The property market in Botswana remains subdued due to the economic climate prevailing in the country resulting in little demand for space from new investors, a property investment company has announced.
In its 31 January 2019 financial report released this week, the Botswana Stock Exchange (BSE) listed company, Turnstar Holdings said a slow-down had been recorded in companies not opening new retail stores in the country. Addressing shareholders and the media at the Turnstar Holdings financial report ending 31 January 2019 this week, the group’s Managing Director and Founder , Gulaam Abdoola was, however, quick to announce that the company was in a stable financial position with its assets solid and the company recorded asset value of P2 billion for the year under review .
“In Botswana the property market is challenging at present, due to the economic climate prevailing. There is very little demand for space, from new companies coming to Botswana,” Abdoola announced. He said most retail space in the country was occupied by large South African retail companies who were facing operational challenges in that country.
“These groups are also slowing down on opening new stores, as they are not performing well in South Africa. There are a few citizen retail companies that occupy space, on a very limited basis. However, our properties are still in demand and are doing well. “The retail market grew despite the prevailing market conditions in the industry. However, in the short-term, it is likely that the retail market space has reached saturation. The average yields for retail properties in Gaborone were eight percent,” said Turnstar Holdings MD.
The latest financial report shows that the group’s properties in particular, the Game City in Gaborone and Nzano Shopping Mall in Francistown posted fair value gains. Game City is Turnstar’s flagship and it is also the premier retail shopping centre in Botswana. “Game City had a tenancy rate of approximately 95 percent and continues to attract large listed or multinational companies who constitute approximately 80 percent of tenants as well as all the large banks. The mall posted positive growth in rentals and yields during the year and continues to record the highest ‘footfall’ of retail malls in Botswana,” said Abdoola.
Turnstar also own and manage the Mogoditshane Centre, the Turnstar House, the GICP at the Commerce Park, Tapolongo Estate, and Mogoditshane Townhouses all located in Gaborone. “Revenue generated from commercial properties is P30 million during the reporting period with an average yield of eight percent. Revenue generated from residential properties is P86 million. Turnstar’s light industrial property in Commerce Park had a full occupancy rate during the reporting period. Demand for light industrial properties in Gaborone and in prime location remained strong,” Abdoola told shareholders.
The group has also in recent years ventured into Dar Es Salam in Tanzania and Dubai, the largest and most populace city in the United Arab Emirates and Turnstar is operating malls and offices in the two countries. The Milimani City in Tanzania is a US$100 million mixed use premier shopping and conference complex. Turnstar also acquired an office block in Dubai valued at US$8.35 million. The office is being leased on a long-term basis with a net rental yield of seven percent.
“In Tanzania there a lot of international brands waiting to come to the mall. (In Dubai), it is busy bustling with tons of tourists and new emigrants coming in. There is still a lot of opportunity there and we are busy exploring a few proposals,” the Turnstar MD said. However, Abdoola told shareholders that the company would not buy properties just to create bulk in the company, but that future acquisitions would be for adding value to the company and the shareholders.
“Turnstar is very keen to expand its Botswana portfolio. We are considering a few acquisitions and will be carrying out due diligence,” he said. Meanwhile, Turnstar board chairman, Patrick Balopi has announced the retirement of Ishmael Nshakazhogwe as the company’s non-executive director. Nshakazhogwe is the chairman MD of Zambezi Group of Companies and Thailand’s Consulate General to Botswana. “Mr Nshakazhogwe has served on the board of Turnstar, since its inception 2002,” said Balopi. Turnstar employs 125 people.
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Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”