Following the successful demutualisation of Botswana Stock Exchange to a company held by shares BSEL limited has been introducing a number of changes within its stock trading operations , of which many automatically comes with a demutualised stock market.
In April 2016 while still a mutual organization under the Ministry of Finance the BSE amended the equity brokerage commission to introduce a floor of 0.60 percent. However, the introduction of the floor has experienced several challenges since inception, receiving backlash from asset managers also viewed as impediment to potential investors, especially foreign asset managers.
Now that BSE is a demutualised institution on transition to becoming a globally competitive stock trading platform that attracts universal multinational fortune 500 companies and international investors further review on the equity brokerage commission has been ongoing. After several consultations with asset managers BSE reiterates that the 2016 revised brokerage commission that is currently in effect has challenges and limitations that impedes smooth running of an evolving demutualised stock market.
A statement released by BSE this week said introducing the floor effectively raised the cost of trading and presented an opportunity for brokers to undercut one another in a bid to win trades. “It also has the potential to result in low trading activity in dual listed stocks as asset managers circumvent the BSE to trade the stocks in stock exchange where brokerage is comparatively lower.” reiterated BSE.
The stock market also said concerns underscored with the current brokerage commission are that benchmarking exercise which was undertaken to review the brokerage commission relied on information provided by an interested party, a broker, and the exercise could not have provided an independent and objective analysis for the BSE to make a well informed decision. In addition BSE observed that the information presented by the broker was not complete and comprehensive.
“From that end, the benchmarking exercise selected higher ends ceilings of the brokerage commissions to give an impression that brokerage commission in Botswana is very low compared to the chosen markets to support the introduction of the floor,” BSE statement said. Since the brokerage commission was revised effective April 2016 BSE trading turnover levels declined in 2016 and 2017, and still remained very low in 2018 compared to corresponding periods prior implementation of the floor.
Further analysis indicated that if the impact of the trades in New African Properties (NAP) which accounted for 18.0 percent and 18.4 percent of turnover in 2016 and 2017 respectively is removed, trading levels for 2016 and 2017 would have lagged those for 2013, 2014 and 2015. On the back of reduced trading levels, particularly in 2018, it is generally believed that this is attributable to the introduction of the floor. Stakeholders have since expressed to the Exchange that the floor could be revised or removed with expectations of revival in trading activity.
“In part, their concerns are attributed to the pressure that the brokers are experiencing on their revenues as a result of subdued trading activity,” says BSEL. The Exchange further lamented that the introduction of the floor came with negative skewness to overall turnover distributions increased the variance and the deviation of daily average turnover and reduced the stability of turnover. A brief overview of BSE trading figures indicates that conventionally, high value trades attract lower commission compared to low value trades.
Historically, asset managers have been paying brokerage averaging 0.36 percent on the basis of the size of the trades. It therefore could have been expected that introducing a floor that elevated the fees almost twice on average and by as much as six times what was paid for high value trades would result in a reduced propensity to trade in order to minimize the transaction costs incurred by the funds. In bookovers, where the effort to facilitate the trades is correspondingly lower, asset managers have paid an average rate of 0.30 percent.
An introduction of the floor of 0.60 percent effectively doubles the rate and doubling the rate would have been expected to curtail trading. To further support the review and possible scrapping out of the floor BSE say in a liberal market and a free market economy, fees have to be driven by competition on the basis of the quality of service and effort and have to be commensurate with the level of services provided.
“In our case, the brokerage commission was not justified by any improvement in value added services, such as increased coverage of stocks or increased cost of execution that warrants passing the costs to the end investors. Therefore, this was mechanically engineered and this is against the order of free market economy,” lamented BSE. In most markets, brokerage commission is on a sliding scale. The scales are such that brokerage declines as the value of the transaction increases.
In a few markets, brokerage is negotiable within certain 3 ranges and in some market it is flat. Further, we have noted that the BSE’s ceiling of 1.85 percent is one of the highest in comparative markets. Currently BSE is engaging stakeholders including the Public for ideas and views exchanges towards the possible removal of the floor.The Exchanges says in the interest of promoting the ideals of a liberal market, stimulating competitiveness and trading activity it recommends the removal of the floor of 0.60 percent such that brokerage is negotiable up to 1.85 percent as was the case prior to April 2016.
“We base this on the fact that asset managers are capable of paying any fees and brokers are free to charge any fees, so without imposing mechanisms in the form of the floor, it is ideal to allow the broker and the asset manager to negotiate any rate,” indicated the statement. According to BSE the removal of the floor would positively impact overall transaction costs of the funds and stimulate trading activity also taking into account that increased trading activity directly contributes to more income for brokers.
“This will avoid situations where brokers are undercutting one another to cannibalise trades , also this will minimize situations where asset managers could potentially seek rebates for the trades they avail to the brokers with lesser broker effort,” observes BSE. The review and possible removal of the 0.6 percent floor is viewed by BSE as a great opportunity to attract more foreign asset managers who currently view the BSE as expensive.
