The global diamond giant, De Beers is working with Botswana’s government to temporarily move their sights to places closer to international diamond centres.
The company said the move is necessary in order to try and restart trading which was put on halt due to coronavirus travel restrictions imposed by the government of Botswana.
Moving sights closer to international diamond centres will accommodate diamond buyers from traditional centres, such as Antwerp and Mumbai, who have been unable to travel to Botswana.
De Beers which is one of the oldest diamond businesses in the world, hosts 10 sales in a year known as ‘Sights’. During the sales period, customers are able to inspect the rough diamonds offered to them before deciding what to buy. There are two types of customers in Global Sight-holder Sales – which are Sight holders and Accredited Buyers.
Sight holders benefit from a term contract covering the sale of diamonds over an agreed period, whereas Accredited Buyers have a more ad hoc arrangement.
Already, the diamond company felt the pinch of the novel coronavirus scourge as they registered rough diamond sales of US$351 million during its second auction held in February, down from US$551 million during the first auction the previous month.
February sales were about 29 percent lower than the US$496 million recorded during the same period in 2019. “If we can move our product closer to them it would give us the flexibility to restart sales as soon as the markets reopen,” De Beers Executive Vice President, Diamond Trading, Paul Rowley told media on Thursday.
Rowley said the company will move some goods to locations closer to international diamond centres only for viewings with sales still invoiced in Botswana.
“The temporary measure will enable us and our government partners to generate some revenue in this difficult period. The two-month coronavirus lockdown in Belgium halted business in Antwerp, which is the world’s largest diamond trade centre. Antwerp reopened at the start of this month,” he shared.
Movement restrictions and weaker demand forced De Beers to cancel its diamond sales in April and May after the February sale declined by 36 percent to $551 million.
De Beers, which gets 70 percent of its production from Botswana, is curbing output. The company management has revised downwards its 2020 production guidance by 7 million carats to between 25 and 27 million carats in order to reflect demand and support long-term value as well as refocusing and repurposing marketing plans to reflect changing situation – timing, targeting, product types and messaging.
However, the economy has been severely impacted by the outbreak with the budget deficit expected to more than double as reduced diamond sales and exports impact revenues. Thus far Botswana has a low number of coronavirus infections with 40 cases recorded while 23 people have recovered and one death.
De Beers is 85 percent owned by Anglo American and 15 percent owned by the Government of the Republic of Botswana. De Beers’ two primary mines in Botswana; Jwaneng and Orapa represent 92% of the nation’s diamond output by value, with Jwaneng Mine being the most valuable diamond mine in the world.
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.