‘Botswana’s domestic resources mobilization is weak’
Botswana‘s domestic resource mobilization has been labeled weak and behind times, inefficient and unable to fully finance the country‘s developmental and transformative agenda. This is according to Keith Jefferis, a renowned economist, Founder and Director at Ecosult Botswana.
Jefferis who is former Bank of Botswana Deputy Governor was speaking at the Budget Review seminar for the 2020/21 financial year organized by First National Bank Botswana in Gaborone last night. The Economist noted that over the years Botswana‘s tax base has not been expanding at a broadening rate enough to finance the country‘s much needed infrastructure development and increasing government spending.
“On a long term assessment government revenue have been declining while on the other side expenditure ballooned, and the contribution of resources gathered domestically has been flat or even reducing,” he said. Jefferis warned that in the wake of vulnerable diamond market which is affected by global economic uncertainties Botswana might find itself in serious fiscal imbalance. “In that situation then we will need to expand our domestic resource mobilization, if not government spending will have to shrink significantly, the latter will then negatively affect our basic services such as health and education,” he said.
Citing that currently the country’s revenue profile is by in large dependent on Mineral income predominantly diamond export, the Macroeconomic expert says Botswana’s domestic revenue is very low when compared to other developing countries. Jefferis is of the view that in the midterm to long term there will be inevitable and un avoidable need for new and higher taxes “Our domestic revenue are relatively low, that is your VAT, income tax, corporate tax and others, they only account for about 35 % of total government expenditure, this is because Batswana we are under taxed,” he said.
According to Jefferis to realize exponential growth while maintaining fiscal stability, Batswana consumers, business people, companies and multi nationals should finance the country’s budget more than any other revenue channel. On his part Botswana Unified Revenue Service (BURS) Acting Commissioner General Segolo Lekau noted that Botswana’s domestic revenue collection is currently faced with inefficiencies s of which some are a result of lack of resources for BURS, lack of technical capacity and personnel.
“ We do acknowledge that there are instances where we run short as the country ‘s tax body ,however we plead for every citizen’s support , paying and complying to tax obligation is a patriotic responsibility and requirement for everyone staying in Botswana or doing business in Botswana,” he said. Lekau added into Jefferis’ views noting that if diamond revenue continues on an unstable wave heighted by global markets volatilities government will have to increase and or further broaden the country’s tax base.
The International Monetary Fund (IMF) has also spoken against Botswana weak domestic resources mobilization vehicles. In its 2018 report on Sub Saharan Africa the IMF urged Botswana to reform its entire revenue collection system and framework. “It would be important to remove many tax exemptions, increase property taxation, and consider making the personal income tax regime more progressive,” reads the report which was released in June 2018.
This recommendation by IMF and many other organizations opposes what Botswana is currently doing, in its investment wooing basket, tax exemption and incentives are underscored as key nectarines in attracting foreign capital to set up business in Botswana. IMF advised Botswana that tax was vital in boosting the country‘s administrative, fiscal and institutional capacity adding that tax revenue was very essential for any developing country to function.
TAX EXEMPTIONS
Highlighting some of the country‘s tax exemptions extended to the business community and private sector, Lekau explained that Botswana will have to revisit some of the incentives to asses and see if they still benefit the country. It has been underscored that some tax incentives and exceptions were a window for exorbitant tax dodging, money laundering and illicit financial flows, under this sentiments Botswana was accused of having a secretive tax system with tax haven jurisdictions that bleeds the country’s public funds.
Botswana was reported to loss over 80 billion pula in 10 years , citing from 2003- 2012 due to corporate tax dodging and money laundering , that is according to Oxfam which noted that this was sometimes encouraged by arrangements such as tax exemptions. One of tax arrangements that Botswana was previously strongly discouraged for is the International Financial Services Centre (IFSC) regime under which IFSC accredited and qualifying firms enjoy a 15% corporate tax rate while other companies face the normal 22 % tax. The package encompasses of amongst others conditional exemptions on Capital Gains Tax, Withholding Tax and other rates.
Botswana adopted this predominantly to accelerate economic diversification by encouraging growth of the financial services sector. Local IFSC accredited firms include amongst others retail giant Choppies, Letshego Holdings, Motovac, as well as a number of capital and assert management firms. Other tax exemptions in Botswana are the SPEDU revitalization incentives, and Special Economic Zones packages. Some of the incentives under SPEDU are 5 % corporate tax for the first five years and 10 % thereafter.
Organization for Economic Cooperation & Development (OECD) has strongly spoken against some of Botswana‘s tax exemptions and incentives. OECD is of the view these arrangement do not output significant and desirable results but only cripple the country‘s revenue collection vehicles. “Under pressure to offer internationally-competitive tax environments, developing countries offer generous tax breaks that undermine their domestic resource mobilization efforts with little demonstrable benefit in terms of increased investment,” says OECD.
Botswana has been cited as one good example for such. The underlying concern by OECD is that low income countries often face acute pressures to attract investment by offering tax incentives, which then erode the countries’ tax bases with little benefit even after running for several years. However after blacklisting Botswana as a tax haven OECD countries led by France last month lifted the tag after the country put up some reforms and improved efficiency and transparency in its tax system.
Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.