What works and what does not work - Botswana’s Mining Policy and Investment Climate

13th October 2023


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By: Sheila Khama

Coming from the Behind: Most observers agree that Botswana has successfully created an investor friendly business environment for mining companies and in the process surpassed her neighbours who have a geological and historic advantage. We know this because mining executives, whose job it is to scout the world for countries in which to invest tell us. According to Canada’s Fraser Institute Annual Mining Survey since the ranking was introduced in 1997, for a number of times Botswana ranked highest in Africa for policy attractiveness including in 2022.

The ratings are based on a combination of country’s geological potential and the impact of government policy on investor sentiment and therefore capacity to attract investment in exploration. Outside Africa, Botswana ranked as high as Australian and Canadian Jurisdictions. Botswana outpaced its SADC partners namely, the DRC, South Africa and Zimbabwe. Based on mineral wealth alone, the three countries should score better than Botswana. Instead, due to perception of poor policies, the three are in the bottom 10 out of 62 jurisdictions surveyed.

So, what is Botswana’s magic formular? Interestingly, until March 2022, Botswana did not have a mining policy and the authorities relied on informal policy guidelines that were nevertheless complied with year after year. In this commentary, which is an extract from the first of three comprehensive articles on Botswana’s diamond industry featured on, I discuss some of the practices that might explain Botswana’s performance using the relationship between the country and De Beers for context.

A Stable Regulatory Environment- The point of departure is Botswana’s Mines and Minerals Act which is the main legislation that frames the business environment and regulates mining. It spells out the rights and obligations of the Government and those of investors. Through it companies secure exclusive rights to search for minerals for a modest fee. Botswana has the right to decide whom to license but this is largely academic because, in most cases the companies take the initiative hence the need for country competitiveness. For their part, companies take a calculated financial risk and like the Government hope that geologically the odds will be in their favour. However, company exploration programs take time, are costly and risky. An important consideration therefore is long term predictability of legal frameworks and protection of investor rights.

Botswana scores well on this front. To start with, the mining law has only been amended twice in more than 50 years. This stabilizes the legal environment which includes provisions for terms and conditions of tenure for exploration and mining licenses. On the other hand, the law excludes powers of discretion. This empowers technocrats to apply it consistently and without political interference. It creates a level playing field while giving assurances from a governance perspective. The last amendment of 1997 added a retention license which enables investors to defer project development during protracted adverse market conditions. This shows that the Government appreciates that in addition to the nation’s business environment, investors must navigate global market conditions and factor these into its own laws.

Botswana administers a real time and online interactive cadastre portal. This ensures speedy and transparent processing of license applications. System efficiency and process transparency are a strong value proposition to investors and critical for building future investment pipeline. On the other hand, Botswana routinely invests in airborne geophysical surveys and mapping to avail the data to companies cheaply. But Botswana must facilitate online access otherwise the initiative stops short of its goal of efficient information dissemination.

Another important factor is the State’s regard for the law and contracts. It is an essential ingredient for investor confidence and influences perception of risk. For this, investors rely on the experience of those who procced them, and De Beers’ experience is a good indicator. In its more than 50 years of dealings with the company, Botswana has applied the law without any deviation. In addition, periodic contract renegotiations have either been based on pre-agreed agreements or subsequent mutual arrangement and not a unilateral decision by the Government. Both will give comfort to future investors.

Sovereign Entitlements: None of the above is free and the Government’s financial and legal entitlements exceed those of De Beers. Financially, the Government levies royalty and imposes a range of taxes. But tax rates are competitive including an effective corporate tax of 25% since the mid-1990s. The Government also has an automatic right to acquire 15% carried interest that can be negotiate up or downwards. In this respect Botswana is different from many others in that the carried interest is not free. As a shareholder, the Government is guaranteed seats on the board of the company. An immeasurable value of equity is that the Government has an insider’s view of company strategies, benefits from transfer of skills and is able to influence the way the company is run. If one wonders about the merits of State equity, this is an important consideration.

