Failure by Choppies Enterprise Limited a fast expanding pan-African retail giant to submit and publish audited financial results on time has crashed the Botswana Stock Exchange (BSE) Domestic Company Index (DCI) figures, resulting in 11.4 percent decline for the year 2018.
On the 28th September 2018; Choppies lost 76.3 percent of its value when the share price plummeted from P1.69 to P0.40 in a single day. On that day, its market capitalisation slumped from P2.2 Billion to P521.5 Million. The DCI is indicia that shows aggregate changes in market value on the basis of share prices. For the year 2018 DCI declined by 11.4 percent compared to a decline of 5.8 percent in 2017.
Eight companies compared to 12 in 2017 registered positive price changes while 14 compared to 11 in the prior year registered negative price movements and four compared to 1 in 2017 closed the year with share prices back to their 2017 levels. A market status report for the period January –December 31st 2018 released by BSE this week reiterates that the impact of Choppies Enterprise Limited, arising from its failure to submit audited financials on time, on the decline in the total domestic market capitalisation and subsequently the DCI cannot be ignored.
“Due to this, Choppies contributed 41.2 percent to the decline in the DCI. In other words Choppies contributed negative 4.7 percentage points to the negative 11.4 percent decline in the DCI in 2018,” reads the report. Equity markets figures for the year 2018 depicts turnover levels drop of 25 percent when compared to that of 2017. The Exchange attributes this experience mainly to three events that occurred in the year and also in the prior year.
These are the introduction of the minimum brokerage commission of 60 basis points (0.60 percent) in April 2016, the reallocation of investment mandates in 2018 by some of the largest pension funds in the country following termination of investment management contracts at two of the largest local asset managers and lastly the decline in share prices.
“Given the dominance of institutional investors both local and international in our market, the increase in transaction costs was definitely a sensitive issue particularly coinciding with a slowdown in corporate earnings as it effectively eroded their returns. Perhaps the suspension of Choppies could be an additional factor, given its liquidity in the market,” states the report. Prior to its suspension from trading Choppies was the 4th most traded company on the BSE.
A further assessment of equity market Statistics indicates that majority of the listed companies recorded reduced earnings resulting in share price declines, but to the delight of the investors they maintained attractive dividend payouts closing the year at total dividend yield of 5.5 percent versus 5.1 percent in 2017.
BSE registers record high tradability and liquidity during 2018
On a positive note BSE closed the year 2018 on record high overall tradability and liquidity of listed instruments. A total turnover of P4.4 billion was recorded in 2018 compared to P3.2 billion in 2017. This information is also contained in the BSE market status report. The stock exchange discharged impressive performance on the capital market by raising a total of P3.2 billion locally in the bond market compared to P2.3 billion in 2017, mirroring an improvement of 39.1percent.
On the equity market, P296.8 million was raised as BancABC was the only company that undertook a public offer in 2018 compared to P575 million raised through public offers in 2017. Seed Co listed by introduction. For the Bond Market BSE trades it’s Index Series (BBIS) under a series of four bond indices being Composite Bond Index (BBI), Government Bond Index (GovI), Corporate Bond Index (CorpI) and Composite Fixed Rate Bond Index (BBIFixed).
In 2018, the BSE Bond Index Series (BBIS) appreciated by 3.2 percent whereas the GovI and CorpI registered returns of 3.5 percent and 3.3 percent respectively. The BBIFixed returned 2.6 percent since its introduction in April 2018. Inflation averaged 3.2% in 2018; meaning that listed bonds provided purchasing power protection, save for the fixed rate bonds. 10 Inflation in the year predominantly remained within the objective range of 3 percent-6 percent whereas interest rates were held constant throughout the year.
The value of bonds traded increased over four times from P535.6 million in 2017 to P2, 222.7 million in 2018. Government bonds continued to dominate liquidity of the market accounting for 97.9 percent of total turnover. The BSE registered a record number of new bond listings as 10 new bonds came on board compared to 8 in 2017. “This cushioned the impact of the 4 bond delisting in the year.
Even though Government bonds accounted for the majority of trading activity corporate bonds dominated in terms of the quantity of bonds listed, a phenomenon that in most African markets is the reverse,” explains the market status report. At sector level, the profile of the bond market at the end of 2018 was such that Government bonds accounted for 63.8 percent of market capitalization, Quasi-Government (1.3 percent), Parastatals (7.9 percent), Corporate (25.3 percent) and Supranational (1.7 percent).
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”