The vice president of Botswana Exporters and Manufacturers Association (BEMA), Michael Morapedi
Despite its massive potential to develop its manufacturing sector, Botswana is losing out to its neighbours in the competition for investors because of the red tape and lethargy in resolving issues around ease of doing business.
In a wide ranging interview with BusinessPost, the vice president of Botswana Exporters and Manufacturers Association (BEMA), Michael Morapedi, said that Botswana manucturing industries face a myriad of challenges on issues of ease of doing business.
“Our import bill far supercedes our exports, with 98 percent of our imports coming from South Africa; While we talk about building capacity to export, we should first determine our local consumption and be able to satisfy it,” he revealed.
“Our foreign traders, as a starting point, will always want to know what we have done locally and who we have supplied at home, before they can do business with us so that is critical,” said Morapedi.
Morapedi said that other countries in the region have made deliberate decisions to perk up their ease of doing business ratings, making it easier to arrive in the country and be allocated land, acquire licensing and start operating within a few days.
Morapedi said that the country’s circa 2,000 manufacturers leaving the country will mostly leave if the Government does not move fast to create incentives, citing South Africa as a destination for investors who are attracted by the no less than 22 incentives for the textile industry alone, before considering the rest of the manufacturing sector.
“To do business in South Africa, one needs to have a BEE (Black Economic Empowerment) certificate but here we do not require that, one does not even need to have EDD (Economic Diversification Drive) certification, to ensure that citizens are being empowered,” he decried.
Morapedi pointed out that as far as three years back, Government brought in experts to see how the sector can be developed and one of the developments was a 1 percent industrial upgrading and modernisation programme, a levy that would have helped the industry to train and develop skills of its employees. This idea of the levy was, according to the BEMA spokesperson, welcomed by the industry but the levy is seemingly still in the pipeline, even after more than three years.
He said that the industry is ready to help take up Ipelegeng workers and impart skills to them, if Government agrees and , adding that the lack of employment opportunities has pushed masters, bachelors degrees and diploma holders into simple menial work.
Morapedi also said that security vetting by the Directorate of Intelligence and Security Services (DISS) poses as a challenge for foreign applicants’ residence and work permits and attempts to renew their permits to continue staying in the country and doing business here. He said this creates uncertainties for the manufacturing sector as most rejections come from security reasons which the security arm does not even have to explain.
“We have a bright future, if only we could get rid of the red tape and galvanise our local markets,” he added that “security is very important but we are now too security conscious and we pick this up from our trade partners across the world who want to know what guarantees they can live in the country without being deported.”
“News travels fast and with our record for deportations, we possibly face trade embargoes in future because of what might be seen as human rights violations,” Morapedi noted, adding that this is turn could cause a chain reaction that could affect the whole supply chain in the manufacturing sector.
He said there is a skills mismatch in the country with industries failing to secure labour among locals because they are not being trained at vocational training schools for the skills required by industry.
The Botswana immigration process is too stringent, and has forced investors to leave the country for Zambia and South Africa, as they could not get residence and work permits for their families to join them in Botswana, even after staying in the country for many years and providing employment for hundreds of workers.
He said the policy direction will determine the success or failure of the sector, whether the country strategizes to empower locals.
On the issue of citizen empowerment, he said that the manufacturing sector needs a citizen empowerment law rather than just a policy, saying that contrary to popular belief, this would not chase away investors as they always know where opportunities are and how they can exploit them.
Morapedi cited the estimated 1,800 jobs that have been lost in the manufacturing sector, including 320 who were employed at Teemane Diamond Company, the Serowe based diamond manufacturer which closed its doors in early February this year; Discovery Metals’ Boseto mine , which closed abruptly last week Friday, and laid off 1,000 people, as signs of trouble.
Other challenges that threaten the sector are the shortage of water and electricity costs, an important input whose costs have increased by 75 percent in the last three years.
He said that Botswana should not see itself as being disadvantaged by being landlocked and instead see itself as ‘land surrounded’, meaning that the countries in the region alone present a market of 400 million people for products and services.
“Given our central location in the region, we can turn this country into a cargo hub, as we are an hours flight away from most main centres in region, said Morapedi, giving an example of one of the advantages of being surrounded by other countries.
The partnership between Debswana and Botswana Oil Limited (BOL) which was announced a fortnight ago will create under 100 direct jobs, and scores of job opportunities for citizens in the value chain activities.
In a major milestone, Debswana and BOL jointly announced that the fuel supply to Debswana, which was in the past serviced by foreign companies, will now be reserved for citizen companies. The total value of the project is P8 billion, spanning a period of five years.
