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Sub Saharan resource based economies in trouble – IMF

Sub Saharan countries which have their economies pivoted and anchored on resource intensive revenue streams – predominately those with undiversified profiles will be negatively affected by the current slow growth experienced in the world economic space.

This is according to the International Monetary Fund (IMF) Sub Saharan Africa Regional Economic Outlook report released this week. The outlook states that growth in Sub-Saharan Africa is projected to remain at 3.2 percent in 2019 and rise to 3.6 percent in 2020.IMF Africa Director Abebe Aemro Selassie says the expected recovery, however, is at a slower pace than previously envisaged for about two-thirds of the countries in the region, partly due to a challenging external environment on the global economic sphere.

Growth is projected to remain strong in non-resource-intensive countries, averaging about 6 percent. “As a result, 24 countries, home to about 500 million people, will see their per capita income rise faster than the rest of the world,” he said when deliberating on the outlook on Monday. In contrast, growth is expected to move in slow gear in resource-intensive countries reaching low levels of 2.5 %. Mirroring 21 countries will have per capita growth lower than the world average by 0.5 %.

Sub Saharan African countries with resource intensive economies are anticipated to receive a hard hit from subdued activity in the global manufacturing sector which is currently negatively affected by trade wars and geo-political tensions. About 21 countries in Sub Saharan African region have their economies depend on natural resource such as oil, mineral revenue; etc.

In the case of Botswana which largely depends on mineral revenue, in the main diamond industry, growth is expected to be shaken by the current depression in the global diamond market where there is lack of appetite by manufactures for new stones. On Inflation IMF says figures are expected to go ease going forward. While the average sub-Saharan African-wide debt burden is stabilizing, elevated public debt vulnerabilities and low external buffers will continue to limit policy space in several countries.

IMF Africa says the regional outlook faces further downside risks. Abebe Aemro Selassie underscored that  external headwinds have intensified compared to April ,explaining that this  include the threat of rising protectionism, a sharp increase in risk premiums or reversal in capital inflows owing to tightening global financial conditions, and a faster-than-anticipated slowdown in China and in the euro area.

For Sub Saharan Africa near-term downside risks include climate shocks, intensification of security challenges, and the potential spread of the Ebola outbreak beyond the Democratic Republic of the Congo. In addition, fiscal slippages, including those ahead of elections in some countries, and a lack of reform in key countries could add to deficit and debt pressures.

The International Monetary Fund says over the medium term, a successful implementation of structural reforms, including in the context of the African Continental Free Trade Area (AfCFTA), could pose significant upside risks. “Reducing risks and promoting sustained and inclusive growth across all countries in the region requires carefully calibrating the near-term policy mix, building resilience, and raising medium-term growth,” advised IMF Africa Director Abebe Aemro Selassie.

The Sub Saharan Regional Economic outlook suggests that for African economies to realize significant growth amid external shocks a three-pronged strategy that reduces risks and promotes sustained growth across all countries has to be put in place. The IMF says this will require carefully calibrating the near-term policy mix considering the fact that amid limited buffers and elevated debt vulnerabilities in some countries, policymakers have limited room for maneuver to counter external headwinds.

“The room for supporting growth remains mainly on the monetary policy side and is restricted to countries where inflation pressures are muted and growth is below potential,” observed Abebe Aemro Selassie. The IMF Africa department Head further observed that in the event downside risks materialize, fiscal and monetary policy could be carefully recalibrated to support growth, in a manner consistent with debt sustainability and available financing, and as part of a credible medium-term adjustment plan.

Selassie notes that in countries that are growing slowly, the pace of adjustment could be made more gradual, provided financing is available, or its composition fine-tuned to minimize the impact on growth. “In fast-growing countries that are facing elevated debt vulnerabilities, the priority remains rebuilding buffers,” he said. The IMF also recommends that Sub Saharan countries build resilience in their structural reforms. The Global think tank is of the view that this would help the region sustain longer episodes of strong growth.

“Building resilience, to weather-related, health, and security challenges, would require mobilizing domestic revenue, streamlining inefficient subsidies, and improving public financial management to strengthen sovereign balance sheets and create fiscal space for development needs.” It is further noted that promoting economic diversification, improving macroeconomic policy frameworks, and reducing nonperforming loans (NPLs) would also reduce countries’ vulnerability to shocks.

In raising medium-term growth the Outlook observes that raising per capita growth rates, especially for resource-intensive countries, is essential to sustain improved social outcomes and create jobs for the 20 million new entrants poised to join labor markets every year. “Comprehensively tackling tariff and nontariff barriers in the context of the AfCFTA, developing regional value chains, and implementing reforms to boost investment and competitiveness could lift the region’s medium-term growth” recommends the report.

The IMF Africa department also observed in the outlook that most of Sub Saharan African countries are not competitive when comes to being investment destinations, when compared to most parts of the world. The outlook states that although there is considerable heterogeneity across countries, more than 70 percent of the countries in the region are in the bottom half of countries globally in terms of competition indicators.
“Firm markups are about 11 percent higher in sub-Saharan African countries relative to other emerging market economies and developing countries and are more persistent” says IMF.
The regional outlook further observes that state-owned firms in the region are also more prevalent. Abebe Aemro Selassie says it is research proven  that increased competition can boost real per capita GDP growth rate by about 1 percentage point through improved export competitiveness, productivity growth, and investment.
The IMF also says domestic arrears in Sub Saharan Africa have been pervasive in many countries, reflecting weak public financial management. Furthermore, arrears have increased in recent years to about 3.3 percent of GDP in 2018, following the 2014 commodity price shock. However, despite the prevalence of arrears, the report says their causes, effects, and consequences are not well understood.
The IMF study has found that domestic arrears negatively impact private sector activity and the delivery of social services while increasing banking sector vulnerabilities and undermining citizens’ trust in the government. “Arrears also weaken the ability of fiscal policy to support growth, casting doubt on the merit of relying on arrears financing to avoid spending cuts.”

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Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020
Foschini

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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