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THE CASE FOR MANUFACTURING AND EXPORT TRADE


In the earlier volume, I somewhat rapped manufacturing on the knuckles. Does it follow that it is now a futile proposition as a basis for future development? Some pundits, who include a few of Botswana’s most notable economists, have averred so.

They maintain that having tried manufacturing for the past 30 to 40 years and without seeing it come into flower, there is every reason to read the last rites and devote our energies to more realistic prospects, services for instance. I retain very strong reservations on this take notwithstanding my own, lingering misgivings.    

In the first place, the fact that a strategy does not yield the desired results does not necessarily imply it is inherently vain or flawed. The problem might not lie with the strategy itself but with the manner in which it was executed. The strategy could also be hobbled by the absence or impotence of the confluence of factors necessary to make it bear fruit. Let us take a Formula One ace as an analogy. 

Mercedes may provide Lewis Hamilton with the fastest and most reliable car, but if he does not have mastery of the car or is so impetuous as to lack a sense of caution, he will be prone to accidents or off-track spins and pole position will frequently elude him in the qualifiers, thus seriously curtailing his chances of winning races. 

Hamilton may also be a brilliant driver himself, but if the Pirelli tyres his team chose are ill-suited to the prevailing conditions or the pit-stop calls are out of kilter, he will be hard put to romp to victory.   

At the time of writing, our import bill stood at P38 billion, equivalent to about $5 billion. Somebody has scoffed that Botswana imports everything save for meatstuffs!  And when we do import, we pay not in our own currency but in the so-called hard currencies, primarily the US dollar, a medium of international exchange we toil to earn.

Over 17 percent of our import bill falls to machinery and equipment. Given that we have a capital intensive spearhead sector in diamond mining and we have neither the capacity nor the expertise to manufacture sophisticated pieces of machinery and electrical equipment, this component of our imports was probably preordained: it is here to stay, particularly that Government has done negligibly little to alter the status quo.

But there are these other items classified in the national accounts as “Chemicals and Rubber Products”, “Metals and Metal Products”, and “Other”: these together account for about 22 percent of the  import tab.   If we were to produce them on our own turf, we would trim over P8 billion, or $1.15 billion,  from our import liability. Much of this money, needless to say, would be spent within the local economy.  

The gist of my contention, folks, is that we cannot completely jettison manufacturing. Are we, like most of Africa, condemned to a nation of mere consumers and not producers I wonder? A Chinese roving journalist was surprised to learn that up to 90 percent of the Vuvuzelas, the long, plastic trumpets which aroused so much controversy during the 2010 soccer World Cup in South Africa and which have practically become the sound of Africa, were made in China and this is a fad modelled on the traditional African kudu horn used to alert neighbouring villagers!  It is estimated that Chinese exporters raked in $20 million of Vuvuzela revenues in that year alone.

In his diatribe against his own race vexatiously titled  Capitalist  Nigger, the US-Based Nigerian journalist Chika Onyeani sneers that we, Africans, are “‘highly educated’, yet we cannot  even assemble a bicycle – we have to import it; we cannot assemble a radio – we have to import it; we cannot assemble a fan – we have to import it; we cannot assemble a television – we have to import it.” If he  were writing in 2010, Onyeani probably would have added that we Africans are “Vuvuzela crazy, yet we cannot even make a crude imitation of this ruddy, uncomplicated plastic horn!”


Those who advocate sidelining manufacturing may as well say we should forget about beneficiation considering that besides cutting and polishing gem diamonds,  it  also entails jewellery manufacturing.  I contend that there is a great deal of potential in manufacturing even for an economy as modest as ours folks.

Besides presenting an opportunity to significantly accelerate the country's growth and development, a platform of manufacturing provides a locus for stimulating the growth of other activities, such as services, and achieving specific outcomes, such as employment creation and economic empowerment.

In neighbouring South Africa, for instance, the manufacturing sector in 2013 contributed 15.2 percent of GDP, three times more than mining and quarrying, and employs 1,7 million people5, again more than three times that of the mining and quarrying sector.  If we were to nurture a manufacturing prowess on the magnitude only of South Africa’s, we would, with our population of only 2 million,  have zero employment folks.
 
(Excerpt from Chapter 15, Pages 376-378) lifted from Volume 2 of the book – Delusions of Grandeur

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Business

Cresta cuts losses, pins recovery hopes on renewed travel sentiment 

20th October 2021
Cresta

Cresta Marakanelo Holidays Limited, Botswana’s leading hotel group, is battling the catastrophic effects of the Covid-19 pandemic and its far-reaching implications. 

