Business confidence declines
Business
Botswana Firms are less optimistic about economic performance in 2019 than projections made in the 2019 Budget Speech. According to a Bank of Botswana Business Expectations Survey released this week, businesses expect the economy to grow by 3.8 percent in 2019, compared to the estimate of 4.2 percent in the 2019 Budget Speech and the 4.5 percent recorded in 2018.
It is expected that economic activity in the first half of 2019 will be mainly driven by mining and quarrying, trade, hotels, restaurants and transport, finance and real estate and manufacturing – the report says. The results of the Survey suggest that the level of optimism by firms regarding economic activity has declined, compared to the previous survey. Overall, businesses expect lower sales, reduced capacity utilisation and lower profits, compared to the September 2018 survey.
Investment in buildings also declined in the current survey, in line with the dampening effect of the tight access to credit in the domestic market, as perceived by the respondents. The anticipated deterioration in business confidence among both domestic-oriented and export-oriented firms with respect to future prospects is expected to affect economic activity.
The optimism in mining and quarrying, and the trade, hotels, restaurants and transport sectors could be attributable to the positive prospects for global demand for diamonds, which are likely to lead to a rise in sales and prices of diamonds as well as prospects for tourism. Meanwhile, the BoB Survey notes that Construction is the only sector anticipated to produce less output in the first half of 2019, compared to the second half of 2018, possibly due to the completion of some of the construction projects under the Economic Stimulus Programme and some private construction projects, particularly in the Gaborone Central Business District (CBD) and Palapye, and he lower rate of increase in funds allocated for the development budget in the current financial year.
“Overall, business conditions are expected to remain positive during the first half of 2019, yet slightly weaker than in the final half of 2018. Optimism among businesses declined marginally from a confidence level of 28 percent in the second half of 2018 to 25 percent in the current survey period, and it is expected to fall to 21 percent in the second half of 2019.”
Furthermore, firms anticipate reduced levels of: capacity/resource utilisation; production/service capacity; sales; stocks/inventories; profitability; and investment on buildings and ‘other investment’ during the first half of 2019, compared to the second half of 2018. The BoB Business Expectations Survey reports that the decline in investment on buildings and ‘other’ is in line with the dampening effect arising from the tight access to credit, as perceived by the business community. On the other hand, intentions to invest in vehicles and equipment, and plant and machinery have strengthened, mainly among firms in consumer-related services, such as retail trade, hotels and restaurants.
But there is a reason as to why the decline – The Survey acknowledges that the slippage in perceptions about the overall business conditions in the first half of 2019 arises from the declining optimism among domestic-oriented firms, which comprise about 91 percent of the current survey respondents, compared to the second half of 2018. It states that this group of firms is also less optimistic about business conditions in the second half of 2019 and in the 12-month period to June 2020 (M12).
Meanwhile, export oriented firms are more optimistic about the first half of 2019 compared to the second half of 2018. However, their outlook on business conditions becomes negative in the second half of 2019 and in the 12-month period to June 2020, states the BoB report. “In general, the declining business confidence among both domestic-oriented and export-oriented firms is expected to negatively affect economic activity, as reflected in, among others, the anticipated decline in sales, capacity utilisation and investment in plant and machinery.”
Domestic lending rates expected to rise in both 2019, 2020
According to the BoB Business Expectations Survey, firms expect both lending rates and the volume of borrowing from the domestic market to increase in the second half of 2019 and first half of 2020. However, more firms expect both lending and borrowing rates to be higher in the first half of 2020 than in the second half of 2019.
“Similarly, in South Africa, lending rates are expected to rise in both the second half of 2019 and first half of 2020. The expected rise in lending rates in South Africa is consistent with the consensus forecast for market rates, obtained from Bloomberg3, for the same period. In line with this, borrowing volumes from South Africa are expected to decline in the second half of 2019, before rising in the first half of 2020”, reads the report.
The upward pressure on lending rates elsewhere (any market other than Botswana or South Africa) is expected to drop significantly in the first half of 2020, compared to the second half of 2019, while the expected increase in borrowing volumes over the period is marginal.
Inflation expected to remain within 3-6 percent objective range
The Bank of Botswana Survey further shares that although slightly higher in the current survey, firms’ expectations about the domestic inflation have generally been on a downward trend since 2013, and within the Bank’s inflation objective range of 3-6 percent since 2014. Furthermore, uncertainty about future inflation has, on the whole, declined as shown by the smaller standard deviation from the average expectations despite the noticeable divergence in the current survey. “Firms’ inflation expectations have averaged 4 percent since 2016, suggesting that inflation expectations are well anchored within the Bank’s objective range.”
Factors Affecting Business Conditions
Unavailability of skilled labour is perceived to be a major challenge to doing business in Botswana, the BoB Business Confidence Survey has noted. It says the unavailability of skilled labour was cited as the greatest challenge facing businesses in the first half of 2019, arising from the reported difficulties experienced in recruiting foreign skilled labour. The new administration of President Dr Mokgweetsi Masisi has pledged to ease business in this area.
According to this report, difficulties in sourcing skilled labour is more pronounced in the construction sector, followed by trade, hotels, restaurants and transport. Meanwhile the 2018 Global Competitiveness report has also highlighted lack of skilled labour among the main challenges of doing business in Botswana. Meanwhile, the political climate, domestic demand and regulatory framework are viewed as being supportive to doing business in Botswana during this half year.
However, the BoB Survey says the number of firms viewing lack of skilled labour as a challenge has fallen notably compared to the previous survey. An interesting observation from the survey is that, ‘other’, which from the previous survey was viewed as a major challenge to doing business due to the dominance of government spending, is no longer considered a major impediment as government spending is now viewed to be neutral.
The BoB Survey says his may be partly attributable to a reduction in responses from sectors, such as manufacturing and construction, which rely mostly on government as a major client. “Another observation is that water and electricity continue to be viewed as contributing positively to the business climate, reflecting ongoing efforts to improve the supply of these utilities through measures such as the implementation of the North-South Carrier 2 water project and the North-West Transmission Grid electricity connection,” reads the report.
Overall, the Business Confidence Survey notes that business conditions are perceived to have marginally weakened compared to the last survey, and are expected to decline further in the second half of 2019. “The cost pressures are expected to decline in the second half of 2019, compared to the first half of the year. As firms’ inflation expectations seem to be anchored at rates of just below 4 percent, the survey responses are consistent with the official projection that inflation will remain within the Bank’s objective range of 3 – 6 percent going forward.”
The Business Expectations Survey (BES) was conducted by the Bank of Botswana in March 2019. It covers local business community’s perceptions about the prevailing state of the economy and economic prospects up to June 2020.
Business
Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Business
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Business
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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