Recent wage increase wont overheat inflation – BoB
Business
While acknowledging that the recent salary increment by government which was done for the 2019/20 financial year will lead to credit grown and increase in domestic demand, Bank of Botswana governor Moses Pelaelo said this will not overheat inflation beyond the objective range of 3 – 6 percent in the medium term.
The governor said this when delivering the Monetary Policy Statement of 2019 released this week. Pelaelo said despite expected spending in school fees which happens normally in the beginning of the year, inflation will not go overboard. He emphasized that people will take loans or credit will increase in banks, but that will not move inflation beyond its position which is a range of 3 – 6 percent. This is also despite the drought which is being experienced by the region and covers Botswana and its food import partners. Food prices may go up, but BoB does not see any sign of inflation overheating above range.
When making economic prospects for 2019 BoB said both external and domestic pressures on inflation are expected to be benign, and it is projected that inflation will remain within the 3 – 6 percent objective range in the short to medium term. “This forecast incorporates the estimated impact of the increase in public service salaries and prospects for continued accommodative monetary conditions.
Having said that, it is worth underscoring the point that any upward adjustment in administered prices and government levies and/or taxes and any increase in international commodity prices that is substantially beyond current projections present upside risks to the inflation outlook.” In contrast, downside risks to inflation arise from the restrained growth in global economic activity, the tendency of the ongoing technological progress to lower costs and the reduction in commodity prices,” said Pelaelo.
The 10 percent-6 percent recent increase in wages by government is expected to gobble close to P2 billion from government’s purse in a period of two financial years being 2019/20 and 2020/21. Economists believe the increase will help cushion purchase power to some point as they will be increase in personal incomes which will lead to credit growth in households hence increase in economic activity.
The BoB Monetary Policy Statement of 2019 released this week suggests that the domestic economy woke from a hangover of “subdued domestic demand pressures, as a result of the restrained growth in personal incomes and largely stable foreign inflation” of 2018. According to the Bank’s Monetary Policy Statement, last year was the year of restrained growth in the personal incomes as the nominal national increased only by a paltry 3 percent on average which was below the average inflation rate for the period resulting in erosion of purchasing power.
However, according to BoB governor Moses Pelaelo, the Bank did not lose monetary policy control as it maintained price stability with inflation remaining within the objective range of 3 – 6 percent in the medium term. According to the Bank, Inflation fell from 3.8 percent in November to 3.5 percent in December 2018.
“This favourable medium-term outlook for inflation is in the context of moderate growth in economic activity and a sound and stable financial system. Therefore, prospective developments augur well for maintenance of an accommodative monetary policy that supports productive lending to businesses and to households, for welfare enhancements that also drive 17 economic activities.
The Bank’s implementation of monetary policy will continue to focus on entrenching expectations of low, predictable and sustainable inflation, through timely responses to price developments; while at the same time, taking due care to ensure that policy decisions are consistent with ensuring financial stability and supportive of sustainable economic growth and employment creation,” said Pelaelo this week.
When looking back domestic output is estimated to have expanded by 5.1 percent in the twelve months to September 2018, compared to lower growth of 2.4 percent in the year to September 2017 and his expansion was mainly driven by sustained improvement in non-mining GDP growth and the recovery in mining output.
According to the Bank, inflation was low and stable, and fluctuated around the lower end of the objective range of 3 – 6 percent for most of 2018; and the outcome was broadly consistent with projections for the year. The BoB governor said the low rate of annual price increase was mostly due to the decrease in food inflation. Food price inflation decreased from 1.1 percent in 2017 to a negative 0.2 percent in 2018, however fuel prices increased significantly by 16.1 percent during 2018, due to upward adjustments in May, October and November.
“This compares to a relatively smaller increase of 9.5 percent in 2017. Overall, the increase in administered prices (including fuel prices, public transport fares, as well as 10 electricity tariffs) added 1.86 percentage points to inflation in 2018,” said Pelaelo. Pelaelo said the overall modest increase in prices in Botswana was in the context of subdued domestic demand pressures, as a result of the restrained growth in personal incomes and largely stable foreign inflation. According to the governor monetary policy was therefore conducted against the background of below-trend economic activity and a positive medium-term outlook for inflation and moderate fiscal expansion.
Government expenditure grew by 6.6 percent in 2018 compared to a contraction of 6.3 percent in the prior year. It should be recognized, in this respect, that beyond the increase in wages, the short-term impact of government spending on domestic demand is moderated to the extent that a significant component involves infrastructure and capacity development. “In the context of Botswana, this type of spending tends to be import intensive and the economic benefits of such public investments are derived in the medium to long term,” said Pelaelo.
Regarding wage developments, it is notable that government recurrent expenditure included a 3 percent salary increase with effect from April 1, 2018. Government increased salaries last year 1 April 2018 by 3 percent and BoB there was nominal national wages increased only by 2.3 percent- which was below the average inflation rate for the period-a development that suggest a modest impact on domestic demand and inflation.
According to last year’s statistics commercial bank credit accelerated from 5.6 percent in 2017 to 7.7 percent in 2018 and included a faster increase in lending to businesses, from 3.2 percent in 2017 to 10 percent in 2018. However for households, annual credit expansion fell from 7.2 percent in 2017 to 6.2 percent in 2018 and this is attributed to restrained growth in personal incomes as the last year 3 percent salary increment did not raise the bar any further.
In the households, this included a 7 percent increase in personal loans and 4.9 percent for mortgages, compared to respective growth rates of 9.2 percent and 4.8 percent in 2017. However Pelaelo said when looking at the monetary issue in a broad picture, the rate of credit growth continued to be supportive of economic activity, with minimal risk to financial stability.
The Global economy and the trade war
The domestic economy is forecast to grow by 4.2 percent in 2019, slightly lower than the estimate of 4.5 percent for 2018. According to BoB, the main factors expected to support growth in economic activity include conducive financing conditions associated with an accommodative monetary policy stance and a sound financial environment.
Therefore the budgeted 3.6 percent expansion in government spending in 2019/20 and the implementation of initiatives such as the doing business reforms, are expected to further support growth in economic activity and employment creation according to the Bank.
According to BoB the global economy on the other hand is expected to grow by 3.5 percent in 2019, lower than estimated expansion of 3.7 percent in 2018. The Bank says the projected lower growth is premised on anticipated slower expansion in advanced economies, mostly reflecting subdued performance in the euro area.
The US GDP growth is forecast to decline from 2.9 percent in 2018 to 2.5 percent in 2019, as the impact of the fiscal stimulus dissipates while growth in emerging market and developing economies is projected at 4.5 percent in 2019, slightly lower than the 4.6 percent in 2018.
According to the Bank the risks to the global economic activity are skewed to the downside, with prospects for escalation of trade tensions (trade war), tightening financial conditions, a no-deal Brexit and relatively weaker growth in China presenting key risks to the outlook.
“Global inflationary pressures are forecast to be modest in the short to medium term, reflecting below-potential output. In this environment, it is anticipated that monetary policy will remain accommodative in most economies, complemented by measures aimed at facilitating financial intermediation, while fostering resilience of the financial sector, to support growth in economic activity.
It is, therefore, notable, that the earlier anticipated monetary policy normalization (or increase of interest rates) in the advanced countries is being re-assessed and restrained with the advent of generalized weaker economic performance and heightened policy uncertainty,” said Bank of Botswana in its recent Monetary Policy Statement.
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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.