Saturday, December 2, 2023

International watchdog red flags Debswana’s financial secrecy

A new report by the Natural Resource Governance Institute (NRGI) has raised a red flag over Debswana’s secretive financials relating to the sale of diamonds.

The report states that while Debswana appears to have good corporate governance structures in general, the rules describing how the company operates are less clear than those of most other State Owned Enterprises (OEs) evaluated in the RGI.

Describing Debswana as Botswana’s most significant diamond mining enterprise and a 50/50 joint venture between the government and De Beers, the report says the company has been evaluated as the state-owned enterprise for the purposes of the RGI.

In particularly, the report says Debswana does not disclose the transfers of funds to the government and details relating to the sale of diamonds.

“Furthermore, while the company provides much information in its annual reports, our researchers could not find the core financial details that analysts require to provide effective independent oversight of the company,” says the report.

The report states that Debswana has a failing score, but can improve its performance by improving annual reports.

The company scores 29 of 100 points. It ranks 61 of 74 SOEs in the index and lands on the border between the poor and failing performance bands.

Botswana’s diamond mining sector scores 61 of 100 points and ranks 18th of 89 assessments in the 2017 Resource Governance Index.

The report says this performance is driven primarily by a strong enabling environment, where Botswana achieves a good score of 81 and ranks seventh in the index, and a satisfactory score of 61 on revenue management.

It says the country’s economy is heavily dependent on diamond mining; the sector contributes 83 percent to the country’s exports.

Though Botswana’s diamond reserves are estimated at over 300 million carats, the report says, they are being depleted at a rate that puts the magnitude of future economic benefits from the sector in question.

The report says this makes the sustainable use of diamonds revenues crucial to Botswana’s future. Unfortunately, the RGI reveals a few areas in which governance could be improvedÔÇöDebswana, joint venture between the private company and the government which controls most diamond production, achieves only 29 of 100 due to failure to publicly report financial details necessary for analysts to oversee its relationship with the government.

But the report notes that Botswana’s strong regional performance in the indexÔÇöit ranks second in sub-Saharan Africa, after Ghana’s oil and gas sectorÔÇöis driven primarily by its enabling environment. It is the only country in the region scoring above 80 of 100 points in enabling environment, and it scores in the top 10 countries of the index on several enabling environment subcomponents, including rule of law, control of corruption and political stability.

Botswana also achieves a satisfactory score on revenue management. On the national budgeting subcomponent Botswana scores 58 of 100 points and ranks sixth of 31 countries in sub-Saharan Africa.

Important practices include public availability of data on the national budget, mining revenue and debt; though there is no portal providing key mining sector datasets.

The report says Botswana also has a fiscal rule, in place since 2003, which limits expenditures to 40 percent of gross domestic product in a given year. The rule was adopted as part of the National Development Plan and has not been legislated.

Nevertheless, except in the 2008-2009 financial crisis, the government has followed it every year. 

Botswana’s performance is considerably varied within value realization, from a satisfactory score of 67 of 100 points in local impactÔÇömeasuring requirements and disclosures on issues such as environmental and social impact assessment and management plansÔÇöto a failing score of 18 of 100 in licensing.

“The low licensing score is a result of the opacity of the licensing process, including what specific elements are up for negotiation, thereby leaving the government with considerable discretion,” the report says.  Additionally, it says, the government does not require the disclosure of the ultimate beneficial owners of extractive projects and public officials’ interests in extractive projectÔÇöimportant anti-corruption protections.

Recently the World Bank called on Botswana to make details of its large mining contracts with mining companies public to improve transparency saying failure to do so blights the country’s achievements in managing mineral resources.

A  Mining Investment and Governance review report compiled by the World Bank’s consultant Nils Handler advised Botswana to make details of its large mining contracts with companies’ public arguing that such development will improve transparency in Botswana business dealings.

Handler observed that keeping the negotiation process around contracts for diamond mining and large integrated projects confidential and secretive does not aid Botswana’s case for accountability and inclusiveness.

“Government negotiates the terms and conditions of these agreements, including the percentage of ownership stake it will purchase. These contracts are not published and even the Auditor General is not allowed to audit these agreements,” said Handler.


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