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Mining sentiment capsizing…

MIning

An unabridged market and economic survey by this publication has picked bearish sentiments towards a key sector of Botswana; mining, as well as the energy exploring firms.

A suggestion that when the new normal came by, humanity sought safety and refuge from the virus while taking less consideration in digging the soil for natural resources hence dwindling sentiments.  With Botswana key sectors economically under siege, this should already sound like a deafening and creepy siren to Botswana if the current struggle of some mining and energy firms is anything to go by.

Botswana with a power deficit of almost 600 MW is dwarfed in the other sector discussed, energy, but observers said there should be investment on it hence there is potential growth and a lot of opportunities. Most companies discussed offer coal energy exploration. When the GDP shot down by 27 percent from the first quarter to the second quarter of this year, it was mining which suffered the most.

For the same GDP data, Mining and Quarrying had a big decrease in the real value added GDP by 60.2 percent which was mainly influenced by Diamond and Coal real value added. There are many private companies in the coal and mining business, some which are listed in the local stock exchange are perpetually losing value.

Diamond production in carats went down by 67.0 percent while Coal production in tonnes decreased by 40.7 percent. For the recent quarterly statistics, the Index of Mining Production stood at 30.0 percent during the second quarter of 2020, showing a year-on-year decrease of 65.1 percent from the index of 85.9 recorded during the second quarter of 2019.

According to Statistics Botswana, this was the biggest decline ever recorded in the mining activity since the decline of 91.6 percent recorded in the first quarter of 2009, when diamond registered zero production due to the economic recession.

The current decline came as a result of the Covid-19 pandemic and nationwide lockdown regulations (2nd April to 18th May 2020) which affected the operations of the business community at large, according to Stats Bots. The rating agencies suggested that countries which are mostly dependent on mining, like Botswana on diamonds, are vulnerable to external factors due to their reliance on diamond exports.

The latest Market Performance by the Botswana Stock Exchange shows that the stocks which were hard hit by Covid-19 were of companies whose business lean on extraction of the ground or mining and exploration.

These companies are mostly in the mining and energy sector.

While the local stock exchange managed to stand when all the world’s exchanges collapsed just towards the end of the first quarter of 2020, when BSE took a hit in April, it was mining and energy companies were seen at the bottom of the dark pit.

According to a performance survey recently released by BSE for the period 1 January to 31 October 2020, diamond miner Lucara and coal-bed methane (CBM) gas explorer Tlou Energy, made the biggest declines in share prices, a decline of 61.5 percent and 58.8 percent respectively.

The other companies in the same or related sectors also had their share price eroded in the first three quarters of the year and for the month of October 2020. This could be a sense of the sentiment towards soil digging companies in the markets or domestic economy.

Coal miner Minergy, a market competitor to Lucara in the Basic Materials sector, is in the top 5 of the biggest losers for the past 10 months, with a share price decline of 27.3 percent for the period 1 January to 31 October 2020.  A foreign company with a niche for this country’s precious stones, Botswana Diamonds, is in the top 10 of biggest losers of the 10 months period with a share price decline of 20.0 percent. Another soil explorer, coal explorer Shumba Energy, is languishing with a share loss of 13.6 percent in the same period.

Botswana’s diamond partner Anglo American has never shook or let alone increased in value, but remained flat with a price of 21800 thebe for all the periods under review. In its Q3 2020 market report released last week which showed “a bearish market amidst economic downturn,” Stockbrokers Botswana said miners, Tlou Energy and Lucara, were again caught in the red.

Tlou Energy lost 60 percent while Lucara lost 23.5 percent as the Domestic Company Index registered a plunge of 2.2 percent. Stockbrokers Botswana also showed that in Q2 2020 it was time for Minergy (22.7 percent) and Shumba (13.6 percent) to lose.

A trend graph by Stockbrokers Botswana shows that on the domestic companies’ index, Minergy value began cracking in the second quarter of 2020 where the stock declined by 25 thebe. Anglo American stock on the foreign counter has been flat since last year’s two quarters.

Botswana Diamonds began losing value by 2 thebe last year in the fourth quarter in a seemingly non-Covid-19 related effect. The company maintained its 13 thebe price amid Covid-19 lockdowns before it tripped to 12 thebe just in the just ended third quarter of 2020.

Lucara price began tumbling when crossing over to 2020 from the third quarter of 2019, falling by almost 50 percent which was a reflection of losing 660 thebe. Lucara further lost by 157 thebe in the third quarter of this year. Shumba lost 15 thebe in the second quarter of this year while Tlou Energy went down by 48 thebe.

Books reflecting losses by soil drillers

Owners of Karowe mine, Lucara, in their recently released Q3 2020 financials where the company had a net loss of $5.4 million compared to last year’s $ 4.0 million. Diamonds from the Karowe mine in Botswana are said to be large, high value diamonds and have historically accounted for approximately 60 percent to 70 percent of Lucara’s annual revenues.

Lucara’s revenue of $82.9 million for the nine months ended September 30, 2020 from the sale of 268,101 carats or $309 per carat reflecting a decrease from revenue of $136.5 million recognized for the nine months ended September 30, 2019 (313,189 carats sold at an average price of $436 per carat).

In its recent communication to investors Lucara said, the reduction in revenue results from a combination of a 15% decrease in the number of carats sold and a deliberate decision not to sell any diamonds +10.8 carats in favour of entering into a committed supply agreement for these diamonds for the remainder of the year.

“Though the mine has remained fully operational throughout the COVID-19 pandemic, Lucara made a deliberate decision not to tender any of its +10.8 carat production after early March 2020 amidst the uncertainty caused by the global crisis and the significant weakness observed in the rough diamond market,” said Lucara.

Coal miner Minergy on the other hand suffered Covid-19 loses from March 2020 onwards, with 25 percent of the financial year impacted. Minergy suffering was part of the 15 weeks border closure, challenges with border crossing by its essential staff, the weakening of the South African Rand and the sales which were at 10 percent of pre-COVID-19 volumes.

According to another coal explorer, Shumba Energy, the COVID-19 pandemic outbreak and the subsequent lockdowns in both Botswana and South Africa meant that the coal trading business was only able to operate for 9 months out of the year.

While heading towards April this year, the trading business was on track to grow by 15 percent year on year. But the company dealt a blow of a 15.6 percent decline in income from the business.
In its Annual Report 2020, Tlou Energy suffered a loss for the year of $12,950,601 (30 June 2019: $3,216,695).

Tlou Energy did not report that it was hit hard by Covid-19 like its counterparts in the mining sector, but explained that the loss was due to the impairment of some of the Group’s non-core prospecting licences.

Botswana also mines soda ash with a company called Botash which has felt the pinch of Covid-19. Botash’s main export partner Sasol from South Africa, is said to have shut down part of its salt processing units, subsequently stopping buying from the Botswana companies. More woes are on Botash which is reported to be retrenching.

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Business

Debswana-Botswana Oil P8 billion fuel partnership to create 100 jobs

18th May 2022
Head-of-Stakeholder-Relations

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.

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Business

VAT in Africa Guide 2022 – Africa re-emerging

18th May 2022

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.

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Business

Economists project lower economic growth for Botswana

18th May 2022
CBD

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.

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