Botswana Development Corporation (BDC), government investment arm this week delivered impressive sets of financial results for the year ended June 2018, mirroring a good dispatch of their ongoing five-year strategy which commenced in 2015.
The strategy was set-up by Managing Director Bashi Gaetsaloe who took over the reins in 2014 at a time when the corporation was embattled with corruption, maladministration and failing investments. At a stakeholder briefing hosted by the company in Gaborone this Thursday, Gaetsaloe observed that the 2018 trading period continued to be a challenging year economically both in domestic and global markets explaining that BDC was not spared from this toughened trading environment.
“However in the midst of these external factors, we have continued to make progress. We are now in the fourth year of our five-year strategy and we remain committed to our ambition to double the business in this strategic period,” he said. During the period under review the BDC Group raked in Profit-before-Tax of P187 million, mirroring an increase of 39 percent when gauged against P135 million registered in the prior year ended June 2017. The Group recorded a hike of 5 percent in asset base ending the trading year at 4.1 billion pula compared to 3.9 billion pula in 2017.
BDC also realised growth in interest income of 20 percent to P42million against P35 million reported during the prior year. When delivering these sets of financial figures BDC acting Chief Finance Officer Maranyane Makhondo said this was a reflection of the expected growth in debt assets, a milestone achieved in correlation with the corporation’s business strategy to rebalance the equity/debt asset profile.
“We successfully drove an increase in investment asset values at Group level with financial results for the year under review reporting an accumulative 5 percent year on year growth of Group assets to P4.1 billion,” reiterated Makhondo. Further zooming into the BDC Group’s financial highlights for the period under review indicates that income closed the year at P444 million against last year’s P403 million, reflecting a 10 percent growth year on year.
Company Profit before Tax increased by 18 percent to P244 million in 2018 from P206 million reported in 2017. Managing Director, Bashi Gaetsaloe shared that in addition to the reported financial results, his company also takes pride in the Moody’s Investors Service reaffirmation of their Baa2/Prime2 rating with a stable outlook.
“The rating agency recognised our strong liquidity and capital buffers, and assumption of a high probability of government support hence our issuer ratings entail a standalone credit profile of b1, which balances what Moody’s recognizes as a strong company solvency and liquidity position against a high concentration of strategic participation in large equity investments.”
Gaetsaloe further added that during the year 2018 BDC moved from equity investment to debt instruments with a view to align their portfolio composition to their investment mandate of just being financers and not operators “we shrunk our equity injections and hiked our debt instruments because our job is not to run businesses but just support, thus we took a deliberate stance to minimize our equity skates with a view to allow entrepreneurs , promoters and business owners to run these business so we have been moving with a small minority stake investment wave to archive this” he said.
When updating stakeholders on BDC’s investment portfolio Chief Investment Officer (CIO) Moatlhodi Lekaukau shared that the company has stretched its investment outlook with a view to expand its African footprint and diversity the corporation’s revenue streams and various market reach. He shared that the corporation has closed in on a first international deal as well as upcoming transactions both in East and West Africa.
Lekaukau revealed that in Nigeria BDC is 80 percent wrapping up a lucrative transaction that would see the corporation hold a significant stake in an undisclosed telecommunication company that operates consumer based mobile business. “We are excited about this transaction, the company is one of the top five in Nigeria, and we know the country hosts a large vibrant market so we a looking at impressive returns from this deal,” explained Lekaukau adding that an investment in the Ghana energy sector is also in the offing.
The Chief Investment Officer also shared that in Uganda, BDC will be investing in an oil refinery business, “we are cautious with this offshore investments, but they are key to our diversification strategy which seeks to expand our footprints into other vibrant and bigger markets and East Africa as well as West Africa presents that, especially in the energy and telecommunication sectors” said Lekaukau.
Commenting on these investments Managing Director Gaetsaloe added that BDC’s investments outside boarders of Botswana present a great opportunity for the company’s ambitions of being a window for Botswana’s economic aspiration. “Once we take a Botswana investment company outside our boarders we send a good image of Botswana’s economic capacity and ability, as we close these deals we create linkages with some of these companies to come and explore possible joint ventures here in Botswana with local companies as well as explore other potential business opportunities” said the BDC MD.
BDC’S FIVE- YEAR STRATEGY
Speaking to the five-year strategy Gaetsaloe explained that the strategy was bearing fruits. “We believe that our five-year strategy has delivery results, over the cause of the last four years we have returned BDC to profitability with cumulative profits of P784 million pula, paid off debt of P500 million and transferred P285 millions of listed stock to the public. We have also transferred business and assets worth over P300 million pula to local firms and Batswana, and reduced our loss making subsidiaries from nine to two. This are commendable sets of achievements,” he said.
