New African Properties, a Botswana Stock Exchange (BSE) listed property group that owns amongst others River Walk Mall this week released their unaudited interim financial results for the six month period ended 31st January 2019.
According to the figures, the company‘s distributable income for the half year period under review amounts to P75.9 million or 12.56 thebe per linked unit. Last year New African Property reported that the impact of prior period income included in 2018 H1 increased the comparable distributable income by 1.5 million. During the period under review the BSE trading property outfit reports that adjusting for this P1.5 million the increase in distributable income closes 2018 H2 at 4.6 percent.
This growth is attributable to a 5.3 percent increase in revenue, 3.6 percent increase in net income and 4.4 percent increase in operating profit all excluding rent straight lining adjustment and the P1.5 million adjustments last year. Deliberating more on the figures ,the company says 5.3 percent revenue growth for the period was lower than historical levels for the period in view of decline in rentals in Selibe Phikwe and the ex JFC space in Broadhurst following the liquidators decision to close the store as well as certain vacancies during the period.
Property expenses increased by 11.7 percent with the main contributors to the relatively high increase being letting commissions and utility costs. Letting commissions are expensed as incurred and are therefore impacted by the timing of the conclusion of leases. Utility costs include ones-off historic municipal back charges of P0.5 million on two properties , while electricity tariffs increased by 10 percent.
On the bottom line the company closed the six month trading period at 105.8 million profits mirroring a marginal increase of compared to P104.1 million registered in the six month ended January 2018. The 105.8 million profits are however P29.9 million higher than net distributable income. This P29.9 million according to the report comprises the after-tax revaluation and other accounting adjustments that do not impact distributions and are non-cash items.
Following Income Tax Amendment Act promulgated in late December 2018, it has emerged that the extent to which variable rate Loan Stock (VRLS) companies are able to treat debenture interest declared to unit holders as a deduction in determining taxable income will be limited. New African Properties has initiated engagement with regulators to investigate avenues for reinstating the VRLS exemption, which retain the principle of VRLS companies being a conduit for net rentals earned in line with globally accepted norms.
“We are seeking to reverse or delay the impact of this amendment on the current financial year, especially when considering that it was promulgated five month into the financial period” says New African Property in the report.The BSE listed retail group says they have successfully assessed and qualified the maximum possible impact for the first half to be 10.2 million in the event that no favourable solution is reached but, given the ongoing engagements referred to above, no provision has been made in these results for this tax charge.
“Should we be unsuccessful in obtaining any revision to the amendment as currently enacted, the tax charge will be recognised in the year results,” reads the report. New African Properties says its anticipation is that it will be able to fund payment of the initial tax liability for the current financial year from available cash without impacting the current year’s total distributions. However, such an approach will not be sustained in future periods and the amendment will thus impact on the quantum of the future distributions if it remains in force as promulgated
New African Properties portfolio comprises predominately retails assets with wide geographical footprint weighting to Gaborone , During the period under review the company’s assets portfolio has remained unchanged 1.5 billion as at 31st January 2019 , which results in a P34.8 million fair value gain for the period before rent straight lining adjustments.
Vacancies have improved during the period to 3.1 percent of gross lettable area from the prior year ends 3.8 percent with 50 percent being attributable to Selibe Phikwe. Subsequent to reporting period two unexpected vacancies have risen in upper level of river walk and will adversely impact the retail income for the second half. Net impairment provisions on tenant arrears resulted in a P0.3 million charge to distributable income for the period with net tenant arrears amounting to 0.6 million at 31 January.
New African Properties Managing Director TLJ Mynhardt says the impact of rental back charges included in the 2018 results has impacted the growth rates in the 2018 and current year. “The unexpected vacancies in Riverwalk are expected to have some impact on the second half but management remains confident of the income Tax amendment may have dilutionary impact depending on whether further amendments are secured,” says Mynhardt
Botswana has recently recorded a significant trade deficit of over P6 billion. This trade deficit, which occurred in November 2023, follows another deficit of P4.7 billion recorded in October of the same year. These figures, released by Statistics Botswana, highlight a decline in export revenues as the main cause of the trade deficit.
