Botswana Stock Exchange Limited (BSEL) this week released its 2019 Quarter 1 market performance report. Gaugingand analyzing stock market outcomes forthe three months ended March 31st, BSE‘s The Domestic Company Index (DCI) experienced a better start to the year with a marginal improvement of 0.43% in the period 1 January to 31 March 2019 in comparison to a 3.1% decrease registered in the same period in 2018.
The Domestic Company Total Return Index (DCTRI) appreciated by 1.03%, boosted by a combination of price and dividend improvements during the quarter. On the foreign companies’ front, the Foreign Company Index (FCI) registered a depreciation of 0.26% in Quarter 1 of 2019 relative to a decrease of 0.05% over the same period in 2018. Worth notingisthe equity trading activity which closed2019 Q 1 at a turnover of P346.9 Million, reflecting46.9% jumpfromP236.2 million turnover recorded infirst quarter of 2018. The number of shares traded amounted to 156.1 Million shares and 100.7 Million shares in Quarter 1 of 2019 and Quarter 1 of 2018 respectively. Further analysis on the equity performance indicates that during the first quarter of 2019 the stability of turnover improved compared to the same period in 2018.
This is supported by a lower coefficient of variation (CoV) of turnover of 2.1 in 2019 compared to 2.2 in 2018. However, the CoVs are still above the average of 1.9 across a four year period from 2016 to 2019. “This shows that more companies contributed to turnover during this period in comparison to the same period in 2018. Hence the improved stability of turnover in comparison to the corresponding period in 2018,” reads the BSE report.
Assessing the leading companies in terms of traded value during the period under review, local brewer Sechaba Holdings Limited tops the front with P107.69 Million traded equity value followed by Furnmart Limited at P68.4 Million while New African Properties Limited came third at P31.2 Million. These accounted for 64.8% of total turnover compared to the 76.2% accounted for by the top three traded companies in the same period in 2018. On the Exchange Traded Funds (ETF) space, market was less active compared to Quarter 1 of 2018. The volume of ETF units traded was 304,588 in 2019 while the turnover registered was P26.6 Million. Over the same period in 2018, the number of units traded amounted to 451,869 yielding a turnover of P41.4 Million.
The contribution by local companies amounted to 22.6% in Quarter 1 2019 in comparison to 34.8% in Quarter 1 2018. Local individual investors contributed an improved 7.3% relative to 5.7% in the corresponding period in 2018. Furthermore it can be noted that the comparative indices were impacted in various ways by what is primarily attributed to the volatility exhibited by the US Dollar due to uncertainty of trade negotiations between the United States and China. The DCI’s US Dollar return over the quarter amounted to a negative 0.1% on the back of the Pula depreciation of 0.5% against the dollar.
In the Bond Market sphere trading activity in the increased significantly during 2019 Quarter 1 compared to the same period in 2018. The value of bonds traded over the period was P251.9 Million in comparison to P27.4 Million traded over the same period in 2018.At the 1 March 2019 Government Bonds and Treasury Bill auction, the Bank of Botswana (BoB), on behalf of the Government offered additional tranches of the BW013 allotting P137.00 Million ,increasing its total nominal amount in issue to P1,076.00 Million as well as BW014 allotting P335.00 Million hiking up its total nominal amount in issue to P931.00 Million. On the back of Government bonds tap issuances and new issuances, the market capitalization of listed bonds increased to P15.4 Billion compared to P14.7 Billion as at the same period in 2018.
At the beginning of 2019 the BSEL implemented the new Equity Listings Requirements aimed at providing a comprehensive process of how companies can list their equity securities on the Exchange. The new requirements include improved disclosure requirements across the different boards; provide rules for the listing of investment entities, and Special Acquisition Companies (SACs), among others.
Still during the first quarter of 2019 Botswana Stock Exchange and the Central Securities Depository Botswana (CSDB) kick started the implementation of a new CSD system that comes with new functionalities such as Securities Borrowing and Lending (SBL), management of the Settlement Guarantee Fund, IPO processing, E-Voting for listed entities, repo management and online investor access.
The system is an integral element of the ongoing Single CSD project pioneered the Ministry of Finance, NBFIRA and BSEL. With its ability to connect real time to the Botswana Interbank Settlement System (BISS). BSEL says the system will ensure settlement in central bank money and reduce counterparty risk, in the process helping improve settlement efficiency and compliance with the IOSCO Principles for Financial Markets Infrastructures (PFMIs). “This will also automatically increase the CSD system ratings by Thomas Murray, an assessment of which will be conducted once the system has been commissioned in early 2020” explains Botswana Stock Exchange.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
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”