Government has made some adjustments in fiscal policy, as some taxes and levies are to be imposed from the beginning of March this year. It is expected that effective 1st March 2021, government will announce an increase on fuel levy followed by increases in tax items including VAT and tax on sugar-sweetened beverages.
FILL UP AND PAY CAESAR TOO AMID FUEL CRISIS
Ministry of Mineral Resources, Green Technology and Energy Security in 2017 approved 17.5 thebe per litre which will be in addition to the already existing fuel levy of 13.5 thebe per litre. Apparently Botswana consumes 1.2 billion litres of petroleum products and the levy could raise P210 million per annum which could be used to; purchase of stocks for Botswana Oil Limited, meet insurance premiums for government oil storage facilities and construction of other strategic storage facilities around the country.
According to investment manager Kgori Capital, the new tax might not immediately lead to an increase in fuel pump prices as the National Petroleum Fund (NPF) might be able to cushion the effect of the tax in the short term. Kgori Capital said this however could see increased outflows from the fund which could be unsustainable over the long term.
Recently government released a ‘National Fuel Supply Update’ announcing that the shutdown of three refineries in South Africa, making Botswana look elsewhere to increase sourcing from alternative suppliers. As assurance government stated that it is currently able to meet fuel demand, that back-up is available, it would only be deployed if the situation deteriorates.
Other determinants of fuel price dynamics could be the Rand vs US Dollar. This week on Thursday the Rand rallied for another day, retaining gains from the previous day, as risk appetite stayed high on hints that the new US administration would be in support of a huge stimulus to uplift the economy.
On Thursday commodity news oil prices were supported for yet another day on Wednesday, climbing above US$56 per barrel in mid-afternoon trading, supported by expectations that the incoming US administration would approve a large stimulus package to boost the economy and in turn support oil demand.
According to stockbroker Motswedi Securities, also supporting the commodity’s pricing were ongoing supply cuts by the Organization of Petroleum Exporting Countries as well as expectations that US crude inventories are forecast to decline for the week ended 15 January 2021.
Last week the FNBB researchers said they expect a possibility of a rebound in oil prices as economic activity recovers this year. FNBB said it is probable that fuel prices will be increased to mimic international oil price movements.
First National Bank of Botswana Quantitative Analyst, Gomolemo Basele, in his recent analysis of December inflation, said over the course of this year inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from P0.12 to P1.12, effective 1st March 2021.“We also expect further pressures on the administered prices of water and electricity, as well as increases in tax items,” said Basele on behalf of his FNBB economy research team.
VAT TO GO UP SOONER THAN EXPECTED, JOB LOSSES
Amid being met with a lot of opposition, FNBB expect an increase in VAT from 12 percent to 14 percent, effective 1st April 2021. Last year permanent secretary in the Ministry of Finance and Economic Development, Wilfred Mandlebe told Parliamentary Committee on Government Assurances (PCGA) that as part of economic recovery from Covid-19 shocks, VAT will be increased from 12 percent to 14 percent in the next financial year.
This is despite Basele in his December inflation report warning that the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.
State of Emergency which bars employers to lay off employees might end the same time when government imposes an increase in VAT, this is why FNBB expects inflation to average 2.8 percent in 2021 and anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25 basis point.
INTRODUCTION OF SUGAR LEVY
The beginning of the next financial year will see tax on sugar-sweetened beverages be 2 thebe per gram over and above 4 grams per 100 millilitres. This tax will be implemented by a Statutory Instrument to be issued by Ministry of Trade and Investment.
According to World Bank last year September, sugar-sweetened beverages (SSBs) are non-alcoholic beverages that contain caloric sweeteners, such as sucrose (sugar) or high-fructose corn syrup (HFCS). SSBs include carbonated soft drinks (carbonates), energy drinks, concentrates or syrups, sports drinks, less than 100 percent fruit or vegetable juices such as juice drinks or nectars, ready-to-drink teas and coffees, sweetened waters, and milk-based drinks.
