The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.
Robust demand for diamonds in early 2022 which was a spillover from late 2021, has catapulted Botswana into a surplus for the month of January 2022.
According to latest figures from Statistics Botswana, the country recorded a trade surplus of P661.8 million in the first month of the year, against a trade deficit of P270.2 million in December as per revised data.
The Statistics Botswana’s International Trade Merchandise Trade Statistics (ITMS) for January has attributed the trade surplus to a splendid performance of the diamond commodity which anchored the country’s export figures to a growth of 5.7 percent (P411.8 million), from the revised December 2021 figure of P7,182.8 million to P7, 594.6 million in January.
The Diamonds group accounted for 90.9 percent (P6, 904.3 million), followed by Copper, with 2.5 percent (P189.0 million). Diamond exports rose by 5.2 percent (P339.2 million) from the revised December 2021 value of P6, 565.1 million to P6, 904.3 million. An upsurge in Copper exports by 17.2 percent (P27.8 million) from P161.3 million to P189.0 million was also observed during the current month.
On the other hand during the same month of January 2022, imports were valued at P6, 932.8 million, representing a decline of 7.0 percent (P520.3 million) from the December 2021 revised figure of P7, 453.1 million. The decrease was mainly attributed to the decline in all commodity groups except for Diamonds and Chemicals & Rubber Product.
Botswana imports diamonds from South Africa, Namibia and Canada, coming into the country for aggregation at De Beers Global Sightholder Sales. Diamonds contributed 30.1 percent (P2, 087.1 million) to total imports. Fuel; Chemicals & Rubber Products and Food, Beverages & Tobacco followed with contributions of 15.7 percent (P1, 085.8 million), 14.9 percent (P1, 031.2 million) and 12.5 percent (P869.0 million) respectively. Machinery & Electrical Equipment contributed 10.3 percent (P716.0 million).
During the month SACU region accounted for the largest imports contributing 53.2 percent (P3, 690.3 million) to the total. The top most imported commodity groups from the customs union were Fuel and Food, Beverages & Tobacco, with contributions of 26.4 percent (P973.1million) and 22.1 percent (P815.8 million) to imports from the region, respectively.
South Africa is Botswana’s top supplier of imports at 50.3 percent (P3, 490.3 million) of total imports during the current month. Fuel and Food, Beverages & Tobacco contributed 24.5 percent (P855.5million), and 23.0 percent (P801.1 million) to total imports from that country, respectively. Chemicals & Rubber Products and Machinery & Electrical Equipment, followed by 13.5 percent (P471.3 million) and 13.1 percent (P458.8 million) respectively.
Namibia supplied 2.3 percent (P157.1 million) of total imports during the period, mainly comprising of fuel at 74.9 percent of total imports from the country. Botswana received imports worth P1, 738.2 million from the EU, accounting for 25.1 percent of total imports during the reference period.
The major commodity group imported from the EU was Diamonds, at 80.8 percent (P1, 404.9 million) of all imports from the union. Belgium was the major source of imports from the EU, with a contribution of 21.7 percent (P1, 506.9 million) of total imports during the month under review.
In January 2022, imports from Asia were valued at P657.6 million, representing 9.5 percent of total imports. The major commodity groups imported from the regional block were Diamonds and Machinery & Electrical Equipment with contributions of 41.5 percent (P272.7 million) and 21.6 percent (P141.8 million) of total imports respectively.
Canada supplied 4.2 percent (P290.5 million) of total imports during the current period. Imports from Canada consisted mainly of Diamonds at 98.5 percent (P286.0 million). In terms of Exports Asia was the top destination for Botswana exports, having received 67.7 percent (P5, 141.9 million) of total exports in January 2022.
These exports were mainly destined for India and the UAE, receiving 25.6 percent (P1, 944.0 million) and 23.1 percent (P1, 753.1 million) of total exports, respectively. Diamonds and Copper were the major commodity groups exported to Asia during the month.
In January 2022, exports destined to the EU amounted to P1, 297.4 million, accounting for 17.1 percent of total exports. Belgium received almost all the exports destined to the regional union, acquiring 16.9 percent (P1, 280.5 million) of total exports.
The Diamonds group was the main commodity group exported to the EU, at 98.6 percent (P1, 279.9 million)
During the reference period, the SACU region received exports valued at P900.6 million, accounting for 11.9 percent of total exports. Diamonds and Live Cattle accounted for 55.0 percent (P322.5 million) and 10.1 percent (P76.8 million) of total exports to the customs union.
South Africa and Namibia received 9.6 percent (P727.4 million) and 2.3 percent (P172.8 million) of total exports respectively during the month under review. Goods exported by Air during the month under review were valued at P6, 990.3 million, accounting for 92.0 percent of total exports. Those transported by Road and Rail accounted for 7.8 percent (P589.3 million) and 0.2 percent (P14.9 million) respectively.
During January 2022, 52.3 percent (P3, 625.3 million) of total imports were transported into the country by Road. Transportation of imports by Rail and Air accounted for 35.4 percent (P2, 456.5 million) and 12.3 percent (P850.4 million) respectively.
1. Europe once branded coal ‘dirty’ but their demand for it has skyrocketed once again. What do we learn about coal from what’s happening now in Ukraine?
There are over 80 countries in the world who still rely on coal as a form of energy. These are countries that are fighting to have basic necessities like electricity, which research shows increases their quality of life substantially. Energy poverty is real in Africa, India and Asia.