During the last four year BDC approved P952 million to fund new projects and creating over 1200 new jobs. The government investment arm established a Reserved fund and an Investment Fund which are capitalized at over P230 million. “We have always wanted to have a buffer fund to accommodate possible shocks, that way our funders and lenders have confidence in our borrowings, to say if there was a shock to our income streams we would continue to meet our repayments obligations,” he said. Going forward, Gaetsaloe reiterated that BDC would be aligned directly to the national vision 2036 of achieving a high income economy for Botswana.
“We are a self-funding company that strives to pay-out an increasing dividend to our shareholder, being government, on year-on-year basis, we gather our funding by borrowing from local banks and capital market so that we can invest on commercial projects that drive industrialization, and create employment for Batswana,” he said.
BDC paid dividends to Botswana Government for the past three trading years since 2015 after a decade of loss making. “We raise funds, deploy fund and look after these funds to achieve shareholder value and for the year under review we have successfully driven growth across the business including significantly net worth by P700 million since 2014,” said Gaetsaloe.
Mowana Copper Mine in Dukwi will finally pay its former employees a total amount of P23, 789, 984.00 end of this month. For over three years Mowana Copper Mine has been under judicial management. Updating members, Botswana Mine Workers Union (BMWU) Executive Secretary Kitso Phiri this week said the High Court issued an order for the implementation of the compromise scheme of December 9, 2021 and this was to be done within 30 days after court order.
“Therefore payment of benefits under the scheme including those owed to Messina Copper Botswana employees should be effected sometime in January latest end of January 2022,” Kitso said. Kitso also explained that cash settlement will be 30 percent of the total Messina Copper Botswana estate and negotiated estate is $3,233,000 (about P35, 563,000).
Messina Copper was placed under liquidation and was thereafter acquired by Leboam Holdings to operate Mowana Mine. Leboam Holdings struck a deal with the Messina Copper’s liquidator who became a shareholder of Leboam Holdings. Leboam Holdings could not service its debts and its creditors placed it under provisional judicial management on December 18, 2018 and in judicial management on February 28, 2019.
A new company Max Power expressed interest to acquire the mining operations. It offered to take over the Mowana Mine from Leboam Holdings, however, the company had to pay the debts of Leboam including monies owed to Messina Copper, being employees benefits and other debts owed to other creditors.
The monies, were agreed to be paid through a scheme of compromise proposed by Max Power, being a negotiated payment schedule, which was subject to the financial ability of the new owners. “On December 9, 2021, Messina Copper liquidator, called a meeting of creditors, which the BMWU on behalf of its members (former Messina Copper employees) attended, to seek mandate from creditors to proceed with a proposed settlement for Messina Copper on the scheme of compromise. It is important to note that employee benefits are regarded as preferential credit, meaning once a scheme is approved they are paid first.”
A savingram the Ministry of Local Government and Rural Development sent to Town Clerks and Council Secretaries explaining why councilors across the country should not have access to their terminal benefits before end of their term has been revealed.
The contents of the savingram came out in the wake of a war of words between counselors and the Ministry of Local Government and Rural Development. The councilors through the Botswana Association of Local Authorities (BALA) accuse the Ministry of refusing to allow them to have access to their terminal benefits before end of their term.
This has since been denied by the Ministry. In the savingram to town councils and council secretaries across the country, Permanent Secretary in the Ministry of Local Government and Rural Development Molefi Keaja states that, “Kindly be advised that the terminal benefits budget is made during the final year of term of office for Honorable Councilors.” Keaja reminded town clerks and council secretaries that, “The nominal budget Councils make each and every financial year is to cater for events where a Councilor’s term of office ends before the statutory time due to death, resignation or any other reason.”
The savingram also goes into detail about why the government had in the past allowed councilors to have access to their terminal benefits before the end of their term. “Regarding the special dispensation made in the 2014-2019, it should be noted that the advance was granted because at that time there was an approved budget for terminal benefits during the financial year,” explained Keaja. He added that, “Town Clerks/Council Secretaries made discretions depending on the liquidity position of Councils which attracted a lot of audit queries.”
Keaja also revealed that councils across the country were struggling financially and therefore if they were to grant councilors access to their terminal benefits, this could leave their in a dire financial situation. Given the fact that Local Authorities currently have cash flow problems and budgetary constraints, it is not advisable to grant terminal benefits advance as it would only serve to compound the liquidity problems of councils.
It is understood that the Ministry was inundated with calls from some Councils as they sought clarification regarding access to their terminal benefits. The Ministry fears that should councils pay out the terminal benefits this would affect their coffers as the government spends a lot on councilors salaries.
Reports show that apart from elected councilors, the government spends at least P6, 577, 746, 00 on nominated councilors across the country as their monthly salaries. Former Assistant Minister of Local Government and Rural Development, Botlogile Tshireletso once told Parliament that in total there are 113 nominated councilors and their salaries per a year add up to P78, 933,16.00. She added that their projected gratuity is P9, 866,646.00.