“About 88 direct jobs will be created through the partnership. These include some jobs which will be transferred from the current supplier to the new partnership,” Matida Mmipi, Head of Stakeholder Relations at Botswana Oil, told BusinessPost.
“We believe this partnership will become a blueprint for other citizen initiatives, even in other sectors of the economy. Furthermore, this partnership has succeeded in unlocking opportunities that never existed for ordinary citizens who aspire to grow and do business with big companies like Debswana.”
Mmipi said through this partnership, BOL and Debswana intend to impact citizen owned companies in the fuel supply value chain that include transportation, supply, facilities maintenance, engineering, customs clearance, trucks stops and its support activities such as workshop / maintenance, tyre services, truck wash bays among others.
“The number of companies to be on-boarded will be determined by the economics at the time of engagement,” she said. BOL will play a facilitatory role of handholding and assisting emerging citizen-owned fuel supply and fuel transportation companies to supply Debswana’s Jwaneng and Orapa Letlhakane Damtshaa (OLDM) mines with diesel and petrol for their operations.
“BOL expects to increase citizen companies’ market share in the fuel supply and transportation industries, which have over the years been dominated by foreign-owned suppliers. Consequently, the agreement will also ensure security of supply for Debswana operations, which are a mainstay of the Botswana economy,” Mmipi said.
“Furthermore, BOL will, under this agreement, transfer skills to citizen suppliers and transporters during the contract period and ensure delivery of competent and skilled citizen suppliers and transport companies upon completion of the agreement.”
Mmipi said the capacitating by BOL is limited to providing citizen companies oil industry technical capability and capacity to deliver on the requirements of the contract, when asked on helping citizen companies to access funding.
“BOL’s mandate does not include financing citizen empowerment initiatives. Securing funding will remain the responsibility of the beneficiaries. This could be through government financing entities including CEDA or through commercial banks. Further to this, there are financial institutions that have already signed up to support the Debswana Citizen Economic Empowerment Programme (CEEP),” Mmipi indicated.
While BOL is established by government as company limited by guarantee, it will not benefit financially from the partnership with Debswana, as citizen empowerment in the petroleum value chain is core to BOL’s mandate.
“BOL does not pursue citizen facilitation for financial benefit, but rather we engage in citizen facilitation as a social aspect of our mandate. Citizen facilitation comes at a cost, but it is the right thing to do for the country to develop the oil and gas industry,” she said.
Mmipi said supplying fuel to Debswana comes with commercial benefits such as supply margins. These have traditionally been made outside the country when supply was done by multi-nationals for a period spanning over 50 years. With BOL anchoring supply for Debswana, this benefit will accrue locally, and BOL will be able to pay taxes and dividends to the shareholders in Botswana.
PwC Africa has presented the eighth edition of the VAT in Africa Guide – Africa re-emerging. This backdrop of renewal informs on the re-emergence of African economies and societies which have been affected by the COVID-19 pandemic.
In this edition, which has been compiled by PwC Africa’s indirect tax experts, covers a total of 41 African countries. It is geared towards sharing insight with our clients based on the constantly changing tax environments that can have a significant impact on business operations.
Within Africa, governments continue to focus on expanding the tax net by improving revenue collection through efficient compliance systems and procedures. PwC Africa has observed that revenue authorities also continue to take a keen interest in indirect taxes as part of revenue mobilisation initiatives.
Maturing VAT system and upskilling SARS
“In South Africa, VAT is becoming more relevant as a revenue source for the government,” says Matthew Besanko, PwC South Africa’s Indirect Tax Leader. “Strides have been made to upskill South African Revenue Service (SARS) staff and identify VAT revenue leakages, particularly in respect of foreign suppliers of electronic services to people and businesses in South Africa.”
Broadening the tax base and digital economy
In the past year, South Africa, Mozambique and Zimbabwe saw updates to their VAT legislation, or introduced specific legislation targeting electronically supplied services (ESS), which is in line with the global trend of attempting to tax the digital economy. “The expectation is that Botswana will also introduce VAT legislation in due course, while the National Treasury in South Africa has also made mention of revising the rules to account for further developments in the digital economy,” Besanko says.
South Africa’s National Treasury has also drafted legislation with the intention to introduce a reverse charge on gold, which is expected to come into effect later in 2022. While in Zimbabwe, revenue authorities have introduced a tax on the export of raw medicinal cannabis ranging between 10% and 20%, which came into effect on 1 January 2021.