The tourism and travel business was by far one of the most hit economic sectors. The key to containing the COVID-19 pandemic was the significant curtailment of movement of the people to reduce the spread of the virus. On the flip side, this delivered a massive blow to the tourism and hospitality business, which largely relies on accommodating travellers.

This week, Cresta released their unaudited condensed consolidated financial results for the half-year period ended June 2021. The Group, which operates 11 hotels in Botswana, reported a significant reduction in losses owing to stringent cost-containment measures deployed by management to ensure the business doesn’t plunge deeper into the negative figures zone.

The Group’s registered a six-month loss before Taxation of P34.1 million, which was P8.4 million lower than the prior-year first six months period, which reported a loss of P42.5 million. Cresta says the COVID-19 headwinds continue to significantly affect the tourism and hospitality industry, and Cresta Marakanelo Limited was not an exception.

During the six months to June 2021, the Government of Botswana continued to implement a raft of measures imposed in December 2020 to curb the spread of COVID-19. These measures, which include restrictions on inter-zonal travel, a ban on alcohol sales, and a limited number of conference guests, have had a direct effect on reducing the level of activity in hotels.

The resort town hotels, which ordinarily generate at least 50 percent of their business from incoming foreign travellers, were significantly affected by the lockdowns in the source countries and low travel sentiment even after the hard lockdown measures were lifted.  The first-quarter performance was low in line with the seasonality of the business. However, the performance was further slowed down by the pandemic induced low travel sentiment and pandemic mitigation controls in place.

The second quarter saw a rise in the performance of the business when compared to the first quarter, contributing 60% of the revenue generated for the six months ended 30 June 2021. The business enjoyed a steady month-on-month increase in revenues from January to June 2021.

Under the adverse operating conditions for the industry, Cresta Directors boast of the P8.4 million loss cut. This, according to a commentary alongside financials, was mainly driven by the cost reduction measures implemented, some of which will be continued in the long term, even after the pandemic has been contained.

Revenue for the period under review was P96.5 million, 4% (P3.3 million) higher than the same period last year. Earnings before interest, tax, and depreciation and amortization (EBITDA) achieved during the period was P2.2 million, an improvement on the prior year’s loss incurred of P2.5 million.

The reduced market base has seen a surge in price wars in the industry, a variable that further puts pressure on the company’s revenues. Cresta management noted that the Group would continue to focus on cost containment to ensure the business’s survival through this difficult pandemic season.

In a drive to reduce the operating leverage of the business to ensure the company continues to be a going concern, several measures were implemented, including the suspension of all non-critical capital expenditure projects and freeze on all discretionary expenditure. In addition, Cresta negotiated with staff, landlords and other strategic suppliers to reduce contractual obligations. Following these measures, Cresta was able to minimize the reduction in cash balances during the period.

From 31 December 2020, cash balances declined by P29.1 million for the six months to 30 June 2021, compared to a decline of P42.1 million during the same period in 2020 on largely the same level of revenue mirroring successful cash preservation.  In assessing the ability of the Group to continue as a going concern, management performed a sensitivity analysis on a 12-month cash flow forecast which the Board of Directors reviewed to their satisfaction.

A range of possible outcomes related to the COVID-19 pandemic were considered, and it was concluded that Cresta Marakanelo Limited would continue as a going concern. The single most significant assumption was that the business should make a turnaround for the better within 12 months period on the back of vaccination programmes both in the source market countries and locally.

Vaccination enhances travel sentiment for the market, and it is on its strength that most paid guests are opting to postpone their bookings rather than cancel altogether.  The company has also secured an additional working capital facility of P25 million. This will provide extra headroom while the business levels are low.

Based on the review of the Group’s cash flow forecasts, the Directors believe that the Group will have sufficient resources to continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the interim financial statements have been prepared on the going concern basis.

Last month Cresta announced that they had decided not to renew the lease for the Cresta Golfview Hotel in Lusaka, Zambia, which comes to an end on 31 January 2022. The landlord of the property will continue to run the hotel under a different brand, and preparations are currently underway for a smooth handover of the property, with the least possible impact to staff, suppliers and guests.

During the half-year, P11.7 million (2020: P25.8 million) was utilized in operating activities, primarily due to the subdued revenues. Net cash used in investing activities amounted to P2.5 million (2020: P14.4 million).

The reduction in cash outflow on investing activities was because of the capital expenditure freeze. With regards to financing activities, P15.2 million (2020: P4.1 million) was utilized, split between bank loan repayments of P3.7 million (2020: P1.5 million) and leasing hotel properties P11.5 million (2020: P11.6 million).

In the future, Cresta pins its full recovery hopes on the vaccination plan, which is envisioned to cultivate revived travel sentiment significantly. “As seen in other countries whose vaccination programmes were embraced by a significant part of the population, vaccination is expected to see the removal of conferencing restrictions, alcohol sale ban and lifting of travel restrictions,” the company said.