SSBs are said to be the main factors of overweight and obesity which leads to a number of chronic non-communicable diseases (NCDs), including coronary heart disease (CHD), stroke, diabetes, and at least 12 cancers (cancer of the mouth, pharynx and larynx, oesophagus, stomach, pancreas, gallbladder, liver, kidney, prostate, colorectal, endometrium, ovaries, and post-menopausal breast).
In his first State of the Nation Address (SONA) in 2018, President Mokgweetsi Masisi blamed the increasing incidence of people who are overweight and obese amongst the Botswana population on the increased consumption of sugar sweetened products, especially beverages.
HOUSING INFLATION TO SOAR INTO THE NEXT FINANCIAL YEAR
Botswana Housing Corporation is expected to rise to the occasion this year by taking more from Batswana pockets in the coming financial year. The housing utility will adjust rentals by more than 100 percent margin effective 1st April 2021.
This could further spike future inflation into the housing and utilities group index which in December registered a rise of 0.3% m/m owing to higher costs associated with materials for the maintenance and repair of dwellings (0.9% m/m).
INFLATION TO REMAIN SUBDUED AND UNDER THE OBJECTIVE RANGE
The December 2020 inflation remained unchanged at 2.2%, bringing the 2020 inflation average to 1.9%. While Basele believes the 2021 inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from, he said the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.
This moves FNBB to expect inflation to be just below the 3-6 objective range and be lower at 2.8 percent, the bank’s researchers further anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25bp.
Cresta Marakanelo Holidays Limited, Botswana’s leading hotel group, is battling the catastrophic effects of the Covid-19 pandemic and its far-reaching implications.
The tourism and travel business was by far one of the most hit economic sectors. The key to containing the COVID-19 pandemic was the significant curtailment of movement of the people to reduce the spread of the virus. On the flip side, this delivered a massive blow to the tourism and hospitality business, which largely relies on accommodating travellers.
This week, Cresta released their unaudited condensed consolidated financial results for the half-year period ended June 2021. The Group, which operates 11 hotels in Botswana, reported a significant reduction in losses owing to stringent cost-containment measures deployed by management to ensure the business doesn’t plunge deeper into the negative figures zone.
The Group’s registered a six-month loss before Taxation of P34.1 million, which was P8.4 million lower than the prior-year first six months period, which reported a loss of P42.5 million. Cresta says the COVID-19 headwinds continue to significantly affect the tourism and hospitality industry, and Cresta Marakanelo Limited was not an exception.
During the six months to June 2021, the Government of Botswana continued to implement a raft of measures imposed in December 2020 to curb the spread of COVID-19. These measures, which include restrictions on inter-zonal travel, a ban on alcohol sales, and a limited number of conference guests, have had a direct effect on reducing the level of activity in hotels.
The resort town hotels, which ordinarily generate at least 50 percent of their business from incoming foreign travellers, were significantly affected by the lockdowns in the source countries and low travel sentiment even after the hard lockdown measures were lifted. The first-quarter performance was low in line with the seasonality of the business. However, the performance was further slowed down by the pandemic induced low travel sentiment and pandemic mitigation controls in place.
The second quarter saw a rise in the performance of the business when compared to the first quarter, contributing 60% of the revenue generated for the six months ended 30 June 2021. The business enjoyed a steady month-on-month increase in revenues from January to June 2021.
Under the adverse operating conditions for the industry, Cresta Directors boast of the P8.4 million loss cut. This, according to a commentary alongside financials, was mainly driven by the cost reduction measures implemented, some of which will be continued in the long term, even after the pandemic has been contained.
Revenue for the period under review was P96.5 million, 4% (P3.3 million) higher than the same period last year. Earnings before interest, tax, and depreciation and amortization (EBITDA) achieved during the period was P2.2 million, an improvement on the prior year’s loss incurred of P2.5 million.