In November 2023, Botswana’s total export revenues amounted to P2.9 billion, a decrease of 24.3 percent from the previous month. Diamonds, a major contributor to Botswana’s exports, experienced a significant decline of 44.1 percent during this period. This decline in diamond exports played a significant role in the overall decrease in export revenues. However, diamonds still remained the leading export commodity group, contributing 44.2 percent to export revenues. Copper and Machinery & Electrical Equipment followed, contributing 25.8 percent and 10.1 percent, respectively.
Asia emerged as the leading export market for Botswana, receiving exports worth P1.18 billion in November 2023. The United Arab Emirates, China, and Hong Kong were the top destinations within Asia, receiving 18.6 percent, 14.2 percent, and 3.8 percent of total exports, respectively. Diamonds and Copper were the major commodity groups exported to Asia.
The Southern African Customs Union (SACU) received Botswana’s exports worth P685.7 million, with South Africa being the main recipient within SACU. The European Union (EU) received exports worth P463.2 million, primarily through Belgium. Australia received exports worth P290 million, while the United States received exports valued at P69.6 million, mostly composed of diamonds.
On the import side, Botswana imported goods worth P9.5 billion in November 2023, representing an increase of 11.2 percent from the previous month. The increase in imports was mainly driven by a rise in Diamonds and Chemicals & Rubber Products imports. Diamonds contributed 23.3 percent to total imports, followed by Fuel and Food, Beverages & Tobacco at 19.4 percent and 15.0 percent, respectively.
The SACU region was the top supplier of imports to Botswana, accounting for 77.7 percent of total imports. South Africa contributed the largest share at 57.2 percent, followed by Namibia at 20.0 percent. Imports from Asia accounted for 9.8 percent of total imports, with Diamonds, Machinery & Electrical Equipment, and Chemicals & Rubber Products being the major commodity groups imported. The EU supplied Botswana with imports worth 3.2 percent of total imports, primarily in the form of Machinery & Electrical Equipment, Diamonds, and Chemicals & Rubber Products.
Botswana’s recent trade deficit of over P6 billion highlights a decline in export revenues, particularly in the diamond sector. While Asia remains the leading export market for Botswana, the country heavily relies on imports from the SACU region, particularly South Africa. Addressing the trade deficit will require diversification of export markets and sectors, as well as efforts to promote domestic industries and reduce reliance on imports.
The business sector in Botswana is optimistic about the year 2024, according to a recent survey conducted by the Bank of Botswana (BoB). The survey collected information from businesses in various sectors, including agriculture, mining, manufacturing, construction, and finance, among others. The results of the survey indicate that businesses expect trading conditions to improve in the first quarter of 2024 and remain favorable throughout the year.
The researchers found that firms anticipate improvements in investment, profitability, and goods and services exported in the fourth quarter of 2023 compared to the previous quarter. These expectations, combined with anticipated growth in all sectors except construction and real estate, contribute to the overall confidence in business conditions. Furthermore, businesses expect further improvements in the first quarter of 2024 and throughout the entire year.
Confidence among domestic market-oriented firms may decline slightly in the first quarter of 2024, but overall optimism is expected to improve throughout the year, consistent with the anticipated domestic economic recovery. Firms in sectors such as mining, retail, accommodation, transport, manufacturing, agriculture, and finance are driving this confidence. Export-oriented firms also show increased optimism in the first quarter of 2024 and for the entire year.
All sectors, except agriculture, which remains neutral, are optimistic about the first quarter of 2024 and the year ending in December 2024. This optimism is likely supported by government interventions to support economic activity, including the two-year Transitional National Development Plan (TNDP) and reforms aimed at improving the business environment. The anticipated improvement in profitability, goods and services exported, and business investment further contributes to the positive outlook.
