Debswana places multi-billion pula bet on local

Mbongeni Mguni | Monday May 16, 2022 04:53

Debswana’s targets for its Citizen Economic Empowerment Programme (CEEP) are bold. Having started CEEP in 2019, the country’s premier diamond producer plans to reach P20 billion in citizen spend value by 2024 and create 20,000 citizen jobs in the process.

The targets are the most ambitious transfer of citizen value creation in the history of the country’s minerals sector, an industry where procurement registries are dominated by large, well-established multi-national entities and other foreign titans.

By 2024, Debswana wants 50% of its massive procurement budget to be spent on citizen companies and officials say progress is well on track.

“The target for this year is 40% and at the moment we are at 37%,” says Wanatsha Moakofi, Debswana’s senior projects manager.

“Our local procurement consists of citizen and non-citizen spend, while the external procurement is where the multinational companies come in.

“At the moment, about 90% of our procurement is local, with the citizen spend accounting for 37%.

“Our target is to raise the latter to 50% by 2024.”

Achieving this transformation is a Herculean feat which involves identifying and empowering targeted citizen entrepreneurs, easing previous suppliers out of the procurement registry while at the same time ensuring adherence to Debswana’s world-class quality and value standards.

As CEEP has gained momentum, its impact has made headlines such as recently when Debswana announced a five-year partnership with Botswana Oil under which P8 billion in the procurement of fuel and transportation logistics will be hived off to citizen suppliers.

The partnership will also create opportunities for support services along the oil value chain, such as truck staging, truck stops, tyre services, wash bays, truck service, maintenance jobs, and other related support activities for Batswana.

Debswana’s operations use about 100 million litres of fuel a year, which equals between 10% and 12% of the country’s total fuel consumption. The Botswana Oil deal, Moakofi says, is this year’s ‘big ticket item’ under CEEP and a prime example of the programme’s objective of sharing value with citizens.

“The first phase of CEEP was driven by localising services so that Batswana can participate in the mining industry and the second phase is about integration into the value chain with local manufacturing where we want to consume locally produced goods and leverage our supply chain so that they can go out and manufacture.

“The third phase is about legacy.”

Under CEEP, citizen companies are being engaged in drilling, crushing, explosives, tyre services management, truck maintenance, as well as waste management and others. Thus far, 90 citizen-owned companies have benefitted under CEEP and through partnerships with the Botswana Chamber of Mines (BCM) and the UNDP’s supplier development programme, entrepreneurs are being empowered to take on the opportunities.

An economic giant using its procurement muscle to empower citizens is not unique to Debswana. Government’s own Economic Diversification Drive (EDD), established in 2011, is designed to use the State’s enormous purchasing power to enhance local production and consumption through local procurement.

The EDD has encountered its share of troubles in shifting procurement to citizens. Ellen Galetshetse, principal commercial officer at the Economic Diversification Unit previously decried the tendency of local companies to overprice their supplies and engage in illicit conduct in procurement. Associated with this is the trend of low-quality supplies being delivered to government whether for consumables or capital projects, which often leads to prolonged contract disputes that add costs to the original budget.

“We have seen business capacity constraints, unreliable supply, uncompetitive pricing, limited range of products and imports of similar goods to complement a running tender,” Galetshetse said.

“With imports of similar goods, you find someone with a tender to produce 1,000 tables only producing 200 then importing 800 similar ones and supplying them as if they produced them.

“This practice is widespread on the ground and we see it. We order from a manufacturer and they go around the corner and import.

“This will not grow your business or the industry.”

She added: “We have seen that even a bottle of water that costs P5, if it comes to government, then it becomes higher.

“Why are you changing the price?

“Your goods should be competitively priced.”

Debswana’s CEEP is facing not only similar threats, but also the added challenge of unseating the established titans and asking them to make space for citizen entrants. CEEP’s first big-ticket item, according to Moakofi, was the January 2021 takeover of the P15.7 billion Cut 9 project, essentially taking the contract from the Majwe Mining consortium to an “owner mining operation”.

At the time, Debswana said key services and resources, such as labour, would be provided by contractors/service providers in line with CEEP, but the change triggered a furore, as not all the Majwe Mining workers were absorbed under the new arrangement.

More recent moves to insource the maintenance of the mining equipment in partnership with citizen companies have resulted in Debswana lapsing the contracts of established equipment manufacturers such as Barloworld Equipment, Komatsu, Kanu Equipment, and Epiroc.

Like the Majwe contract issue, Debswana is reluctant to guarantee that it will absorb any jobs that could be shed as a result of the changes, an issue that has angered the Botswana Mine Workers Union.

CEEP critics say the transformation could lead to empowerment of a few wealthy tenderpreneurs who form cartels around Debswana’s procurement and do not spread the benefits to other Batswana. As noble as Debswana’s intentions are, the critics argue that tenderpreneurs are notorious for underpaying workers, narrowing benefits to themselves and overpricing their supplies and services.

Moakofi says Debswana is alive to the threats and has taken the appropriate steps.

“For starters, Debswana is a value-driven organisation and one of these values is ‘Show You Care’.

“We have standards such as those around social on how you treat your resources including workers, how they are paid, where they stay, and these come standard in each and every contract we enter into.

“There must be a transfer of value, creation of employment both in terms of quantity and quality, including women and the youth.

“You have to show that you are paying a certain salary with standards around the quality of goods and services provided.”

He adds that Debswana’s contracted suppliers are required to adhere to its values, which include setting aside a portion or at least one percent of revenue for social programmes.

On pricing and other related threats, Moakofi says Debswana’s supply chain operates on a merit and competition basis where both best price and quality are considered. In addition, the diamond giant expects that its partnership with banks should help bring costs down for the citizen companies that will provide goods and services under CEEP.

“We have partnered with the banks to provide access to funding and they have pledged P4.7 billion to help Batswana under CEEP,” he says.

“Usually, someone who has borrowed from elsewhere may pass that cost onto the buyer but this time, there is easy access to that funding from the banks.

“Our partnerships with BCM and others are also teaching our suppliers how to price their costs.

“Our own supplier development programme explains that there is a certain duration where someone can be developed and there’s understanding that this is a development programme and that it takes time.”

Debswana is carefully tracking these Key Performance Indicators as more CEEP tenders hit the market ahead of the 2024 target of delivering the mining industry’s most ambitious transformation initiative.