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Diamantaires eyeing Botswana for investment – Expert

Todd Majaye

Botswana’s positioning as a major diamond centre is enticing major investors from around the world who are however stifled by shortage of Diamond supply. This is according to diamond expert, Todd Majaye who also posits that Botswana has to focus on giving the industry to its citizens.


“There are more than 10 big companies, even bigger than Sightholders, who want to come and set up in Botswana but the supply (diamonds) is taken up by Sightholders.”


 “The mandate of Okavango (Diamond Company) has to be changed or expanded; it should now be used as an empowerment tool,” adding that “right now it is not easy to buy diamonds if you are a small trader because the packets will be too expensive for you. Sight holders should be cut off (from ODC) because they have De Beers diamonds,” declares Majaye.


ODC was set up to open access to Botswana’s diamonds, drawing in diamond buyers from around the world to each sale, with a view to generating business for the domestic service sector in hospitality, tourism and transport, as well as stimulating further investment and opportunities in diamond industry services.


In 2011, for the first time, it was agreed that the Botswana Government and its partners at De Beers Diamond Company that the country would independently sell 10 percent of the Debswana run-of-mine production increasing by 1 percent each year to 15 percent in 2016. De Beers also agreed to relocate Diamond Trading Company International (DTCI) from London to Gaborone by the end of 2013, which subsequently took place as schedule.


In an interview with BusinessPost, Majaye, who is the Director of Afrimond Diamond and Jewellery Institute, says that Botswana’s diamond beneficiation objective is being achieved “but we are not working hard enough to benefit from the full potential of it; we need to advance the industry further.”


“There are no statistics but I know of many businesses and partnerships that have been created directly as a spinoff of the diamond sales taking place here.”


Majaye, who was instrumental in the advocacy for the reforms in the agreement, says that institutions are continually sending the staff for training at Afrimond, a sign that the industry will soon have local institutional investors. “We need institutional investors in the diamond business because it will make money to flow and more businesses will spring out from that.”


. The P50 billion pula annual business stands to have a multiplier factor of two and a half times (P130 billion), if harnessed fully, according to Majaye.


Majaye says that the main objective that the country should pursue is to create entrepreneurship in the Diamond industry rather than trying to create employees for the business.


“We said we are building a global diamond centre and such a centre is where various processes of the diamond pipeline take place; cutting, polishing and jewellery making, but we are in better position than other centres because we have mining”


Majaye said: “We need to change the perception that diamond trading is for big people; We should have broader trading activities, with large scale traders including Sightholders, as well as medium and small traders”


“We need to come aggressively with a robust training policy and this training should not be about jobs only but we should be training entrepreneurs, this policy should be about teaching people holistically to become entrepreneurs,” adding that, “we should be a labour sending nation and receive remittances from around the world”


On the subject of beneficiation, Majaye said that the beneficiation was a success, albeit more should be done to harness the full potential of the industry.


“The beneficiation is working, but we are not yet doing enough as a nation to benefit from the potential spin offs of diamond sales being located at home”


“Beneficiation must be driven by people with a vision and this is the private sector; Government must remain as a regulator and stakeholder.


Majaye also said that the industry is very viable and that recent closure of Teemane Diamond Company should not send jitters to the potential investors.


“Closures are common in every industry it does mean the industry is falling; even if five companies leave, there are bigger players coming in.”


Majaye said that location of the firms is very important, emphasising that for now, factories should be situated in urban areas where there are facilities such as airports.


“Gaborone, Francistown and Maun with the tourism factor, are ideal places for diamond factories to be set up and Government must be more proactive about getting more ideas from different people, for development”


Majaye cites the closure of the Serowe based diamond manufacturing company, Teemane Diamond Company, which closed in early February 2015, as an example of what will happen if there are no deliberate efforts to make Batswana owners of the diamond business.


The now defunct Teemane Diamond Company, earlier this year, released a statement that the industry is still very vibrant, but the company had to close due to commercial pressures which include “the problem of polished diamond prices that are too low for the current high rough prices. The Serowe based diamond manufacturer, which left 320 employees jobless when it closed down in early February this year, was the biggest diamond manufacturing firm in Southern Africa.


Majaye also thinks that Botswana should open its doors to diamonds from the region, particularly Zimbabwe as the northern neighbor is now compliant to the Kimberly process and European countries such as Belgium have embraced diamonds mined from there.


Botswana’ diamond story which began in the late 1960s culminated in the Diamond Technology Park which was opened in 2008 along with the Botswana Government’s Diamond Hub. In 2011, Botswana became a full member of the International Diamond Manufacturing Association and hosted its annual conference in Gaborone.

In 2008, the Botswana Government clustered a number of major development projects into six hubs to attract internal and external investment while a Diamond Hub was established to facilitate beneficiation and promote Botswana as one of the world’s major diamond trading centres.

Afrimond Diamond and Jewellery Institute was established with the sole aim of bridging the diamond and jewellery knowledge and skills gaps that exists within the African continent and this achieved has been achieved in several countries, such as Zimbabwe and South Africa, through training, consultancy, research and networking.

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Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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