,” said the source.
“Currently there is some semblance independence as the different committees; with the new Act, there will be no segregation of roles as the same few people will sit in the same committees and oversee themselves.” Seretse said the new legislation goes a long way in addressing some of the risks associated with the industry.
The regulator, NBFIRA (Non Bank Financial Institutions Regulatory Authority), articulated in its 2014 annual report that the pension fund landscape in Botswana are faced with risks such as:
Interest Rate Risk: The possibility that the demand for money market instruments may decline due to an increase in interest rates. Increased interest rates mean less borrowing by consumers;
Concentration Risk: Of the twelve (12) registered asset managers; seven (7) handle pension funds, six (6) of which are mandated to manage the government pension funds.
This exposes the Asset Managers to concentration risk as they are largely dependent on the one client;
Valuation Risk: The local market faces risk in the companies’ valuation processes and abilities, arising from the fact that the processes are carried out by the group companies in South Africa while local staff is not fully equipped with knowledge of the processes and consequently, are unable detect marginal errors as only reasonability tests are performed;
Over Reliance on Group or Foreign Counterparties: Asset Managers and Management Companies that are part of a group or have foreign counterparties tend to adopt groups policies and fail to align them to the specific businesses they are undertaking, resulting in policies that do not capture the essence of their operations.
Regulatory Challenges: The key challenge for the Investment Institutions section is the process that is undertaken in the promulgation of legislation, this process has delayed the section’s efforts to issue licenses to CMIs (asset managers).
The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.
Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.
Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.
The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.
Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.
The finalists will compete for a share of US $1.5 million in grant money.
The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.
The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.
During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.
The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.
The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.
The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.
Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.
Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.
On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.
Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.
A week later Lucara announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.
In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.
Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.
Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.
Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.
Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.
Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.
Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.
The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.
Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.
Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.
Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.
In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.
Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.
GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER
Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.
As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.
“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.
Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.
The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.
The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.
These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.
The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.
Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).
The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.
The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.
Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.
“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”
Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.
“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.