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X-ray view into Matambo’s briefcase

In two days’ time, the Minister of Finance and Economic Development Kenneth Matambo will open his iconic briefcase and the nation expects it to be pregnant with hope as it is always the case with any Budget Speech of a government especially on its election year.

However the 2019/20 Budget was planned at a menacing projected budget deficit of P5 billion, increasing fiscal policy uncertainties which experts see as a gloomy picture for Botswana. This is mainly due to the fact that President Mokgweetsi Masisi’s first impression will be judged by the speech this Monday. The 2019 Budget Strategy Paper which was unveiled at last year’s Budget Pitso projected that total revenues are forecast to be lower than projected total expenditures, resulting in a budget deficit of P5.11 billion, or 2.4 percent of GDP.

“With total revenue and grants estimated at P61.28 billion, which is lower than the projected total expenditure of P66.40 billion, the budget deficit is estimated at P5.11 billion, or 2.4 percent of GDP,” said the 2019 Budget Strategy Paper giving a gloomy hope to the coming Budget Speech. According to the 2019 Budget Strategy Paper, budget deficits are forecast in the medium-term, mainly as a result of lower revenue collections, resulting from the expected sluggish mineral revenue receipts and volatility of the Customs and Excise revenue.

On the other hand, emerging expenditure pressures, from both development and recurrent expenditure sides, should continue to be managed in order to ensure fiscal sustainability, the Paper further states. When responding to the perpetual incurrence of budget deficit in his maiden State of The Nation Address which was announced last two months, President Masisi decried of P1.98 billion budget deficit recorded in the 2017/18 year which was followed by an expected “moderate” budget deficit for the 2018/19 financial year.

The upcoming Budget Speech will come at the right time for Botswana’s current National Development Plan 11 (NDP 11, 2017-2023) as in his last year’s State Of The Nation Address Masisi revealed that NDP 11 is due for its Mid-Term Review in the next financial year( meaning the 2019/20) which will be launched by Monday’s budget speech). This is where Masisi promised that “it is during this process that most of our transformative adjustments will be effected.”

Matambo’s pre-budget document, the Budget Strategic Paper 2019 states: “The strategic thrust for the next financial year 2019/2020 continues to be centred around the broad national priorities identified in NDP 11, which are: Developing Diversified Sources of Economic Growth; Human Capital Development; Social Development; Sustainable Use of Natural Resources, Good Governance and Strengthening of National Security, as well as monitoring and evaluation.”

When commenting on government’s continual battle against fiscal deficits, Masisi promised that despite the constrained fiscal outlook his government is committed to the principle of a balanced budget in the medium term, as outlined in the current National Development Plan (NDP11). The public’s high expectation on this year’s Budget Speech to be more promising as it is elections year coincides with the rating agency Moody’s view which expects pressure on spending by government in this important time of Botswana’s history.

Recent Moody’s view sees uncertainty and delay in fiscal consolidation efforts towards the 2019 General Elections and the rating agency highly expects Matambo’s Monday speech to vindicate that.  “Ahead of elections in Botswana, the authorities now envisage a more gradual pace of fiscal consolidation…,” said Moody’s. A public voice echoed by workers who now regard themselves as the “working poor” has been reverberating for years and this year it is even louder towards the national polls hence an expected spending pressure by government.

Unionist Tobokani Rari did not mince words when making his promises heard by this publication. He said since 2011 he does not remember government attempting to cushion workers who have continued to struggle against inflation or cost living since the 2009 global recession.
With regards to cushioning of workers from inflation, Rari said, the government has been accumulating arrears since 2011 as it has been increasing salaries with small percentages which would not cushion against inflation; only around 3 percent and 4 percent.

“This was not enough as the actual inflation was never met halfway by reasonably increasing prices. The increment of lesser percentages did not reflect compensation of inflation and rather it fell short by almost 16 percent,” said Rari who is against these lesser salary increments which would never compensate for erosion of salaries. Rari expects Masisi’s administration to bring back lost value of workers salary and he also believes this would enhance productivity.

He said Masisi should prioritize in human resource as it is a vital remedy for a healthy economy. It appears the NDP 11 reiterates Rari’s comments that government has been doing less in terms of increasing productivity which is vital for economic health. “With the positive relationship between total factor productivity and economic growth in Botswana, the failure to effectively address the issue of low productivity undermines the country’s ability to operate at its full potential,” says the NDP 11 which was released in 2016.

