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Feared spillover effect on SA milk giant takeover Clover

Local antitrust body Competition Authority had a big decision to make this week following approval of a huge takeover of Clover Botswana by South African giant diary producer Milco SA.

This week Competition Authority gave Milco SA thumbs up for the proposed acquisition of 100 percent shareholding in Clover Industries, a development which will see the South African entity owning Clover Botswana. But this decision did not come without a headache for the local antitrust body which moved to give Milco SA strict conditions for the takeover. This is because, according to Competition Authority, this merger might come with underlying economic effects that can affect the local diary industry or local business operations of Clover Botswana. According to Competition Authority this merger gives rise to public interest concerns, resulting in a fear of infringement of the Competition Act.

“It is noted that the proposed acquisition gives rise to public interest concerns under section 59(2)(b) of the Competition Act in that there may be spillover effects on the Botswana market as a result of subsequent changes emanating from the proposed merger,” said Competition Authority on its approval notice this week.

This spillover effects may mean the South African economic effects may rub into the local economy. This suggests that whatever economic decision taken by the acquiring enterprise will resultantly rub into the local diary industry or Clover Botswana which is the targeted entity in this case. Therefore the merger will not come without conditions according to Competition Authority.

Competition Authority, in pursuant to the provisions of section 60 of the Competition Act of Botswana approved the proposed acquisition with conditions that there shall be no retrenchment of any employee as a result of the proposed merger. During the public hearing of the proposed merger in June this year both the two companies, Milco and Clover, promised that the proposed transaction will also have no adverse impact on the public as there will be no retrenchments.

“The merged entity shall use all its powers to ensure that the business of Clover Botswana is maintained in Botswana to retain business continuity with the local based dairy input suppliers,” said Competition Authority. According to the anti-trust body, in the event that the merged entity is compelled to change the Botswana business model, such intentions should be communicated to the Competition Authority with a clear justification for the decision.

During the public hearing of the proposed acquisition of Clover by Milco which was held in June this year, Competition Authority CEO Tebelelo Pule said Clover should always have the growth of the local Small, Medium and Micro Enterprises (SMMEs) in mind in any decision they make.

For his part, Clover Botswana Managing Director Mike Joyner stated the transaction has the possibility to bring capital investment that can help diversify local economy. “It is going to allow us to play a bigger role is diversifying local economy through job creation that contributes to the wellbeing of the economy,” he said.

“If we look at the developed nations, the SMMEs play very critical roles in sustaining their economies. I always will look at the dominant players in the any industry of any sector and say if at all you want to survive, help grow the SMMEs as much as you can as they can help you survive when they ships are down,” said Pule. Milco representative in the public hearing Kristy Van Der Bergh promised that the merger will come with positive impacts to Botswana as it has possibilities of promoting technical and economic progress locally.

“We want to bring additional funding and expertise as well as help upgrade skills of the already employed personnel.  We also intend to introduce new products that will result in expansion and growth of the dairy sector in Botswana,” she told the audience who were listening to the development of a big merger which would have possibilities of changing the local diary industry.

During the same June public hearing, the targeted party Clover, represented by Clover Botswana managing Mike Joyner could only laud the transaction as “coming with possibility to bring capital investment that can help diversify local economy.” According to Joyner the transaction is going to allow Clover to play a bigger role in diversifying local economy through job creation that contributes to the wellbeing of the economy.

Milco SA, is a special purpose vehicle (SPV) registered in the South Africa company laws jurisdiction and it is controlled by Milco Mauritius International Ltd (“MMI”) another SPV incorporated in Mauritius. According to Competition Authority the two SPVs were formed for the purposes of the proposed transaction between Milco SA and Clover Industries. Milco’s subsidiaries serve over 160 million consumers worldwide and it has presence in more than 70 countries including Turkey and Romania.

Milco Mauritius is owned by International Beer Breweries Ltd(“IBBL”) a company registered in the Middle East, Israel. IBBL is the manufacturer and marketer of beer brands Carlsberg, Tuborg, Holsten and Stella Artois as well as non-alcoholic beer brand Malty and juice brands Prigat and Ocean Spray. Before the approval of the merger the directors of Milco SA were Aran Ernest Oelsner; Joav Asher Nachson (both Israelis) and Andrew Stuart McLeod (South Africans).

Clover Industries or Clover which is the target enterprise is registered in South African. The Johannesburg Stock Exchange (JSE) listed Clover is a branded consumer goods company in the food and beverage industry that is focused on the supply of dairy products, soy products, olive oil, and olives, and the supply of non-alcoholic beverages as well as sales, merchandising and distribution of consumer goods. Before being taken over by Milco, Clover is not controlled by any single shareholder or a group of shareholders.

Clover’s shareholding composition included Clover Milk Producers Trust which owned 12.42 percent while Allen Gray had 7.87 percent. Government Employees Pension Fund garnered 6.04 percent while Lekto Brosseau 5.79 percent and JH Vorster held 4.50 percent. Before the proposed merger which has just been approved by the local antitrust body HSBC held 4.09  percent.

Clover wholly owns Clover Botswana which is based in Botswana and it was the reason for Competition Authority involvement in Clover and Milco merge. Before this huge takeover, directors of Clover were JW Basson, SF Booysen, WI Buchner, NV Mokhesi, JFM Morgan, B Ngonyama, FFF Scheepers, NA Smith, and JH Vorster. All these directors are South Africans.

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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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