The latest FTSE classification published in September 2018, the BSE is rated as having relatively unreasonable and uncompetitive transaction costs and BSE says this rating was a result of the introduction of the floor. In paper titled, “What attracts international investors to emerging markets?” the World Federation of Exchanges (WFE) found that reducing trading fees is associated with an increase in foreign trading activity. BSE says revision and possible removal of this charges would make the BSE more competitive relative to other markets.
Newly established wholly indigenous citizen owned retail chain Payless Retail (PTY) Ltd is set to partake in the first session of Botswana Stock Exchange (BSE)’s Tshipidi Mentorship Program (TMP) on Monday June 29th.
The TMP aims to train and capacitate SMEs so they can operate as corporates and eventually list on the local bourse. According to local bourse, BSE, the program aims to provide practical training to potential issuers through a comprehensive and interactive program that covers the key themes necessary to position a company to list on the BSE.
Payless Retail is a newly established supermarket chain whose mission is to become a convenient one-stop shopping destination as it is one of the Botswana oldest retailing brands. It started off as Corner Supermarket in January 1976, and to date boasts of nine stores in, among others, Gaborone, Mochudi, Molepolole and Tlokweng. Payless was recently acquired by Ellis Retail Group, which is led by businessman Elliot Moshoke.
The takeover catapulted Ellis Retail to the envious position of being the first wholly indigenous owned major retail chain. “We jumped at this opportunity because it gave us a chance to prove to Batswana that the retail business is open and lucrative.”
The objective is to create a proudly Botswana retail chain that fully supports our national Vision, economic development and citizen economic empowerment ambitions,” Moshoke told BusinessPost.
He further emphasized that Batswana are capable and able to run large scale businesses hence they need to accept invite foreign investors who will come in to support us not take the business. “Our win as Payless in the Fast Moving Consumer goods (FMCG) industry is a win for Batswana. We need their support in this difficult and challenging journey.
As you are aware, Payless is the only retail chain in the hands of Batswana ba Sekei. We need to take advantage of this to generate employment and create small businesses in retail and Agri businesses,” he explained.
The retailer has also partnered with Botswana Investment & Trade Center (BITC) on their #PushaBW campaign with a view to initiating earnest engagement with local producers to iron out bottlenecks and ensure seamless trading.
“Local producers have to be part of the phenomenal growth of the Payless brand. This will in turn facilitate employment creation and economic growth. We did this because we have the utmost respect for local manufacturers and producers,” he mentioned.
Payless is currently restocking all of its stores; a development that Moshoke says is testament to the retailer’s commitment to growing the brand and ensuring continuity of business. He further revealed that renowned retail suppliers like PST and CA Sales have reignited their trust in Payless, opening their doors for Payless as they have faith in the retailer’s new owners.
The takeover has reportedly saved more than 200 jobs and gave a new lease of life to the previously fledging Payless brand. According to a press release from the management team, the Payless work forces are also extremely excited about what the future holds. The TMP is a comprehensive and interactive program that covers the key themes necessary to position a company to list on the BSE.
The program is administered by experts within the listing ecosystem and seeks to bring the potential issuers closer to the listings advisers, investors and leaders of already listed companies. “As a strategic initiative, the BSE decided to set up this mentorship program in a bid to assist SMEs to strategize, corporatize and acclimatize in order to list to access equity finance and expand operations,” said the BSE.
The TMP will avail to SMEs practical insights, knowledge and feedback from institutional investors, increased awareness of the BSE listing requirements as well as an intimate network of advisors and CEOs of listed companies. After training, Payless will graduate with improve governance structures and better knowledge of articulating its business strategy. The retailer will also gain increased visibility through BSE marketing platforms.
Despite Covid-19 interrupting trade worldwide, exporting companies in Botswana which benefited from the Botswana Investment and Trade Centre (BITC) services realised P2.96 billion in export earnings during the period from April 2020 to March 2021.
In the preceding financial year, the sale of locally manufactured products in foreign markets had registered export revenue of P2, 427 billion against a target of P3, 211 billion BITC, which celebrates 10 years since establishment, continues to carry out several initiatives targeted towards expanding the Botswana export base in line with Botswana’s desire to be an export led economy, underpinned by a robust export promotion programme in line with the National Export Strategy.
The main products exported were swamp cruiser boats, pvc tanks and pvc pipes, ignition wiring sets, semi-precious stones, veterinary medicines, hair braids, coal, textiles (towels and t-shirts) and automobile batteries. These goods were destined mainly for South Africa, Zimbabwe, Austria, Germany, and Namibia.
With Covid-19 still a problem, BITC continues to roll out targeted virtual trade promotion missions across the SADC region with a view to seeking long-lasting market opportunities for locally manufactured products.
