The foremost cattle farmers’ cooperative in the country, Botswana Meat Commission has shed its scandalous history that entailed mismanagement, unprofitability and incompliance to high value buyers’ specifications, to emerge as a profitable organisation.
While the Commission has managed to return to profitability and operating efficiencies after being delisted from the lucrative European buyer markets in 2011, due to Foot and Mouth Disease (FMD) concerns, it has been laden with debts sourced from both Government and private commercial lenders.
BMC chief executive Dr. Akolang Tombale, who was brought in to calm the waters in 2012, managed in part to return some semblance of order at the Commission registering unprecedented revenue figures of over a billion pula, largely due to “improved marketing and sales.”
“To finance our operations, we use the costly short term financing combined with sale whose proceeds come only 5 to 6 months later,” said Tombale, resignedly.
Due to compliance standards set out by the European buyer markets, that stipulate that cattle slaughtered for sale there, have traceability records, the weaners that are sold to the Commission are placed in feedlots for three months to satisfy that requirement. “Currently we have 27, 000 head in feedlots costing over P200 million and we spend P100 million to feed them; that is P 3 million in stock tied up for three months before we can slaughter and market the product,” said Tombale.
The Commission’s debt currently stands at P769 million in loans, the major portion being the P569 million circumvented to it during the 18 month EU delisting period of from 2011, when there was virtually no production. A P125 million loan was also sourced from First National Bank for the upgrading of the Francistown abattoir as well as a P50 million loan from P50 million from BancABC to resuscitate the Maun plant.
The Commission was delisted from the in EU market in 2011 and 2012 for 18 months and relisted, only to be fail and EU audit at the Francistown abattoir resulting in a suspension because of FMD concerns. Some products were also recalled after from the same EU markets in the same period, compounding the debt issue. During the closure the Commission racked up losses of P233 million in 2011 and adn P300 million in 2012.
“As a result of these losses, and high gearing BMC resorted to using short term loans to address its working capital needs.”
In 2014, Government provided a guarantee for loan facility of up to P300 million from Standard Chartered Bank Botswana for the Commission’s working capital needs.
Tombale said that the Commission is in talks with Government to restructure its balance sheet and loan book to take away the burden of finance charges.
These, challenges, Tombale said, are some of the reasons that famers have been experiencing delayed payments for the cattle they have been selling to BMC, also mentioning that he appreciates that especially small farmers sell their cattle in emergency situations when they require money to solve emergency situations.
The Commission pays P45 million yearly in interest charges for loans taken from First National Bank Botswana and P7,6 million to BancABC, bringing both capital and interest repayments to P86 million a year.
Tombale said that the Lobatse plant, which is the mainstay of the Commission’s operations, seriously needs refurbishments, with an estimated cost of P500 million, to increase efficiencies and reduce maintenance costs which are in the region of P40 million a year.
Another long standing challenge to the Commission is measles infested cattle which accounts for 13 to 15 percent of head sold to BMC and an opportunity cost of P57 million annually. This is in contrast to only a 3 percent measles rate for neighbours, South Africa and Zimbabwe. As many as 300 measles infested cattle weekly, are quarantined for 14 days at a go, bringing up costs further.
The measles hurdle, described as ‘an issue of national concern’ by BMC management, is caused by cattle ingesting tape worm infested human excrement.
“Although we are part of a Government wide strategy to fight measles, we will soon launch our own strategy as this costs us dearly,” Tombale declared.
Tombale said that he engaging municipalities on the across the country about setting up low cost ablutions along high ways to avoid travellers using the bush to relieve themselves. However, authorities are slow in taking some action, he said.
He said that farmers should invest in pills that immunise cattle for six months at a go, in order to help fight the measles challenge.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”