Botswana diversifies away from its traditional strength in diamonds.
HOKM: Botswana’s development story has focused on diamond mining: a resource we discovered immediately after attaining our independence from the British in 1966. It was diamonds that chartered our way forward and diamond mining that shaped the initial regulatory framework that surrounded our mining industry. Diamond mining became our country’s main economic driver: the revenue generated from their extraction coupled with prudent management of revenues and good monetory policies funded the ecomonic development of the country, our educational systems and our infrastructure development. These has moved Botswana from one of the poorest countries to a middle-income status. During this time, much of the country remained unexplored for other commodities, save for the known copper, nickel, coal and soda ash deposit currently being extracted. Today, this has changed. The Government of Botswana has over time invested heavily in baseline prospecting and through this we have discovered some of the deposits that are being made available to private investors to bring them to production. The economic viability of our resource bodies, rather than their existence, is now the issue under discussion. We know that coal is viable: there is no doubt that there is coal. Now, the Government of Botswana is focused on building up the natural capital of the country. Mineral diversification is of critical importance to our continued growth.
One concern raised over Botswana coal is in regard to its caloric value, which is generally low. Is Botswana coal of export grade?
HOKM: One question raised against all commodities is of whether there is a market for them. Botswana coal is thermal coal. India and China are amongst the two most important markets for thermal coal. These two markets are those currently exploring Botswana’s coal resources and currently developing trade relations. The future of Botswana’s coal industry, at present, is subject to demand from these two markets. At present, there are no alternate grades of coal that have been found within the country.
Uranium is an alternate commodity that resource explorers are currently focusing on in Botswana. Is a Botswana uranium project feasible given the conditions of the global uranium market post-Fukushima?
HOKM: Uranium resources are currently under development in Botswana. Prior to us being able to address the question of whether Botswana uranium is economically feasible, we must first assess what grades the country offers and how large the country’s uranium resources are. These two questions are ones that prospectors currently operating within the country are seeking to answer.
Surrounding infrastructure is a key determinant of the economic viability of any bulk-material commodity such as coal. What infrastructure development initiatives has the Government of Botswana embarked on?
HOKM: Infrastructure is a key challenge to the development of a project within Botswana. Botswana is land-locked; we do not have our own parts. We are currently working to improve linkages between Botswana and ports found within Namibia, Mozambique and South Africa. At present, small quantities of coal are being exported to Europe through Durban in South Africa. Evaluations are currently being made to decide if existing railway lines between Mozambique and Botswana should be refurbished, which would better connect the country to the ports of Maputo and Matola. A feasibility study for the Trans-Kalahari railway line is complete; bilateral negotiations are currently taking place between Botswana and Namibia to agree on the modalities of facilitating the project. Discussions are also occurring between the Government and Transnet, the company behind South Africa’s national transport business, to determine whether Botswana should consider participation in infrastructure upgrades that would link Botswana to Richards Bay in South Africa via existing rail lines. Port capacity is an equally important determinant to project logistics. This is currently being worked on to address which ports can support Botswana’s mining activity. Furthermore, the Government of Botswana is actively pursuing the development of direct flights into Botswana in conjunction with those already mining within the country.
Botswana has an excellent investment climate: a grade A credit rating and the lowest corporate tax rate in the region. Recently, however, the Government has been at odds with some companies over licenses on their concessions within the country. Will this impact the reputation Botswana has earned for itself for its political and economic stability?
HOKM: Botswana’s reputation as a destination for investment capital has been built upon the stable enforcement of the rule of law. In some of the recent cases the companies would have had their licenses canceled or renewal applications rejected due to failure by the company to meet its obligations set out upfront at issuance of the license, which is clearly against the legal requirements of the laws governing Botswana’s mining industry. If we were to make an exception and wave the penalties associated with violations, would it not in fact be indicative of the type of exceptionalism that have led many other African countries to have poor investment climates? Would this not undermine our credibility? The rule of law does not discriminate. These strong actions are taken against companies in violation of the law in order to uphold the rule of law.
What methodology will the Government of Botswana use in revising its mining code?
HOKM: Changes will be made to the country’s mining coding subject to the discovery of new resources. One cannot create a legal framework for oil exploration and production unless it is known that a country has oil resources. The aim of revisions made to our mining code is not to disadvantage the mining industry; it is to facilitate its development. We regularly meet with industry figures to this end.
At present, the Government of Botswana is currently revising the mining code of the country to address several emerging resources. Coal-bed methane gas has to be incorporated into the country’s mining code. Mining for seam gas is more complicated than conventional mining and did not fall under the scope of our mining code as currently structured. As our country’s mining industry is now mature, we must now also address issues like mine closure and land rehabilitation. Changes made to address these issues are now being made both within the mining code as well within the tax code of the country. Our income tax act has been changed so as to recognize funds set aside for mining as an expense, making such expenses tax deductible. Illegal mining is also being addressed. This said, the overall structure of the country’s mining code will not diverge significantly from the framework established by the Mines and Minerals Act of 1999.
In brief, what attributes make Botswana an attractive destination for international mining capital?
HOKM: There are several attributes that make Botswana an attractive destination for international mining capital: our political stability, our minimal level of sovereign risk and our favourable tax regime. These are the reasons that led to the Fraser Institute ranking Botswana as the most attractive destination in Africa for international mining capital.
This interview was conducted as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.