The NDP 11 further says the country’s ambition of being an upper income country may be difficult to realise in the foreseeable future. Any significant improvements in productivity in both the public and private sectors will have salutary effects on the economic growth and overall health of the economy, according to NDP 11.Meanwhile a Malaysian private consultancy firm appointed by government, Performance Management and Delivery Unit (PEMANDU), has secretively proposed that government increase salaries by 20 percent in a pyramid manner.

This means that the additional cost to the government will be P1.23 billion per annum and this is expected to be in Matambo’s briefcase. While economist Moatlhodi Sebabole is talking against irresponsible spending by the treasury in any occasion or important season like the time of elections, the expert encourages cautious spending by government and believes the current projected deficit was in no way over the bar or overboard.

He gave a scenario of 2009 when Botswana was waking up from global recession with a heavy fiscal deficit of over P9 billion-a time when the economy was still smaller than it is today. According to Sebabole, a projected deficit of P5, 11 billion should not scare as it is not that bad as it seems and will be recovered. Sebabole also welcomes the treasury’s current projected deficit saying it is a counter-cyclical fiscal policy.

He said in this kind of fiscal policy government has spent its revenues on mining projects like the development of Cut 9 in Jwaneng and the Cut 3 at Orapa projects which is expected to bring back returns that will cushion the impending fiscal deficits.  Sebabole believes that the fiscal deficits may shrink even to P1.6 billion, even below the expected estimates. The economist believes fiscal consolidation by government should not in any way astray from the NDP 11 route and achievement of Vision 2036 goals or pillars.

 “In my view I believe in cautious fiscal spending. In every hot national event fiscal spending pressures is expected to cater for management of elections and when the fiscal policy is under pressure to deliver in an election year,” said Sebabole. Sebabole believes government has always been spending within the fiscal spending threshold which also coincides with the fiscal rule. He explained that the fiscal rule has always been to spend not above 4 percent of the GDP and this should be maintained even at a time of elections.

Permanent Secretary to the President and Secretary to the Cabinet Carter Morupisi told this publication that government will not be swayed by pressure of elections year and the budgetary process have not changed like in the past years. He echoed Masisi and Matambo’s last year comments that the upcoming Budget Speech will be mirroring priorities of NDP 11. “That will be the principal of good governance. Government should remain committed to prioritizing ongoing projects first before looking and new commitment,” he said.

Morupisi explained that a budget is prepared by looking at projected revenues and spending which are mostly planned on assumptions. He highlighted that after looking at ongoing projects compulsory payments will be made as in salaries of workers and government debts.
Priorities versus Promises. According to the 2019 Budget Strategy Paper one of the Fiscal Policy Objectives is to; manage the fiscal risks in a prudent manner and to ensure fiscal consolidation through expenditure prioritization that will result in quality spending.

Government’s main priority is to keep it’s spending below 4 percent of the GDP in the face of a projected fiscal deficit of P5. 11 billion which is the 2.4 percent of the GDP, according to Morupisi.  Also the PSP says top on Matambo’s list will be closing government’s ongoing projects and paying debts and liabilities as well as pay workers’ salaries.Matambo at the Budget Pitso said the projected P5.11 billion budget deficit will be financed through a combination of borrowing, both domestically and externally, and drawing down on government cash balances.

 “Government remains committed to pursuing fiscal sustainability and thus, additional measures to raise domestic revenues or trim the planned expenditure during the implementation of the Plan will be considered, if necessary, to restore the fiscal balance to sustainable levels,” says this year’s budget paper. As a self-proclaimed ‘Jobs President’, Masisi has a bigger headache before him, to increase employment while making sure that the jobs he created are decent. In his maiden SONA Masisi highlighted poverty and unemployment “as a matter of urgency.”

Masisi’s administration lives with the promise of increasing jobs. This is why Masisi further announced that his administration has come up with the National Employment Policy (NEP) to address the unemployment problem facing the country and live to his title of ‘Jobs President’.
Another promise by Masisi is to increase workers’ salaries or improve their living conditions. This is why the same NEP’s other goal is “to assist the country to achieve productive, gainful and decent employment for all, to contribute to the reduction of income inequality and as well as to support Government’s poverty eradication efforts.

“It is seen that the NEP in this aspect supports the NDP 11 which states that one of the problems facing the country is the decline in total factor productivity, especially labour productivity. NDP 11 complained that, “growth in labour productivity in the country, as measured by value added per person employed, has been declining over the past two decades.” The NEP gets technical and financial support from World Bank. The Draft National Employment Policy for Botswana is expected to be delivered by March 2019, a month after the Budget Speech.

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Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020
Foschini

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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