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Struggling manufacturing sector failing to pay banks

Manufacturing industry, often regarded as the ‘black sheep’ of this country’s economy for its stunted growth and meager contribution to the nation’s GDP, is a big culprit to the impairment of the local banking sector as it fails to pay loans.

According to Bank of Botswana’s Banking Supervision Annual Report 2018, manufacturing and trade continued to dominate the private business Non Performing Loans (NPLs) in 2018, accounting for 29.5 percent of the private business NPLs. The culprits were not small players as the Bank of Botswana report said, the increase in NPLs was mainly due to the default by a few large corporate clients of some banks.

Manufacturing accounts for 4 percent of the nation's GDP and is contributing to upward trend in NPLs. There have been plans for many years to improve the growth of the manufacturing industry in this country. The latest report suggest that manufacturing businesses either cannot fulfill debt obligations or collapse before paying borrowings, leaving banks with impaired loans. 

When making a report on sectoral distribution of private business Non-performing Loans and Advances for years (between 2014 and 2018), the central bank said the NPLs in the manufacturing subsector has been growing for years. In 2014 NPLs were at 9 percent, 2015 at 8.5 percent, 2016 up with 10.6 percent. In 2017 the NPLs increased three times from 2016 with 30.9 percent, while during the year under review they were still up albeit falling by 1.4 percent.

Following the manufacturing subsector-in industries which fail to pay loans are; the restaurants and bars with 17.2 percent, then business services with 10.3 percent and in third place, is the construction subsector with 10 percent. The private businesses entities accounted for 51 percent, household which is predominantly unsecured loans accounted to 47 percent, while public sector 2 percent of total NPLs in 2018.

“In an environment of faster annual growth in credit during the year, the banking asset quality, as measured by non-performing loans, deteriorated marginally,” said Bank of Botswana Governor Moses Pelaelo. At the end of this year’s first quarter, FNBB released its year ended December 2018 and revealed that it has difficulty collecting interest and principal on their credits with a reflection of the non-performing loans (NPL) to gross advances ratio increasing from 6.6 percent to 7.6 percent year-on-year, with the NPL exposure increasing to P1.26 billion.

“This significant growth in NPLs is largely due to the deterioration of certain high-value FNB business segment exposures, and the relegations that have been experienced in the FNB Retail and WesBank segments,” explained FNBB directors in the financial report. While gross loans and advances grew by 7.7 percent from P54.2 billion in 2017 to P58.3 billion in 2018, a faster increase than 5.6 percent in 2017, the asset quality of the banking sector deteriorated as evidenced by the small increase in the ratio of non-performing loans (NPLs) to gross loans and advances from 5.3 percent in December 2017 to 5.5 percent in 2018.

According to Banking Supervision Annual Report 2018 ratio of non-performing loans (NPLs) to gross loans and advances ranged between 1.3 percent and 10.4 percent for the banking sector. The need to develop a diversified and robust manufacturing sector is a key agenda in government efforts to identify potential growth areas beyond the exploitation of its mineral wealth, which has been central to its transformation into a middle-income country, but which at the same time makes it susceptible to the vagaries of a fickle global economic order.

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China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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