Recently, the Centre facilitated participation for Botswana companies at the Eastern Cape Development Council (ECDC) Virtual Export Symposium, the Botswana-Zimbabwe Virtual Trade Mission, the Botswana-Zambia Virtual Trade Mission, Botswana-South Africa Virtual Buyer/Seller Mission as well as the Botswana-Namibia Virtual Trade Mission.
BITC has introduced an e-Exporting programme aimed at assisting Botswana exporters to conduct business on several recommended e-commerce platforms. Due to the advent of COVID-19, BITC is currently promoting e-trade among companies through the establishment of e-commerce platforms and is assisting local companies to embrace digitisation by adopting e-commerce platforms to reach export markets as well as assisting local e-commerce platform developers to scale up their online marketplaces.
During the 2019/2020 financial year, BITC embarked on several initiatives targeted at growing exports in the country; facilitation of participation of local companies in international trade platforms in order to enhance export sales of local products and services into external markets.
BITC also helped in capacity development of local companies to compete in global markets and the nurturing of export awareness and culture among local manufacturers in order to enhance their skills and knowledge of export processes; and in development and implementation of trade facilitation tools that look to improve the overall ease of doing business in Botswana.
As part of building export capacity in 2019/20, six (6) companies were selected to initiate a process to be Organic and Fair Trade Certified. These companies are; Blue Pride (Pty) Ltd, Motlopi Beverages, Moringa Technology Industries (Pty) Ltd, Sleek Foods, Maungo Craft and Divine Morula.
In 2019 seven companies which were enrolled in the Botswana Exporter Development Programme were capacitated with attaining BOBS ISO 9001: 2015 certification. Three (3) companies successfully attained BOBS ISO 9001:2015 certification. These were Lithoflex (Pty) Ltd, General Packaging Industries and Power Engineering.
BITC’s annual flagship exhibition, Global Expo Botswana (GEB) to create opportunities for trade and strategic synergies between local and international companies. The Global Expo Botswana) is a premier business to business exposition that attracts FDI, expansion of domestic investment, promotion of exports of locally produced goods and services and promotion of trade between Botswana and other countries.
The portal also provides information on; measures, legal documents, and forms and procedures needed by Botswana companies that intend on doing business abroad. BITC continues to assist both potential and existing local manufacturing and service entities to realise their export ambitions. This assistance is pursued through the ambit of the Botswana Exporter Development Programme (BEDP) and the Trade Promotion Programme.
BEDP was revised in 2020 in partnership with the United Nations Development Programme (UNDP) with a vision to developing a diversified export-based economy. The programme focuses mostly on capacitating companies to reach export readiness status.
Prices for goods and services in this country continue to increase, with the latest figures from Statistics Botswana showing that in May 2022, inflation rate rose to 11.9 percent from 9.6 percent recorded in April 2022.
According to Statistics Botswana update released this week, the largest upward contributions to the annual inflation rate in May 2022 came from increase in the cost of transport (7.2 percent), housing, water, electricity, gas & other Fuels (1.4 percent), food & non-alcoholic beverages (1.1 percent) and miscellaneous goods & services (0.8 percent).
With regard to regional inflation rates between April and May 2022, the Rural Villages inflation rate went up by 2.5 percentage points, from 9.6 percent in April to 12.1 percent in May 2022, according to the government owned statistics entity.
In the monthly update the entity stated that the Urban Villages inflation rate stood at 11.8 percent in May 2022, a rise of 2.4 percentage points from the April rate of 9.4 percent, whereas the Cities & Towns inflation rate recorded an increase of 1.9 percentage points, from 9.9 percent in April to 11.8 percent in May.
Commenting on the national Consumer Price Index, the entity stated that it went up by 2.6 percent, from 120.1 in April to 123.2 in May 2022. Statisticians from the entity noted that the transport group index registered an increase of 7.3 percent, from 134.5 in April to 144.2 in May, mainly due to the rise in retail pump prices for petrol and diesel by P1.54 and P2.74 per litre respectively, which effected on the 13th of May 2022.
The food & non-alcoholic beverages group index rose by 2.6 percent, from 118.6 in April 2022 to 121.6 in May 2022 and this came as a result of increase in prices of oils & fats, vegetables, bread & cereal, mineral waters, soft drinks, fruits & vegetables juices, fish (Fresh, Chilled & Frozen) and meat (Fresh, Chilled & Frozen), according to the Statisticians.
The Statisticians said the furnishing, household equipment & routine maintenance group index rose by 1.0 percent, from 111.6 in April 2022 to 112.7 in May 2022 and this was attributed to a general increase in prices of household appliances, glassware, tableware & household utensils and goods & services for household maintenance.
The prices for clothing & footwear group index moved from 109.4 to 110.4, registering a rise of 0.9 percent during the period under review. Bank of Botswana has projected higher inflation in the short term, associated with the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices and added that the possible increase in public service salaries could add also upward pressure to inflation in this country.