A surge in consumer spending is expected to be a key driver of Botswana’s economic recovery, according to recent projections by Fitch Solutions. Fitch Solutions said it forecasts household spending in Botswana to grow by a real rate of 5.9% in 2022.
The bullish Fitch Solutions noted that “This is a considerable deceleration from 9.4% growth estimated in 2021, it comes mainly from the base effects of the contraction of 2.5% recorded in 2020,” adding that, “We project total household spending (in real terms) to reach BWP59.9bn (USD8.8bn) in 2022, increasing from BWP56.5bn (USD8.3bn) in 2021.” According to Fitch Solutions, this is higher than the pre-Covid-19 total household spending (in real terms) of P53.0 billion (USD7.8bn) in 2019 and it indicates a full recovery in consumer spending.
“We forecast real household spending to grow by 5.9% in 2022, decelerating from the estimated growth of 9.4% in 2021. We note that the Covid-19 pandemic and the related restrictions on economic activity resulted in real household spending contracting by 2.5% in 2020, creating a lower base for spending to grow from in 2021 and 2022,” Fitch Solutions says.
Total household spending (in real terms), the agency says, will increase in 2022 when compared to 2021. In 2021 and 2022, total household spending (in real terms) will be above the pre-Covid-19 levels in 2019, indicating a full recovery in consumer spending, says Fitch Solutions. It says as of December 6 2021 (latest data available), 38.4% of people in Botswana have received at least one vaccine dose, while this is relatively low it is higher than Africa average of 11.3%.
“The emergence of new Covid-19 variants such as Omicron, which was first detected in the country in November 2021, poses a downside risk to our outlook for consumer spending, particularly as a large proportion of the country’s population is unvaccinated and this could result in stricter measures being implemented once again,” says Fitch Solutions.
Growth will ease in 2022, Fitch Solution says. “Our forecast for an improvement in consumer spending in Botswana in 2022 is in line with our Country Risk team’s forecast that the economy will grow by a real rate of 5.3% over 2022, from an estimated 12.5% growth in 2021 as the low base effects from 2020 dissipate,” it says.
Fitch Solutions notes that “Our Country Risk team expects private consumption to be the main driver of Botswana’s economic growth in 2022, as disposable incomes and the labour market continue to recover from the impacts of the Covid-19 pandemic.” It says Botswana’s tourism sector has been negatively impacted by the Covid-19 pandemic and the related travel restrictions.
According to Fitch Solutions, “The emergence of the Omicron variant, which was first detected in November 2021, has resulted in travel bans being implemented on Southern African countries such as South Africa, Botswana, Lesotho, Namibia, Zimbabwe and Eswatini. This will further delay the recovery of Botswana’s tourism sector in 2021 and early 2022.” Fitch Solutions, therefore, forecasts Botswana’s tourist arrivals to grow by 81.2% in 2022, from an estimated contraction of 40.3% in 2021.
It notes that the 72.4% contraction in 2020 has created a low base for tourist arrivals to grow from. “The rollout of vaccines in South Africa and its key source markets will aid the recovery of the tourism sector over the coming months and this bodes well for the employment and incomes of people employed in the hospitality industry, particularly restaurants and hotels as well as recreation and culture businesses,” the report says.
Fitch Solutions further notes that with economies reopening, consumers are demanding products that they had little access to over the previous year. However, manufacturers are facing several problems. It says supply chain issues and bottlenecks are resulting in consumer goods shortages, feeding through into supply-side inflation. Fitch Solutions believes the global semiconductor shortage will continue into 2022, putting the pressure on the supply of several consumer goods.
It says the spread of the Delta variant is upending factory production in Asia, disrupting shipping and posing more shocks to the world economy. Similarly, manufacturers are facing shortages of key components and higher raw materials costs, the report says adding that while this is somewhat restricted to consumer goods, there is a high risk that this feeds through into more consumer services over the 2022 year.
“Our global view for a notable recovery in consumer spending relies on the ability of authorities to vaccinate a large enough proportion of their populations and thereby experience a notable drop in Covid-19 infections and a decline in hospitalisation rates,” says Fitch Solutions. Both these factors, it says, will lead to governments gradually lifting restrictions, which will boost consumer confidence and retail sales.
“As of December 6 2021, 38.4% of people in Botswana have received at least one vaccine dose. While this is low, it is higher than the Africa average of 11.3%. The vaccines being administered in Botswana include Pfizer-BioNTech, Sinovac and Johnson & Johnson. We believe that a successful vaccine rollout will aid the country’s consumer spending recovery,” says Fitch Solutions. Therefore, the agency says, “Our forecasts account for risks that are highly likely to play out in 2022, including the easing of government support. However, if other risks start to play out, this may lead to forecast revisions.”