Firms expect lending rates and borrowing volumes to increase in the 12-month period ending in December 2024. This increase in borrowing is consistent with the expected rise in investment, inventories, and goods and services exported. Firms anticipate that domestic economic performance will improve during this period. Domestic-oriented firms perceive access to credit from commercial banks in Botswana to be relaxed, while export-oriented firms prefer to borrow from South Africa.
During the fourth quarter of 2023, firms faced high cost pressures due to increased input costs, such as materials, utilities, and transport, resulting from supply constraints related to conflicts in Ukraine-Russia and Israel-Hamas. According to the survey report, the firms noted that cost pressures during the fourth quarter of 2023 were high, mainly attributable to increase in some input costs, such as materials, utilities, and transport arising from supply constraints related to the Ukraine-Russia and Israel-Hamas wars. “However, firms’ expectations about domestic inflation decreased, compared to the previous survey, and have remained within the Bank’s 3 – 6 percent objective range, averaging 5.4 percent for 2023 and 5.4 percent for 2024. This suggests that inflation expectations are well anchored, which is good for maintenance of price stability,” reads the survey report in part.
However, firms’ expectations about domestic inflation decreased compared to the previous survey, and inflation expectations remained within the Bank’s objective range of 3-6 percent. This suggests that inflation expectations are well anchored, which is beneficial for maintaining price stability.
In terms of challenges, most firms in the retail, accommodation, transport, manufacturing, construction, and finance sectors considered the exchange rate of the Pula to be unfavorable to their business operations. This is mainly because these firms import raw materials from South Africa and would prefer a stronger Pula against the South African rand. Additionally, firms in the retail, accommodation, transport, and mining sectors cited other challenges, including supply constraints from conflicts in Russia-Ukraine and Israel-Hamas, as well as new citizen economic empowerment policies that some firms considered unfavorable to foreign direct investment.
On the positive side, firms highlighted factors such as adequate water and electricity supply, a favorable political climate, an effective regulatory framework, the availability of skilled labor, and domestic and international demand as supportive to doing business in Botswana during the fourth quarter of 2023.
Overall, the business sector in Botswana is optimistic about the year 2024. The anticipated improvements in trading conditions, supported by government interventions and reforms, are expected to drive growth and profitability in various sectors. While challenges exist, businesses remain confident in the potential for economic recovery and expansion.
A study conducted by the United Nations says countries implemented bold and timely fiscal policy measures in response to the COVID-19 pandemic crisis and to stimulate recovery.
Governments around the world have also relied on fiscal policy to confront higher food prices and food insecurity risks resulting from the war in Ukraine. The UN said in a report titled World Economic Situation and Prospects 2024 that sharp increases in interest rate since the first quarter of 2022 and tighter liquidity conditions have adversely affected fiscal balance, renewing concerns about fiscal deficits and debt sustainability.
Fiscal space remains very limited, especially in developing countries: for many of these countries the lack of fiscal space presents special risks, as it restricts their capacity to invest in sustainable development and respond to new shocks.
In 2022, more than fifty developing economies spent more than 10% of total government revenues on interest payments, and 25 countries spent more than 20%. The UN added that market expectations that interest rates in major economies will remain higher for longer than previously anticipated have led to a further rise in sovereign bond yields, adding pressure on fiscal balances.
In the medium term, subdued growth prospects, together with the need for increased investment in education, health and infrastructure, will put pressure on government budgets and exacerbate fiscal vulnerabilities.
In this report, it is highlighted that in developing countries with less vulnerable fiscal positions, it ill be crucial for governments to avoid self-defeating fiscal consolidation. “Many of these economies will need to bolster fiscal revenues to expand their fiscal space. In the short term, the increased use of digital technologies can help developing countries reduce tax avoidance and evasion.”
The UN stressed that in the medium term, governments will need to expand revenues through more progressive income, wealth and green taxes. Many economies also need to improve the efficiency of fiscal spending and the effectiveness of subsidies and better target social protection programmes.
Low-income countries, as well as middle-income countries with vulnerable fiscal situations will need debt relief and restructuring measures to avoid devastating debt crises and protracted cycles of weak investment, slow growth and high debt-servicing burdens.