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Evershed’s Sutherland: Botswana’s Mining And Natural Resources Sector Is Best Placed To Survive And Thrive Post COVID-19

Botswana, like many African countries, has vast reserves of minerals including diamonds, nickel, uranium, copper, and coal.

The Global Mining and Natural Resources Sector, has faced significant challenges over the last few years, but Botswana has been in a unique position for various reasons, including relative political stability, a relatively stable policy and regulatory regime, its rankings as an attractive investment destination, ease of doing business, its relative population size, the historical sustainable development of the minerals industry in Botswana, and its social and economic programmes.

However, Botswana, like all other mining jurisdictions, will probably be impacted by the triple consequences of COVID-19, namely the global downturn in demand for minerals, dramatically reduced prices for minerals that remain in demand, and the possibility of significantly reduced ability to achieve even reduced production targets, if COVID-19 becomes prevalent in the workforce.

The Mining and Natural Resources Sector is typically a potentially high risk environment because of mine-related diseases which compromise the immune system, other diseases that compromise immune systems which mine workers may be exposed to, and the close proximity that employees work in relation to each other, in the confined working environment.

However, Botswana may, as a result of its prudent historical mining and minerals policies and socio-economic development programmes, be better placed than many other countries with strong mining sectors, to deal with an outbreak of COVID-19 at its mines.

Since independence in 1966, the government of Botswana has implemented mining and minerals policies and regulations which have maximised the benefits derived from mining. Its socio-economic programmes have resulted in significant infrastructure development, education levels, and significant growth in Gross Domestic Product (“GDP”) per capita, supported by strong markets and institutions.

Botswana also has a relatively small population, in relation to its geographical size. It is regarded as one of the least populous countries which may also assist in avoiding the spread of COVID-19.

The combination of prudent mining and minerals development, historically, the development of infrastructure, and the socio-economic programmes may mean that Botswana can avoid potential catastrophic consequences of COVID-19, and if COVID-19 does spread within Botswana, Botswana may be in a far better position than other mineral-rich jurisdictions, to recover and benefit, more quickly, from any upturn in the global economy.

Botswana’s mining sector is likely to remain an important investment destination primarily because of the manner in which Botswana has implemented its mining and minerals policies. Due to its relatively stable environment and ease of doing business, investors have understood the requirements, and taken investment decisions based on the relatively stable landscape in Botswana.

However, there is one element that often scares off investors, namely ministerial discretion. Botswana is well-known for its diamond mines, and the government of Botswana has ensured, through the mining legislation, that the Minister of Mines has wide discretion to negotiate terms and conditions with mining companies which secures direct and indirect participation in mining companies, and mines. The Mines and Minerals Act of 1999, like South Africa, vests ownership of all rights to minerals, in the government of Botswana. In addition to royalties that are payable, the government of Botswana has the right and option to acquire interests in the mining companies, and to re-negotiate this participation interest, from time to time.

Mining in Botswana is reported to contribute between 35% and 40% of Botswana’s GDP, and Botswana remains a leading producer of diamonds by value. It is understandable that the government of Botswana is therefore also focused on diamond sale agreements, particularly with De Beers, and on promoting local beneficiation. The agreement concluded between Botswana and Angola for the polishing of Angolan diamonds in Botswana, is a further example of Botswana’s prudent policy and regulatory approach to mining in Botswana.

Botswana is regarded as an economic success story, primarily as a result of its approach to the sustainable development of its Mining Sector, and with the focus also shifting to increased coal extraction, despite global concerns regarding the use of coal, Botswana is likely to remain an investment destination of choice, for the foreseeable future.

Author: Warren Beech, Head of Mining and Infrastructure (South Africa) – Eversheds Sutherland