Botswanas domestic resources mobilization is weak
Business
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
Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Business
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Business
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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