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Firms expects credit to be less accessible in 2020

About 100 firms have revealed their shyness to take credit facilities from lenders mainly because they consider the domestic interest rates to be high and loans to be less accessible.

This is according to Bank of Botswana’s recent Business Expectations Survey (BES) for this period. This survey looked at a businesses  This report presents results of the survey carried out in the fourth quarter of 2019, covering the fourth quarter of 2019 (Q4:2019 – the current period); the first quarter of 2020 (Q1:2020); and the twelve-month period (M12) from January 2020 – December 2020 (Q1:2020-Q4:2020).

“Firms in the domestic and export-oriented markets perceived access to credit to be tight in the fourth quarter of 2019, mainly because they consider the domestic interest rates to be high,” says the survey. The survey further states that  despite anticipating tight access to credit in the domestic market the anticipated increase in borrowing volumes is consistent with the expected rise in investment, especially in plant and machinery covering.

Firms expect to focus on increasing investment in buildings, plant and machinery, vehicles and equipment in the first quarter of 2020 but are anticipating tight access to credit in the domestic market, hindrance to their performance. According to the business expectations report, the increase in lending rates goes with anticipation of increase in borrowing volumes and this spike rise in investment, especially in plant and machinery.

As revealed in the current businesses survey, firms targeting the domestic market prefer to borrow money from the domestic market in the first quarter of 2020. However export-oriented firms prefer to borrow from the international markets other than South Africa also intending to reduce their borrowing from the domestic market.

Sixty-eight percent of firms that contribute to the domestic economy have complained that there is less availability and accessibility of the required loan products as the basis for their borrowing decisions. But 32 percent of businesses irrespective of whether funds would be sourced from Botswana or elsewhere would borrow if the credit facility is affordable, overlooking at the fact whether the loan is available or accessible.

With difficulty in accessing credit and finance, especially from abroad, businesses also decried unavailability of skilled labour which was cited as the greatest challenge facing businesses in the fourth quarter of 2019. This was also put together with difficulties in recruiting foreign skilled labour by most of the local businesses. The lack of skills is prevalent in manufacturing, trade, hotels, restaurants, transport and communications sectors. Firms in the manufacturing sector cited shortage of raw materials as the greatest challenge to their business operations.

Matsheka takes on the suitcase for the first time amid business community high expectations

When finance minister Thapelo Matsheka takes on the red carpet of Parliament buildings in a suit seemingly almost specifically accustomed for the much publicized national event while clenched to the symbolic black suitcase, the business community is expected to the most attentive of the audience.

In the recent businesses survey results firms show less optimistic about economic activity in the fourth quarter of 2019 compared to the third quarter of 2019. As the third quarter of 2019 shows Botswana to be on trade deficit, businesses also expected a decrease in exports of goods and services; sales; and investment in buildings, vehicles and equipment in the fourth quarter of 2019. Firms expect cost pressures to be subdued in the first quarter of 2020, the time of the launch of the 2020/21 financial year which will be kick-started by Matsheka who will be making a debut as a minister in the finance ministry.

Inflation

The firms expect cost pressures to be subdued in the first quarter of 2020 and this is attributable to the expected downward pressure on rentals, wages and transport costs. There is also expected rise in public wages (last year salary hike was for two years) and this will come with the burden of upward pressure on private sector wages. But Firms expect inflation not to escape the 3-6 percent objective range.

According to a survey on businesses, firms expect cost pressure to fall slightly in the first quarter of 2020, reflecting the anticipated downward pressure on rentals, wages and transport costs. Despite this, firms do not expect any inflationary effect but believe inflation will remain stable, within medium-term objective range of 3 – 6 percent.

Hope in 2020

The survey was not without a gleam of hope as business conditions are perceived to improve in the first quarter of 2020, which is now. “Firms anticipate improvements in capacity/resource utilization; production/service capacity; stocks/inventories; exports of goods and services; profitability; employment; and investment in plant and machinery, buildings, vehicles and equipment in the first quarter of 2020.

These, in combination with expectations of increased growth in the trade, hotels and restaurant and mining sectors contribute to the improved expectations relating to the overall business conditions,” said a survey on firms. The domestic market-oriented firms’ optimism improves in both the first quarter of 2020 and the twelve-month period to December 2020 (M12) compared to the fourth quarter of 2019, according to the recent survey.

According to BES, confidence in the domestic market-oriented firms is mainly driven by the trade, hotels and restaurants, transport and communications and the finance and business services sectors. Export market-oriented firms’ optimism decreases in the first quarter of 2020 compared to the fourth quarter of 2019, but improves for the twelve-month period to December 2020 (M12), according to the survey.

“Firms expected the economy to have grown by 3.3 percent in the fourth quarter of 2019, lower than 3.5 percent growth projected for the third quarter of 2019. These developments were reflected in responses by firms in the trade, hotels and restaurants and transport and communications, the construction as well as the manufacturing sectors the finance and business services and mining and quarrying sectors were optimistic about economic activity in the fourth quarter of 2019. Meanwhile, the GDP estimates indicate that the economy grew by 3.1 percent in the third quarter of 2019,” said the survey on firms.