The reduced market base has seen a surge in price wars in the industry, a variable that further puts pressure on the company’s revenues. Cresta management noted that the Group would continue to focus on cost containment to ensure the business’s survival through this difficult pandemic season.
In a drive to reduce the operating leverage of the business to ensure the company continues to be a going concern, several measures were implemented, including the suspension of all non-critical capital expenditure projects and freeze on all discretionary expenditure. In addition, Cresta negotiated with staff, landlords and other strategic suppliers to reduce contractual obligations. Following these measures, Cresta was able to minimize the reduction in cash balances during the period.
From 31 December 2020, cash balances declined by P29.1 million for the six months to 30 June 2021, compared to a decline of P42.1 million during the same period in 2020 on largely the same level of revenue mirroring successful cash preservation. In assessing the ability of the Group to continue as a going concern, management performed a sensitivity analysis on a 12-month cash flow forecast which the Board of Directors reviewed to their satisfaction.
A range of possible outcomes related to the COVID-19 pandemic were considered, and it was concluded that Cresta Marakanelo Limited would continue as a going concern. The single most significant assumption was that the business should make a turnaround for the better within 12 months period on the back of vaccination programmes both in the source market countries and locally.
Vaccination enhances travel sentiment for the market, and it is on its strength that most paid guests are opting to postpone their bookings rather than cancel altogether. The company has also secured an additional working capital facility of P25 million. This will provide extra headroom while the business levels are low.
Based on the review of the Group’s cash flow forecasts, the Directors believe that the Group will have sufficient resources to continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the interim financial statements have been prepared on the going concern basis.
Last month Cresta announced that they had decided not to renew the lease for the Cresta Golfview Hotel in Lusaka, Zambia, which comes to an end on 31 January 2022. The landlord of the property will continue to run the hotel under a different brand, and preparations are currently underway for a smooth handover of the property, with the least possible impact to staff, suppliers and guests.
During the half-year, P11.7 million (2020: P25.8 million) was utilized in operating activities, primarily due to the subdued revenues. Net cash used in investing activities amounted to P2.5 million (2020: P14.4 million).
The reduction in cash outflow on investing activities was because of the capital expenditure freeze. With regards to financing activities, P15.2 million (2020: P4.1 million) was utilized, split between bank loan repayments of P3.7 million (2020: P1.5 million) and leasing hotel properties P11.5 million (2020: P11.6 million).
In the future, Cresta pins its full recovery hopes on the vaccination plan, which is envisioned to cultivate revived travel sentiment significantly. “As seen in other countries whose vaccination programmes were embraced by a significant part of the population, vaccination is expected to see the removal of conferencing restrictions, alcohol sale ban and lifting of travel restrictions,” the company said.
The International Renewable Energy Agency’s (IRENA) latest Renewables Readiness Assessment of Botswana has made it known that the country enjoys considerable renewable energy potential. Notably, solar, wind and bioenergy are more prevalent. However, these remain largely untapped, despite the country’s ambitious plans for integrating renewable energy into its energy system.
According to the report, Botswana’s total primary energy supply (TPES) is fossil-based and largely reliant on oil products and coal, complemented by biomass and waste energy. In the Integrated Resource Plan (IRP) launched in December 2020, it was announced that renewable energy should account for at least 15% of the energy mix by 2030, whilst the country’s Vision 2036 calls for a 50% renewable energy contribution to the energy mix by March 2036. The ambitions are arguably aloof given the insufficient critical actions that could significantly impact the energy transition in Botswana.
Access to electricity stands at 65%, with 81% of urban areas illuminated and 28% of rural regions electrified. As of 2017, the country’s total energy supply of 2.9 million tonnes of oil equivalent consists of oil products (35%), coal (44%), (traditional) biofuels and waste (19%) and imported electricity (2%). The IRENA has established that electricity is mainly produced from coal or petroleum products imported from South Africa.
