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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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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status.  The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.

This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago.  In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.

However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced.  Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.

The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April.  For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.

Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.

Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).

“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.

Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.

This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.

For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.

Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers.  “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.

‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’

According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.

Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.

“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.

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