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Business

Botswana records first trade surplus since January

7th October 2021
Botswana-records-first-trade-surplus-

Botswana has recorded its first trade surplus for 2021 since the only one for the year in January.

The country’s exports for the month of July surpassed the value of imports, Statistics Botswana’s July International Merchandise Trade data reveals.

Released last Friday, the monthly trade digest reports a positive jump in the trade balance graph against the backdrop of a series of trade deficits in the preceding months since January this year.

According to the country’s significant data body, imports for the month were valued at P7.232 billion, reflecting a decline of 6.6 percent from the revised June 2021 value of P7.739 billion.

Total exports during the same month amounted to P7.605 billion, showing an increase of 6.1 percent over the revised June 2021 value of P7.170 billion.

A trade surplus of P373.2 million was recorded in July 2021. This follows a revised trade deficit of P568.7 million for June 2021.

For the total exports value of P7.605 billion, the Diamonds group accounted for 91.2 percent (P6.936 billion), followed by Machinery & Electrical Equipment and Salt & Soda Ash with 2.2 percent (P169.7 million) and 1.3 percent (P100.9 million) respectively.

Asia was the leading destination for Botswana exports, receiving 65.2 percent (P4.96 billion) of total exports during July 2021.

These exports mostly went to the UAE and India, having received 26.3 percent (P1. 99 billion) and 18.7 percent (P1.422 billion) of total exports, respectively. The top most exported commodity to the regional block was Diamonds.

Exports destined to the European Union amounted to P1.64 billion, accounting for 21.6 percent of total exports.

Belgium received almost all exports destined to the regional union, acquiring 21.5 percent (P1.6337 billion) of total exports during the reporting period.

The Diamonds group was the leading commodity group exported to the EU. The SACU region received exports valued at P790.7 million, representing 10.4 percent of total exports.

Diamonds and Salt & Soda Ash commodity groups accounted for 37.8 percent (P298.6 million) and 6.2 percent (P48.7 million) of total exports to the customs union.

South Africa received 9.8 percent (P745.0 million) of total exports during the month under review. The Diamonds group contributed 39.9 percent (P297.4 million) to all goods destined for the country.

 

In terms of imports, the SACU region contributed 62.7 percent (P4.534 billion) to total imports during July.

The topmost imported commodity groups from the SACU region were Fuel; Food, Beverages & Tobacco, and Machinery & Electrical Equipment with contributions of 33.3 percent (P1.510 billion), 17.4 percent (P789.4 million) and 12.7 percent (P576.7 million) to total imports from the region, respectively.

South Africa contributed 60.1 percent (P4.3497 billion) to total imports during July 2021.

Fuel accounted for 32.1 percent (P1.394 billion) of imports from that country. Food, Beverages & Tobacco contributed 17.7 percent (P772.0 million) to imports from South Africa.

Namibia contributed 2.0 percent (P141.1 million) to the overall imports during the period under review. Fuel was the main commodity imported from that country at 82.1 percent (P115.8 million).

During the months, imports representing 63.5 percent (P4.5904 billion) were transported into the country by Road.

Transportation of imports by Rail and Air accounted for 22.7 percent (P1.645 billion) and 13.8 percent (P996.2 million), respectively.

During the month, goods exported by Air amounted to P6, 999.2 million, accounting for 92.0 percent of total exports, while those leaving the country by Road were valued at P594.2 million (7.8 percent).

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Business

The 2021/2022 Stanford Seed Transformation Program Begins

7th October 2021

Founders from twenty companies have been accepted into the program from Botswana, Namibia, and South Africa

The 4th Cohort of the Stanford Seed Transformation Program – Southern Africa (STP), a collaboration between Stanford Graduate School of Business and De Beers Group commenced classes on 20 September 2021. According to Otsile Mabeo, Vice President Corporate Affairs, De Beers Global Sightholder Sales: “We are excited to confirm that 20 companies have been accepted into the 4th Seed Transformation Programme from Botswana, Namibia, and South Africa. The STP is an important part of the De Beers Group Building Forever sustainability strategy and demonstrates our commitment to the ‘Partnering for Thriving Communities’ pillar that aims at enhancing enterprise development in countries where we operate in the Southern African region”. Jeffrey Prickett, Global Director of Stanford Seed: “Business owners and their key management team members undertake a 12-month intensive leadership program that includes sessions on strategy and finance, business ethics, and design thinking, all taught by world-renowned Stanford faculty and local business practitioners. The program is exclusively for business owners and teams of for-profit companies or for-profit social enterprises with annual company revenues of US$300,000 – US$15million.” The programme will be delivered fully virtually to comply with COVID 19 protocols. Out of the 20 companies, 6 are from Botswana, 1 Namibia, and 13 South Africa. Since the partnership’s inception, De Beers Group and Stanford Seed have supported 74 companies, 89 founders/CEOs, and approximately 750 senior-level managers to undertake the program in Southern Africa.