ESG and carbon tax
Key strides have also been made within the Environmental, Social and Governance (ESG) space. “ESG leadership, strategising and reporting is essential now for organisations that wish to flourish and remain relevant,” Kabochi says. He adds that companies need to consider how ESG and tax intersect, since tax is a significant value driver when businesses need to deliver on their ESG goals.
In South Africa, a carbon tax regime, which is being implemented in three phases, has been adopted. The second phase was scheduled to start in January 2023, however phase one was extended by three years until 31 December 2025.
Until then, taxpayers will enjoy substantial tax-free allowances which reduce their carbon tax liability. At the beginning of 2022, the South African government increased the carbon tax rate to R144 (about US$9), which is expected to increase annually to enable South Africa to uphold its COP26 commitments.
With effect from 1 January 2023, carbon tax payers in South Africa will also be required to submit carbon budgets and adhere to the provisions of the carbon budgeting system which will be governed by the Climate Change Bill. Where set carbon budgets are exceeded, the government plans to impose penalties. “At PwC, we are continuously focused on our renewed global strategy, ” The New Equation,” Kabochi says. “Through this strategy, a key focus area for PwC Africa is to support clients in adding value to their ESG ambitions and building trust through sustained outcomes.”
The New Equation is also an acknowledgement of the fundamental changes in the business environment in which PwC’s clients and other stakeholders operate. PwC continues to reinvent and adapt to these changes as a community of problem solvers, combining knowledge and human-led technology to deliver quality services and value.
Local and international economists have lowered their projections on Botswana’s economic growth for 2022 and 2023, saying the country is highly likely to fail to maintain high growth rate recorded in 2021 hence will not reach initial forecasts.
Economists this week lowered 2022 forecasts for Botswana’s economic growth rate, from the initial 5.3% to 4.8% and added that in 2023 growth could further decline to 4.0%. The lower projections come on the backdrop of an annual economic growth that recovered sharply in 2021 with figures showing that year-on-year real Gross Domestic Product (GDP) growth increased to 11.4%, up from a contraction of 8.7% in 2020.
Economists from the local research entity, E-consult, this week stated that the 2021 double digit growth that exceeded projections made at the time of the 2022 budget may be short lived due to other developments taking place in the global economy. E-consult Economist Sethunya Kegakgametse stated that the war in Ukraine has worsened supply problems in the global economy and added that before the war, macroeconomic indicators were seen as improving and returning to pre-COVID levels.
According to the economist the global economy was projected to improve in 2022 and 2023. Recent figures show that global growth projections have been revised downwards from the initial forecast of 4.9% in 2022 with the World Bank’s new estimate for global growth in 2022 at 3.2%.
The statistics also shows that International Monetary Fund revised their growth projections for 2022 and 2023 down by 0.8% and 0.2% respectively, falling to 3.6% for both years. “The outbreak of war has severely dampened the global recovery that was under way following the COVID-19 pandemic,” said the economist.
She stated that despite Botswana being geographically removed from the conflict, the country has not and will not be exempt from the disruptions in the global economy. “The disruptions to global supply chains resulting from the war will have a negative effect on both Botswana’s growth and trade activities.
The economic sanctions against diamonds from Russia will add uncertainty to the market which will have knock on effects to Botswana’s growth, exports, and government revenues,” said the economists who added that the disruptions are driving prices up and result with very high inflation in the local economy.
Kegakgametse projected that in an attempt to limit inflation Bank of Botswana will be forced to raise interest rate “Should the sharp increase in both global and local inflation persist, Bank of Botswana much like other central banks around the world will be forced to raise interest rates in a bid to control rising prices. This would mean an end to the expansionary monetary policy stance that had been adopted post COVID-19 to aid economic growth,” she said.
In the latest projections, the UK based economic research entity Fitch Solutions lowered 2022 real GDP growth forecast for Botswana from 5.3% to 4.8% “In 2023, we see economic growth rate decelerating to 4.0%,” said Fitch Solutions economists who also noted that the 2022 and 2023 economic growth projections may come out lower than the current forecasts, as it is possible that new vaccine-resistant virus variants may be identified, which could result in the re-implementation of restrictions. “In such circumstances, we cannot rule out that Botswana’s economy may post weaker growth than our baseline scenario currently assumes,” said the economists.
According to the projections, Fitch Solution stated that there is limited scope for Botswana government to increase diamond production and exports, following the economic sanctions imposed on Russian diamond mining companies operating in Botswana. The research entity added that De Beers is unlikely to scale up diamond output from Botswana in order to prop up diamond prices.