The Western approach to coal cannot be universal. We must remember that developed economies relied heavily on coal during their development. Challenges being faced by developing nations are unique. Demand for coal in Europe right now is driven by sanctions on Russian gas and coal and show that Europe might well be over-exposed to “green” with no back-up at times when there is no wind, running water, endless sunshine or faced with supply shortages. Coal is back in play in Europe because of the war, and despite massive adoption of clean energy in the US not all of the US uses clean energy.
In Germany and Italy, coal-fired power plants that were once decommissioned are now being considered for a second life. In South Africa, more coal-laden ships are embarking on what’s typically a quiet route around the Cape of Good Hope toward Europe. Coal burning in the US is in the midst of its biggest revival in a decade, while China is reopening shuttered mines and planning new ones Coal remains and will remain an essential element in the energy mix. We need to make use of cleaner coal in such mix.
2. How much has been the projected demand of coal in the in the last couple of months?
Our key land export markets consist of 80-90% bound for South Africa and Namibia. In the last three months however, sea bound exports increased significantly with international traders buying to export to Europe and the West. We do not have specific numbers because the final destination overseas is determined by the international traders who buy coal from us. We remain hopeful that this demand continues.
3. How has the demand influenced Minergy exports to South Africa, Namibia and overseas?
Minergy remains committed to its local markets and continues to supply into these. A massive increase in demand from international markets, stemming from the Ukraine war and sanctions on Russia has come as a blessing to Minergy as lucrative pricing has made once uneconomical logistics feasible. This allowed Minergy to place additional product in new markets, markets historically uneconomical… We continue to look for alternative markets and supply to Namibia is one such market as well as the ability to use their ports as export routes for seaborne thermal coal.
4. Comment on the Minergy market access dynamics.
Refer to answer for question 2 and 3.
5. What would it take to fully explore the billions of tons of coal in Botswana?
Greater local and even foreign direct investment. Simplifying regulatory processes and promoting ease of doing business needs to be top agenda items. Coal has unfairly been de-campaigned in the West as a ‘dirty’ mineral which has swayed investors to look elsewhere for investment portfolios. With enough funders and investments in coal the huge deposits can change our power fortunes and energy independence. Given Botswana’s massive reserves, we are of the opinion that coal should be another diversified revenue stream for the Botswana Government. At Minergy we remain thankful for the support from Government as well as from internal development organizations that have supported our strategy and were instrumental in getting the mine to the phase that it is in at the moment. Partnership with government and open minds to managing coal is key.
6. What future do you project for Minergy in the medium and long term given what we see now in Europe?
We cannot predict how long the situation in Europe will last and we pray that it will be resolved as the loss of lives and destruction of the Ukraine is a human catastrophe. Our model is premised on fully optimizing our deposits for the benefit of Botswana and Batswana..
7. Open cast for coal is a new concept in Botswana. How has Minergy enhanced the skills base?
Opencast coal mining and the associated beneficiation of sized coal is a specialized industry. Currently there is no other similar operation in Botswana to recruit from.
The South African coal industry is well experienced with this plant operation and the requisite skill is found there. It is necessary for our operations to make use of such skills to operate the plant as we cannot find all the skill in Botswana. The skill for operating such a plant is different than diamond, tin, copper etc. processing. As such certain positions require expatriate recruitment, but all these positions are supported with understudy programmes
It is Minergy’s hope as part of its legacy, to promote and install fully qualified local opencast mining and coal beneficiation skills, currently not available in Botswana.
8. What are the projected human capital skills of the future in coal mining.
See response to question number 7.
9. Share experiences from the recent Mining Indaba. What is the future of coal?
Africa needs to be energy efficient and independent. We remain encouraged at the responsible strategy that the Botswana government has put into place to support this.
10. Kindly share in detail, infrastructural developments which were brought in place by Minergy in those communities.
We have an electronic brochure that showcases all the value add that we have contributed not to just the Medie village but Botswana as a whole. This is available at our office or electronically on our website www.minergycoal.com. Highlights include
Minergy paid for the electrification of the mine and the local Medie village benefited from the connection, allowing 500 people access to electricity through a self-funded prepaid system. As an extended part of Minergy’s social investment drive the Kgotla and the clinic have also been electrified, making day-to-day running of these essential services much easier and efficient. This is ahead of the Governments intended electrification programme, which was only planned for2024.
The quality of the road between Lentsweletau and Medie has been significantly upgraded compared to the state the road was in before mining operations commenced. Continuous road rehabilitation and dust suppression is undertaken in and around the villages to maintain road integrity. ( This is a public road, but the Group takes care of the road as it benefits the community in which the mine operates)
The dilapidated community hall has been refurbished including access to solar power and will be handed over to the community.
11. A development as huge as Masama Coal mine would usually result in the mushrooming of several other businesses to benefit from its value chain. In the case of Masama, kindly share businesses which have been created as a result of the growing value chain.
Readers are again referred to electronic brochure that showcases all the value add that we have contributed.
This phenomenon is indeed correct and there are a number of entrepreneurial businesses that have flourished including laundry services, bed & breakfast for suppliers visiting the mine or the area, housing built for rental accommodation, spaza shops and food stalls, first supermarket in Lentsweletau and additional building supply outlets established
We also make use of 12 locally owned and operated transporters, who are used by the mine to transport product, where applicable.
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.