Appendix

APPENDIX 1:DETAILED MODELLING METHODOLOGY

OVERVIEW

PwC completed the data capture and modelling for this report using internationally recognised methodology, as detailed below and illustrated in Figure 15.

The Partnership’s contribution is defined in terms of its contribution to GDP and employment supported.

Contribution to GDP is measured in terms of Gross Value Added (GVA). GVA is a monetary measure of the value a company adds during its production process. Hence, it is the difference between the price of its products (outputs) and the price of the inputs it uses in producing these (or intermediate consumption).

Adding up the GVA of all individual companies in the economy is equivalent to a country’s GDP after adjusting for taxes and subsidies on products, a component of GDP which is not included in the calculation of GVA. As such, GVA is the company- and industry-level equivalent of GDP.

The contribution to GDP and employment is estimated at the direct, indirect and induced levels. The direct contribution results from the company’s own operations, and includes the people employed directly by a company as well as the economic value the company creates. The indirect contribution is generated in a company’s supply chain through the procurement of inputs. The induced contribution is generated through the spending by employees throughout the value chain from their earnings. It includes the spending of both the Partnership’s own employees and those in its supply chain. In our report, these contributions have been called direct, supplier expenditure and employee expenditure to make it easier for readers not familiar with the economic terminology.

The Partnership’s direct contribution to GDP is measured using an income approach from data contained in each entity’s financial accounts, which are prepared on an accruals basis for the financial year rather than relating to the cash spent during the year. The following equation is used:

Direct contribution to GDP= (profit before interest and taxation + employee costs + deprecation + amortisation)

FIGURE 15: CALCULATING THE PARTNERSHIP’S ECONOMIC IMPACTS

APPROACH TO ESTIMATING INDIRECT AND INDUCED ECONOMIC CONTRIBUTION

Indirect and induced economic contributions are estimated using an input-output model which was constructed using an input-output table of the Botswana economy.

The input-output table provides information on each sector’s intermediate consumption. Intermediate consumption is the value of the goods and services consumed as inputs by the process of production. It is assumed that the intermediate consumption values from the input-output table are typical of the average inputs a business in each sector requires for producing one unit of output. This enables an understanding of how industries relate to each other. On this basis, it is possible to estimate how spending by one company stimulates economic activity elsewhere in the economy.

The indirect contribution is estimated using the Partnership’s operational expenditure data. This spending data is then mapped to a sector of the economy. It is therefore possible to estimate each supplier’s inputs from other sectors required to produce the product or service purchased by the Partnership. In this way, it is possible to estimate the Partnership’s input requirements through the entire supply chain, and to estimate the total output stimulated. This process of one company stimulating economic activity in other companies is referred to as the multiplier effect.

In addition to the indirect and induced effects, an input-output table provides data on the share of output that constitutes profit and wages for each sector. This ratio can be applied to the total output stimulated. Hence, the total GVA in the supply chain can be estimated.

Similarly, the input-output tables have been combined with sectoral employment data. As the output stimulated in each sector is known, it is possible to estimate the output to employment ratio. This can be applied to the total output stimulated in the supply chain. This allows the employment supported in the supply chain (the indirect employment) to be estimated.

These steps are repeated to estimate the induced contribution, but by using compensation of employee data to estimate how much production is stimulated in the supply chain that supports the products employees buy, eg, accommodation, food and entertainment.

MODEL DATA SOURCES

The input-output model is based on an input-output table built in 1993/94. Input-output tables are typically based on data collected through business surveys undertaken by national statistics offices on an infrequent basis. The reference 1993/94 input-output table has therefore been combined with national statistical data for 2014 (or the latest available where 2014 data is not yet released). A list of data used is provided in the Table 1 below.

While 2014 data is used to inform the total size of each sector of the economy, it does not capture how relationships between sectors have changed. The distribution of spending between sectors is therefore based on the 1993/94 reference table.

Estimating an input-output model for a recent year is difficult. A standard approach is to start with a consistent input-output table for a particular prior period and to update it for a later period. Updates were made to labour and capital productivity and the GVA of different sectors from the national accounts. Information on intermediate consumption – buying and selling – between sectors still depends on the original data.

This approach is described in Robinson, Cattaneo and El-Said (1998) and is used in several recent studies (eg, Sanjay et al (2013) and Arita et al (2013)).

TABLE 1: KEY DATA SOURCES FOR INPUT-OUTPUT MODELS

KEY ASSUMPTIONS AND NOTES

All data presented is in 2014 prices.

All analysis is done in gross terms. The net contribution of the Partnership to the economy is not assessed.

Data from De Beers and Anglo American has been used to perform this analysis. PwC has not tested or audited any of the data provided by De Beers, and PwC provides no assurance over that data or any outputs based on that data.

Where 2014 national statistics are not available, 2014 estimates have been derived using the latest data available, scaled by the growth rate of GVA over the period that is missing.

DBGSS is currently not captured in the national accounts. DBGSS’s direct contribution to GDP has therefore been added to the GDP data provided by the statistics authorities.

The latest employment data for Botswana only captures formal employment. The People and Housing Census conducted in 2011 provides the latest complete picture of total employment in Botswana. To estimate how this has changed, the ratio of formal to informal employment is calculated and is assumed to have remained constant since 2011. This ratio has been applied to the 2014 formal employment data to estimate the total employment in Botswana.

De Beers is a group of entities. Payments made between the Partnership’s entities are not included in intermediate consumption tables to avoid double counting contributions. These payments are adjusted using an Inventory Valuation Adjustment approach, in which they are treated as inventory rather than intermediate consumption.

Non-cash accounting items have been removed from the Partnership’s income statements as agreed with De Beers. This is to make sure the analysis only captures the contribution of the Partnership’s spending in Botswana.

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