As is the case in most regions, Botswana’s power system is characterised by an unreliable power supply, lack of investment, poor maintenance, and high service costs. To meet its peak power demand, Botswana imports power from the Southern Africa Power Pool (SAPP) – mainly from South Africa – and when imports are not available, resorts to costly backup diesel power plants.
In 2013, the International Energy Agency’s (IEA) Clean Coal Centre found that Botswana has estimated coal resources of 40 gigatonnes (Gt) or 40 trillion Kg. In 2014, the only two measured coal reserves were Morupule and Mmamabula basins, with a capacity of 7.2 Gt. IRENA believes this abundant resource is underexploited as only a single coal mine, Morupule, is currently operating.
Already established, Botswana relies heavily on fossil fuels for its electricity generation. As shown by the country’s installed generating capacity of 893.3 megawatts (MW), comprising 600 MW from the coal-fired Morupule B, 132 MW from the also coal-burning Morupule A, 90 MW from Orapa power plant, which is a diesel peaking plant, 70 MW from Matshelagabedi power plant (diesel peaking plant) and 1.3 MW from Phakalane solar photovoltaic power plant, according to the then Ministry of Mining, Minerals, Energy and Water Resource (MMERW) in 2017, now under a new name.
IRENA posits that although the installed capacity can cover the country’s peak demand estimated at 610 MW, the Botswana Power Cooperation’s (BPC) interconnected system faces several challenges. According to the power parastatal, in 2017, Morupule A did not produce electricity and was closed down for refurbishment. It produced 25 gigawatt-hours (GWh) in 2018 but had to be shut down again to remedy defects identified during commissioning.
Morupule B has been running under capacity since its commissioning in 2013 due to plant breakdown and system failures. BPC is currently undertaking remediation, which is expected to be completed in 2023/24, with all units running 100% production.
As for the diesel power plants of Orapa, producing 90MW and Matshelagabedi’s 70MW, which are rented to Alstom, they were conceived to support peak load but are being used for regular electricity supply BPC reports. The Corporation’s two diesel power stations were not used during 2018 and remained on standby. The lack of capacity to satisfy electricity demand requires regular imports from surrounding countries.
Botswana relied on electricity imports to cover up to 94% of its demand until the progressive recovery of the Morupule B plant. IRENA noted that the share of electricity imports in total supply decreased to about 17%, or 594 gigawatt-hours (GWh) in 2018 from 1 297 GWh in 2017 due to lower demand from the mining sector.
BPC has been in a precarious financial state for many years due to high import costs, operational difficulties and inoperative assets and has been kept afloat by government subsidies. Botswana has an exceptionally high rate of solar irradiation, making solar energy a promising renewable energy source in the country.
The semi-arid country has an estimated 3 200 hours of sunshine per year. According to a MMEWR study, the yearly solar resources from global horizontal irradiation (GHI) range from 2 050 to 2 920 kilowatts received in one hour by one square meter of a surface (kWh/m²). For comparison, these irradiation levels are similar to those in California, which is amongst the most competitive solar market today.
Botswana is also endowed with a range of bioenergy resources that could be used for energy production. Wood fuel remains the dominant cooking fuel for rural households, as 42% of the population relies on it. A 2016 World Bank study based on a government study from 2007 to assess biofuel production and use in Botswana revealed the potential for biodiesel production from Jatropha curcas and bioethanol from sweet sorghum and sugarcane crops.
The Central district presents the highest biodiesel potential from Jatropha production, while the North-West district’s bioethanol potential from sweet sorghum is mainly located in the Ngami sub-district. However, another study coordinated by IRENA found that Jatropha is not suitable to cultivate in Botswana, as 100% of the land is restricted due to protected areas, wetlands, existing agricultural lands or urban areas, as well as additional exclusion areas and other restrictions in terms of market access and water availability. Sugarcane crops were only viable if irrigated, and the extent of production could reach 9% of the land.
