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Minerals discoveries stir economic prospects

Agriculture continues to be a critical sector when it comes to employment creation

President Lt Gen Ian Khama has said other mineral prospects are looking good for the country and government is working around the clock to ensure that maximum benefit is derived from the new found gems. In an interview the President has also revealed that they are confident that diamonds are still around up beyond 2050.

The President’s comments come on the backdrop of talk of dwindling diamonds reserves and possible the future after diamonds. Khama clarified that Botswana is not diversifying away from minerals but instead wants to ensure that the economy is not dominated by one commodity.

On the other hand he noted that in the meantime, while the diamonds are still good, government is maximising benefits through the beneficiation process. “By next year we are going into the net phase of beneficiation as we look into manufacturing jewellery here at home,” he said. He said he was happy that Botswana would have completed the entire value chain.

According to President Khama, new technology will ensure that the lifespan of diamond go beyond 2050, which is in sharp contrast to the much talked about 2027.

Consultants, Rob Davies and Dirk van Seventer sharing recently at a BIDPA workshop indicated that indeed “Diamonds will one day run out not necessarily physically but will be more costly to mine not sure when, but around late 2020s.”
The study titled Life after Diamonds: The Economy Wide Consequences of Declining Diamond Production in Botswana, is a composite of a wide ranging economic report commissioned by BIDPA for private sector body, Botswana Confederation of Commerce Industry and Manpower (BOCCIM).  


They give three possible scenarios showing how the effects of depletion of diamonds will manifest and how they can be mitigated.


“We assume that the decline takes place between 2025 and 2027, although lessons we draw do not depend on this precise timing; here we report that the most significant and permanent decline assuming that by 2027, GDP in diamond mining declines by 75 percent below its 2024 level and remains constant; This decline leads to total GDP of 25 percent in 2028, below what would otherwise have been. Even after diamond production stabilises, the economy declines and ten years after the presumed reduction in diamond production started, GDP is 48 percent below what it would have been.”

ENCOURAGING MINERAL DEPOSITS
President Khama shared that there has been very encouraging discoveries of other mineral deposits around the country. He said there are good discoveries of copper, iron ore, gas, and coal deposits. He said in the near future Botswana should be exporting coal and other minerals in their volumes. Khama said it was encouraging that there still continues to be other discoveries of diamond deposits. He gave the example that he recently opened another diamond mine in the Gantsi area. He emphasised that the advent of new technologies has ensured that more mineral discoveries are found in the country.

TOURISM POTENTIAL BIG EMPLOYER
Khama said Botswana is pushing hard to elevate tourism to its imagined levels of contribution to the Gross Domestic Product (GDP). He said tourism is generally a large scale employer and is optimistic that overtime it will employ more Batswana. He said the world over tourism contributes close to 45 percent of jobs, and he wants Botswana to get close to the international average of jobs created through tourism.

AGRICULTURE ON TRACK
Agriculture continues to be a critical sector when it comes to employment creation and feeding the nation. He said there are mega projects lined up in the agriculture sector which are likely to scale up its performance in the short term. He gave the example of the Agro Zambezi project, which he said government intends to push for its effective implementation.

TARGETING THE SADC MARKET
On Manufacturing the President acknowledged that being neighbours with South Africa can be challenging because of their perceived advantages such as a big population of over 50 million people, proximity to the sea ports and other factors.

However he said as a country Botswana is taking advantage of being landlocked. He observed that there is more that is being done to improve the country’s infrastructure, roads and other key developments. Khama cited the likelihood of direct flights to international markets in the near future. He said already three airlines have shown interest in having direct flights to Botswana.

He said this will make it easy for Botswana to attract Foreign Direct Investment especially after the completion of other projects such as the Trans Kalahari railway line and the Kazungula project.  He said the intention is widen the market that investors could potentially access when they open business in Botswana.

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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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