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Business

Botswana possesses unexploited renewable energy 

20th October 2021
renewable-energy

The International Renewable Energy Agency’s (IRENA) latest Renewables Readiness Assessment of Botswana has made it known that the country enjoys considerable renewable energy potential. Notably, solar, wind and bioenergy are more prevalent. However, these remain largely untapped, despite the country’s ambitious plans for integrating renewable energy into its energy system.

According to the report, Botswana’s total primary energy supply (TPES) is fossil-based and largely reliant on oil products and coal, complemented by biomass and waste energy. In the Integrated Resource Plan (IRP) launched in December 2020, it was announced that renewable energy should account for at least 15% of the energy mix by 2030, whilst the country’s Vision 2036 calls for a 50% renewable energy contribution to the energy mix by March 2036. The ambitions are arguably aloof given the insufficient critical actions that could significantly impact the energy transition in Botswana.

Access to electricity stands at 65%, with 81% of urban areas illuminated and 28% of rural regions electrified. As of 2017, the country’s total energy supply of 2.9 million tonnes of oil equivalent consists of oil products (35%), coal (44%), (traditional) biofuels and waste (19%) and imported electricity (2%). The IRENA has established that electricity is mainly produced from coal or petroleum products imported from South Africa.

As is the case in most regions, Botswana’s power system is characterised by an unreliable power supply, lack of investment, poor maintenance, and high service costs. To meet its peak power demand, Botswana imports power from the Southern Africa Power Pool (SAPP) – mainly from South Africa – and when imports are not available, resorts to costly backup diesel power plants.

In 2013, the International Energy Agency’s (IEA) Clean Coal Centre found that Botswana has estimated coal resources of 40 gigatonnes (Gt) or 40 trillion Kg. In 2014, the only two measured coal reserves were Morupule and Mmamabula basins, with a capacity of 7.2 Gt. IRENA believes this abundant resource is underexploited as only a single coal mine, Morupule, is currently operating.

Already established, Botswana relies heavily on fossil fuels for its electricity generation. As shown by the country’s installed generating capacity of 893.3 megawatts (MW), comprising 600 MW from the coal-fired Morupule B, 132 MW from the also coal-burning Morupule A, 90 MW from Orapa power plant, which is a diesel peaking plant, 70 MW from Matshelagabedi power plant (diesel peaking plant) and 1.3 MW from Phakalane solar photovoltaic power plant, according to the then Ministry of Mining, Minerals, Energy and Water Resource (MMERW) in 2017, now under a new name.

IRENA posits that although the installed capacity can cover the country’s peak demand estimated at 610 MW, the Botswana Power Cooperation’s (BPC) interconnected system faces several challenges. According to the power parastatal, in 2017, Morupule A did not produce electricity and was closed down for refurbishment. It produced 25 gigawatt-hours (GWh) in 2018 but had to be shut down again to remedy defects identified during commissioning.

Morupule B has been running under capacity since its commissioning in 2013 due to plant breakdown and system failures. BPC is currently undertaking remediation, which is expected to be completed in 2023/24, with all units running 100% production.

As for the diesel power plants of Orapa, producing 90MW and Matshelagabedi’s 70MW, which are rented to Alstom, they were conceived to support peak load but are being used for regular electricity supply BPC reports. The Corporation’s two diesel power stations were not used during 2018 and remained on standby. The lack of capacity to satisfy electricity demand requires regular imports from surrounding countries.

Botswana relied on electricity imports to cover up to 94% of its demand until the progressive recovery of the Morupule B plant. IRENA noted that the share of electricity imports in total supply decreased to about 17%, or 594 gigawatt-hours (GWh) in 2018 from 1 297 GWh in 2017 due to lower demand from the mining sector.

BPC has been in a precarious financial state for many years due to high import costs, operational difficulties and inoperative assets and has been kept afloat by government subsidies.
Botswana has an exceptionally high rate of solar irradiation, making solar energy a promising renewable energy source in the country.

The semi-arid country has an estimated 3 200 hours of sunshine per year. According to a MMEWR study, the yearly solar resources from global horizontal irradiation (GHI) range from 2 050 to 2 920 kilowatts received in one hour by one square meter of a surface (kWh/m²). For comparison, these irradiation levels are similar to those in California, which is amongst the most competitive solar market today.

Botswana is also endowed with a range of bioenergy resources that could be used for energy production. Wood fuel remains the dominant cooking fuel for rural households, as 42% of the population relies on it. A 2016 World Bank study based on a government study from 2007 to assess biofuel production and use in Botswana revealed the potential for biodiesel production from Jatropha curcas and bioethanol from sweet sorghum and sugarcane crops.