Furthermore, an analysis conducted by IRENA and United States-based Lawrence Berkeley National Laboratory (LBNL) for the Africa Clean Energy Corridor depicts some suitable zones for wind turbine power deployment, which are mainly located in the southern part of Kgalagadi district near Tsabong and the Southern region, with a technical potential of up to 1.5 GW.
In the foreword of Botswana’s Renewables Readiness Assessment, the Minister for Mineral Resources, Green Technology and Energy Security, Lefoko Moagi, said the release of the report coincides with the recent adoption by Parliament of the Botswana National Energy Policy – a key, strategic instrument for the successful and economic development of the local energy sector.
A prominent objective of the Policy is to achieve a substantive penetration of new and renewable energy sources in the country’s energy mix; the goal is to attain adequate economic energy self-sufficiency and security, as well as to position Botswana to fulfil its vision of becoming a regional net exporter, especially in the electricity sector. Director-General for IRENA Francesco La Camera said Botswana possesses considerable potential for renewable energy development.
In the introduction of the assessment, La Camera stated that the report presents clear and practical steps to maximise the country’s use of renewables in driving sustainable economic growth for Botswana. The extensive document identifies the need to adopt a broader range of renewable energy technologies to diversify Botswana’s power generation away from coal, generate socio-economic value and fulfil the country’s environmental and climate commitments.
Joint venture between De Beers and Government of Republic of Namibia announces new plan, supporting economic, commercial, employment and community benefit, following receipt of royalty relief Namdeb Diamond Corporation (Proprietary) Limited (‘Namdeb’), a 50:50 joint venture between De Beers Group and the Government of the Republic of Namibia, today announced the approval of a new long-term business plan that will extend the current life of mine for Namibia’s land-based operations as far as 2042.
Under the previous business plan, the land-based Namdeb operations would have come to the end of their life at the end of 2022 due to unsustainable economics. However, a series of positive engagements between the Namdeb management team and the Government of the Republic of Namibia has enabled the creation of a mutually beneficial new business plan that extends the life of mine by up to 20 years, delivering positive outcomes for the Namibian economy, the Namdeb business, employees, community partners and the wider diamond industry.
As part of the plan, the Government of the Republic of Namibia has offered Namdeb royalty relief from 2021 to 2025, with the royalty rate during this period reducing from 10% to 5%. This royalty relief has in turn underpinned an economically sustainable future for Namdeb via a life of mine extension that, through the additional taxes, dividends and royalties from the extended life of mine, is forecast to generate an additional fiscal contribution for Namibia of approximately N$40 billion. Meanwhile, the life of mine extension will also deliver ongoing employment for Namdeb’s existing employees, the creation of 600 additional jobs, ongoing benefits for community partners and approximately eight million carats of additional high value production.
Bruce Cleaver, CEO, De Beers Group, said: “Namdeb, a shining example of partnership, has a proud and unique place in Namibia’s economic history. This new business plan, forged by Namdeb management and enabled by the willingness of Government to find a solution in the best interest of Namibia, means that Namdeb’s future is now secure and the company is positioned to continue making a significant contribution to the Namibian economy, the socio-economic development of the Oranjemund community and the lives of Namdeb employees.” Hon. Tom Alweendo, Minister of Mines and Energy for the Government of the Republic of Namibia, said: “Mining remains the backbone of our economy and is one of the largest employment sectors within our country.
Government understood the fundamental impact of what the Namdeb mine closure at the end of 2022 would have had on Namibia. Therefore, it was imperative to safeguard this operation for the benefit of sustaining the life of mine for both the national economy as well as preserving employment for our people and the livelihoods of families that depend on it.”
Riaan Burger, CEO, Namdeb Diamond Corporation, said: “After more than a century of production, these operations were approaching the end of their life, but the creation of this new business plan means we can continue to deliver for Namibia for many years into the future. This is great news for the hardworking women and men of Namdeb, as well as for all our community partners who we are proud to have worked with over the years. We now look forward to starting a new chapter in Namdeb’s proud history.”