Botswana is pragmatic when considering exercise of its right to equity. The main rationale is usually project economics. Specifically, in the case of marginal deposits and to the degree that the project cannot sustain the additional expectations of returns to more than one shareholder, the right to equity has been forfeited in preference for other economic deliverables like employment and tax. As was the case for soda ash mines, in some cases, the Government meets investors halfway and takes on the burden of funding and maintaining rail, water, power and road infrastructure as part of a mine development project.

The exception to such concessions was the diamond mines that are sufficiently profitable to carry the financial burden and much more. Indeed the Government concluded that the collective economic value of the deposits was significant enough to accommodate a number of fiscal instruments. Firstly, a larger share of equity than the 15% provided leading to a 50% stake. Secondly, a higher royalty rate of 10% relative to the 3 % for other minerals. Finally, upfront payment of development costs by the private shareholder.

An important entitlement to the Government is full access to information and regular reports on the scope of exploration work, mining expenditure and as the case may be. But upon relinquishment of exploration and/or mining rights, the law required that all project data, and mineral samples revert to the regulator and become available to others. The information adds to knowledge of country geology and builds institutional capacity.

Investor Rights: Though Botswana laws rank the country superior on certain rights, as a sovereign and owner of mineral rights, the laws also protects the rights of investors.  So, in some respects, the true test of stewardship of its mineral wealth is how the Government balances its rights with those of investors.

Based on an understanding of the risk companies take through investments in exploration and mine development, Botswana’s Minerals Policy and laws expressly grants mining companies right of first refusal to develop the mineral deposit and the right to recoup development costs. Rights also include split of revenue from the sale of the mineral production. Security of tenure through a mining license, the ability to share fairly in the revenue from product sale and a liberal fiscal regime are three of the most important considerations for choosing an exploration destination. Other countries offer similar rights, but it is policy stability, the political environment and regard for the sanctity of contracts that separates countries.

To be clear, policy stability must not be misconstrued to question the right of Nation States to amend laws. This is essential to meet national development goals, cannot and should not be subjected to corporate strategies. Any debate should therefore be confined to ways to achieve the correct balance and not the State’s right per se.

Capacity to Lead: A capacitated government is an ideal partner and based on its investment in expertise to regulate mining and negotiate contracts. Botswana fares well too on these matters. Tactically, Botswana strikes the right balance between inhouse and external expertise such that purely technocratic skills are inhouse while industry and commercial expertise are outsourced. This is strategic and overcomes the challenge of a government trying to compete with industry specialist or law firms. For instance, the Government employs an independent diamond valuator to audit and value diamonds sold by the JV to De Beers. For more than 30 years the Government retains Slaughter and May ( a prestigious London based law firm), to support officials during negotiation strategies for all mining projects. This might explain the stability of negotiation outcomes such that there has been no litigation over 50 years. The trackreord sends the right signal to other investors too. In the few cases in which there was a legal dispute with a mining company, the Government has always respected decisions of the courts.

Closing The Governance Gap: There is room for improvement including the need to avoid conflict of interest between De Beers and the ruling party that has received donations from the company. Not surprisingly this has also undermined public trust. Equally, though lawful, the winner takes all system in which the Executive Branch excludes Parliament in all negotiations with De Beers is inconsistent with the spirit of good governance and does not auger well for sovereign reputation.

In The Horizon: Botswana’s performance cannot be taken for granted and the question of whether the country will maintain its track recork is an important one. The answer will no doubt be found in future Fraser’s Institute ratings. However, the last round of negotiations with De Beers suggest mixed fortunes. On the one hand they were the subject of uncharacteristic political rhetoric from Botswana’s leaders. On another, they were business as usual with the Government sticking to the letter of the law. Including security of tenure such that the lease for the world’s richest diamond mine, Jwaneng was renewed 6 years in advance to give the investor comfort before investing in resources expansion projects. Time will tell which of these speaks to the Botswana of the future.

Edited by Creamer Media Reporter



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