The Central district presents the highest biodiesel potential from Jatropha production, while the North-West district’s bioethanol potential from sweet sorghum is mainly located in the Ngami sub-district. However, another study coordinated by IRENA found that Jatropha is not suitable to cultivate in Botswana, as 100% of the land is restricted due to protected areas, wetlands, existing agricultural lands or urban areas, as well as additional exclusion areas and other restrictions in terms of market access and water availability. Sugarcane crops were only viable if irrigated, and the extent of production could reach 9% of the land.

Furthermore, an analysis conducted by IRENA and United States-based Lawrence Berkeley National Laboratory (LBNL) for the Africa Clean Energy Corridor depicts some suitable zones for wind turbine power deployment, which are mainly located in the southern part of Kgalagadi district near Tsabong and the Southern region, with a technical potential of up to 1.5 GW.

In the foreword of Botswana’s Renewables Readiness Assessment, the Minister for Mineral Resources, Green Technology and Energy Security, Lefoko Moagi, said the release of the report coincides with the recent adoption by Parliament of the Botswana National Energy Policy – a key, strategic instrument for the successful and economic development of the local energy sector.

A prominent objective of the Policy is to achieve a substantive penetration of new and renewable energy sources in the country’s energy mix; the goal is to attain adequate economic energy self-sufficiency and security, as well as to position Botswana to fulfil its vision of becoming a regional net exporter, especially in the electricity sector. Director-General for IRENA Francesco La Camera said Botswana possesses considerable potential for renewable energy development.

In the introduction of the assessment, La Camera stated that the report presents clear and practical steps to maximise the country’s use of renewables in driving sustainable economic growth for Botswana. The extensive document identifies the need to adopt a broader range of renewable energy technologies to diversify Botswana’s power generation away from coal, generate socio-economic value and fulfil the country’s environmental and climate commitments.

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Business

NAMDEB extends life of mine for land operations by up to 20 years

19th October 2021

Joint venture between De Beers and Government of Republic of Namibia announces new plan, supporting economic, commercial, employment and community benefit, following receipt of royalty relief Namdeb Diamond Corporation (Proprietary) Limited (‘Namdeb’), a 50:50 joint venture between De Beers Group and the Government of the Republic of Namibia, today announced the approval of a new long-term business plan that will extend the current life of mine for Namibia’s land-based operations as far as 2042.

Under the previous business plan, the land-based Namdeb operations would have come to the end of their life at the end of 2022 due to unsustainable economics. However, a series of positive engagements between the Namdeb management team and the Government of the Republic of Namibia has enabled the creation of a mutually beneficial new business plan that extends the life of mine by up to 20 years, delivering positive outcomes for the Namibian economy, the Namdeb business, employees, community partners and the wider diamond industry.

As part of the plan, the Government of the Republic of Namibia has offered Namdeb royalty relief from 2021 to 2025, with the royalty rate during this period reducing from 10% to 5%. This royalty relief has in turn underpinned an economically sustainable future for Namdeb via a life of mine extension that, through the additional taxes, dividends and royalties from the extended life of mine, is forecast to generate an additional fiscal contribution for Namibia of approximately N$40 billion. Meanwhile, the life of mine extension will also deliver ongoing employment for Namdeb’s existing employees, the creation of 600 additional jobs, ongoing benefits for community partners and approximately eight million carats of additional high value production.

Bruce Cleaver, CEO, De Beers Group, said: “Namdeb, a shining example of partnership, has a proud and unique place in Namibia’s economic history. This new business plan, forged by Namdeb management and enabled by the willingness of Government to find a solution in the best interest of Namibia, means that Namdeb’s future is now secure and the company is positioned to continue making a significant contribution to the Namibian economy, the socio-economic development of the Oranjemund community and the lives of Namdeb employees.” Hon. Tom Alweendo, Minister of Mines and Energy for the Government of the Republic of Namibia, said: “Mining remains the backbone of our economy and is one of the largest employment sectors within our country.

Government understood the fundamental impact of what the Namdeb mine closure at the end of 2022 would have had on Namibia. Therefore, it was imperative to safeguard this operation for the benefit of sustaining the life of mine for both the national economy as well as preserving employment for our people and the livelihoods of families that depend on it.”

Riaan Burger, CEO, Namdeb Diamond Corporation, said: “After more than a century of production, these operations were approaching the end of their life, but the creation of this new business plan means we can continue to deliver for Namibia for many years into the future. This is great news for the hardworking women and men of Namdeb, as well as for all our community partners who we are proud to have worked with over the years. We now look forward to starting a new chapter in Namdeb’s proud history.”

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