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Business

Minergy overcomes challenges – improves revenue and produces record breaking coal sales to date

7th October 2021
Minergy

Minergy, the coal mining and trading company with the Masama coal mine, this week released results for the year ended 30 June 2021. The company achieved revenue of P193 million (2020: P81 million) with significant improvement in sales volumes surpassing 415 000 tonnes sold for the year.

The performance was divided into two distinct periods with very different operating environments. The first eight-month period (July 2020 – February 2021), was negatively impacted by delayed funding, COVID-19 impacts and excessive rain; and the last four-month period (March – June 2021), was a more stable production environment moving toward nameplate capacity.

According to Minergy CEO, Morné du Plessis, production and sales initially recovered in July and August 2020 with the easing of COVID-19 restrictions and recoveries were further bolstered by the successful launch of the rail siding. Delays experienced in concluding the funding contributed to contractors limiting operations to manage arrears.

“However, the heavy rains we experienced from December 2020 through February 2021 flooded the mine pit making access difficult and impacting both production and sales. Fortunately, the rain subsided in March 2021, and we entered a more stable environment, with a positive impact on operations. Good recoveries in production and sales were experienced during the last four-month period of the year, with the mine moving closer toward a breakeven position.”

“Despite these operational constraints, including the effects of COVID-19 on logistics and manning of shifts, we expect to reach consistent nameplate capacity in the 2022 financial year,” du Plessis added.

FINANACIAL REVIEW

In addition to the revenue reported above, the company incurred costs of sales of P256 million (2020: P150 million) with operating costs of P23 million (2020: P31 million). This effectively resulted in an operating loss of P86 million (2020: P100 million). Finance costs of P51 million (2020: P17 million) were incurred, bringing the net loss before taxation to P136 million (2020: P117 million).

Du Plessis explains that the adverse conditions in the first eight-month period contributed to 86% of the gross loss, while the more stable four-month period alone contributed to 50% of total sales value, helping to decrease monthly gross losses, albeit below breakeven levels.

The company benefited from a strengthening in the South African Rand (“ZAR”) supporting higher back-on- mine sales prices.

“As announced, we’re pleased to have secured P125 million of additional convertible debt funding through the Minerals Development Company Botswana (Proprietary) Limited (“MDCB”). Minergy remains grateful for this support.”

He added that the first tranche of additional funding provided by the MDCB had been received in December 2020, which allowed Minergy to settle the majority of the contractor’s arrears and allowed their teams to be remobilised. The second and final tranche was paid post the financial year-end and will allow the business to reach nameplate capacity in the new financial year.”

COAL SALES AND MINE PERFORMANCE

Sales volumes increased by 110%, supported by increased sales in Botswana and internationally in South Africa and Namibia. Sales for June 2021 exceeded 56 000 tonnes, a record since the inception of the mine, with pricing increasing late in the financial year on the back of buoyant international prices and a strengthening ZAR.

Minergy also concluded a further 12-month off-take agreement to the existing off-take agreement, with a further agreement finalised post year end.

Overburden moved during the reporting period increased by 86% and extracted coal by 50%. Coal mined in June 2021 alone exceeded 100 000 tonnes. “This is a good performance considering the challenges faced such as sacrificing pre-stripping activities for a period to manage arrears, excessive rain and COVID-19,” du Plessis indicated.

“The wash plant was initially starved of coal due to the factors noted already. Despite this, overall plant throughput performance was 37% higher than 2020. Consistent output was supported by the completion of the Stage 2 rigid crushing section as well as the water saving dewatering screen with filter press contributing to a reduction in water usage of 60% per tonne of coal. A record throughput of more than 84 000 tonnes was achieved in March 2021 and this consistency has been maintained.”

OUTLOOK

According to du Plessis, the completion of Stage 4 of the Processing Plant, the rigid screening and stock handling section, remains a key optimisation step, which has associated benefits. “The completion was unfortunately delayed by a southern African wide shortage of structural steel but was commissioned post year-end.”

Minergy expects the positive momentum in international coal pricing for southern African coal to remain in place. Higher coal prices have resulted in coal being withdrawn from the inland market in favour of lucrative international markets. Du Plessis added that the regional market is currently under- supplied with sized coal, which supports higher pricing and new customer opportunities for Minergy.

“Our objective for the 2022 financial year is to achieve nameplate capacity by completing final ramp-up of operations. This will enable the company to generate sufficient cash flow to stabilise the business at breakeven or better. The bullish coal market is also providing support. COVID-19 will still be closely managed, and we look forward to the lifting of the State of Emergency, as announced, and trust that vaccination programmes will achieve herd immunity in Botswana during the next 12 months.”

Du Plessis expressed his excitement on prospects stating that, “The Eskom due diligence process is continuing, and we are hopeful of receiving feedback during the current financial year. In addition to this opportunity, Minergy is also investigating participation in the request by the Government of Botswana to provide a 300MW power station for which the company has been shortlisted.”

The approved process to issue shares for cash is showing positive leads and he concluded by saying that a listing in London is still being investigated.

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