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Ice cold local market still unperturbed by election hangover

Latest market observation depicts lukewarm local bourse with less action amid hangover from the seemingly unpredictable and uncertain polls. A general notion is that foreign investors are not yet ready or treading carefully not to pop out money and pour it into the local market yet.

The local market has been dogged by illiquidity and this year of elections has been referred by market specialist as “worse than other years,” prompting belief that the issue of former President breaking ranks with his successor before joining opposition could spell the highest political uncertainty for this country, a huge scare for foreign investors.

The market has been shaking at a small movement days before the general elections, just as it has since the beginning of 2019. Stockbroker Motswedi Securities recently said, when opening the week (this after coming from the polls) the market wasted no time getting into the groove of things. The stockbroker further said as volumes traded amounted to 12.6 million shares with a market value of P16.1 million – of which traded across 10 stocks on the domestic main board.

“Leading the trades was Letshego, claiming the bulk of session's liquidity with 10.25 million shares in the name changing ownership, with a worth P8.2 million. The stock's demand has been increasing exponentially, since the price stepped down to where it is now, i.e. its lowest valuation in its history of being listed on the exchange,” said Motswedi.

On Monday only a slight price movement was registered by Barclays bank whose stock climbed 4 thebe in the session to P5.45/share as 71,728 shares moved across the board as investors booked profits. However, the Barclays price rise has no links to the elections aftermath, the slight share price upswing was merely the investors’ reaction to the company’s rise in profits for its current financial year and payment of a net dividend of approximately 12.94 thebe per share.

According to market statistics, just a week coming from elections and last week’s public holidays, 12,591,498 traded on Monday while a turnover was P16 090 407. Just a day before the elections, Motswedi Securities said the market was thrumming with activity jumping from trading 2 121 448 shares on the second week of October to 4 140 699 shares.  

A day before the national polls (22 October 2019), a general observation by Motswedi Securities was that, “investors were trying to make up for the lost next couple of days as the national elections commence. The local equity market traded volumes just above 4.14mn, to get to a turnover of just under P13.83, moving across 14 stocks.”

After the polls, this week, shares in the Botswana Stock Exchange increased its trading by three times, hopping from 4 140 699 to 12,591,498. This could mean investor confidence is slowly being recovered by the local bourse. But market experts remain skeptical of the local market saying it continues to be “slow and inefficient” and illiquid. A lot of experts did not expect the local market to shake much after the elections because it has always been synonymous with illiquidity and it is a very small market.

When making an analysis on African capital markets titled ‘Driving liquidity in African capital markets’, the Botswana Stock Exchange (BSE) Chief Executive Officer Thapelo Tsheole, highlighted limited foreign investor participation as one of the factors contributing to the continent’s susceptibility to illiquidity.

Stockbrokers Botswana recent market commentary, which was done out of the research carried out a day before the elections is that; the Domestic Company Index was flat at 7526.85 points, a similar for the Foreign Company Index which was also flat closing at 1564.54 points. In the elections week, Stockbrokers Botswana said the short trading week saw turnover coming in at P20 845 806 as 6 262 147 shares traded. In that week, the largest contributors to turnover were FNBB (39 percent), Sechaba (25 percent) and Barclays (11 percent).

A previous week before the elections Stockbrokers Botswana said, the Domestic Company Index ticked up by 0.16 percent to close the week at 7472.45. The Foreign Company Index has remained flat for weeks as it closed at 1564.54 points. BTCL was the biggest gainer this week, up 4 thebe to close at 105 thebe. Total turnover for the week amounted to P14 961 093 as 1 846 272 securities exchanged hands. For the ET, NewGold held the lion’s share of turnover with 82 percent. BTCL’s share was 4 percent while Letshego’s was 3 percent.

How the markets fared in a quarter (Q3) towards elections

According to Stockbrokers Botswana’s latest released research on market performance during a quarter before election, Quarter 3(Q3) the Domestic Company Index depreciated albeit at a slower rate, losing 2.12 percent compared to a contraction of 3.34 percent in Q2. ‘’The Domestic Company Index reached a 12-month low of 7397.77 points in August, however, it recovered over September to close Q3 at 7460.95 points,” said Stockbrokers Botswana Q3 research.

According to the stockbroker, the downward movement of the domestic index can mainly be attributed to Letshego which lost 59 thebe (41 percent) during the quarter. Stanchart was the second biggest loser after it lost 13 thebe (12 percent). “Conversely, majority of counters on the Domestic Company Index recorded prices which either increases or no changes at all. Only 7 counters experienced downward price movements during the quarter. The biggest gainer was Letlole which climbed up 16 percent.’’

Also in the third quarter, BTCL joined the top performers for the first time since 2017, appreciating 13 percent to close the quarter at 101 thebe.  In the ETF board NewPlat (+10.9 percent) and NewGold (+10.2 percent) made the top 5 gainers list once again, as seen in Q1 and Q2. Cresta gained 9.1% to reach 132 thebe, which is its highest price since 2011.

According to Stockbrokers Botswana, Total turnover amounted to P458.2 million (Q2 2019: BWP582.2 million) off of an exchange of 130.9 million securities (Q2 2019: 101.5 million securities). The lion’s share of these figures was held by Far Property Company (FPC), following a related party transaction which accounted for 50 percent of total turnover and 70 percent of total volume, said Stockbrokers Botswana. Just like what observers have been saying about this elections year, StockBorkers Botswana said low trading can only suggest that the market remained starved of liquidity in the third quarter, the period of the polls.

In Q3, Stockbrokers said, the market capitalization declined 6 percent to BWP38.5 billion (Q2 2019: BWP40.8 billion). This was weighed down by losses in Letshego and Stanchart, as well as the Wilderness delisting which occurred in the beginning of July. Stockbrokers Botswana said, weighted P/E Ratio was marginally lower at 11.2x (Q2 2019: 11.3x) while dividend yield was 5.5 percent from 5.3 percent in the last quarter.

Moody’s vindicated or is still early?

While other think tanks predicted BDP to win with a slight margins and elections to be chaotic, the US Moody’s before the polls said Botswana will not head to any political instability. Moodys said it expects limited election-related policy uncertainty in Botswana, Namibia, Senegal and Ghana, “given their track records of political stability.”

While there was no uproar after the election results were released, most in the opposition front are skeptic of how elections were run. Some allege the elections were flawed and unfair, accusing the elections body to have fraudulently swayed election win to the ruling BDP.  A court application against the results is said to be looming, raising much political uncertainty hence further investor fright which has been worse since the beginning of this year. This might dent Moody’s trust on Botswana which calls this country politically stable, this is if things go out of control.

BDP won this year’s elections by 51 percent and this contradicts Africa’s leading bank by assets Standard Bank’s prediction which said while BDP will win, it will be without an outright majority. The bank said an ongoing feud between the current President and his predecessor has wrought political unrest in the country. However the bank was still hopeful of Botswana even before this month’s polls saying: “We view the current political turmoil as temporary; we expect no significant deviation from the current economic policy, even if the BDP lost the election.”

Most surveys and researches predicted that the 2014 elections in which BDP’s 46 percent vote will shrink even further. BDP got a popular vote of 53.3 percent in 2009. According to Afrobarometer survey conducted in July/August 2019, BDP would enjoy a 2-to-1 lead over the opposition UDC 44 percent to 22 percent. Many have been caught by surprise with this year’s elections because many predicted lower than 46 percent lead by BDP, given the damage caused by its former leader Ian Khama. Some even predicted a “hung parliament.” That is why the election results remain debatable and doubtful to some while few accepted results.

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Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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