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Sluggish corporate earnings shrink BSE equity market performance

Botswana Stock Exchange Limited (BSEL) Domestic Company Index (DCI) has depreciated during the 2018 trading period January 1 to September 30. This was revealed by the BSEL market performance report released this week.

The document highlights that in comparison to the 2017 corresponding period where the performance of the DCI declined by 5.0 percent, this year the graphs hit a steeper downward wave as the (DCI) hit a double depreciation to11.5 percent. BSLEL reports that the decline can be attributed to similar challenges experienced last year, which are by in large characterised by sluggish corporate earnings despite the macro economy showing signs slight recovery.

Also, during the period under review the Foreign Company Index (FCI) has depreciated by 0.2 percent, a slightly better performance compared to a more decline of 0.5 percent in 2017. With effect from 1st January 2018, the BSE introduced the Domestic Company Index Total Returns (DCTRI) following Main Committee and Non-Bank Financial Institutions Regulatory Authority (NBFIRA) approvals in December 2017.  

More figures from the report reveals that as at 30 September 2018, the DCTRI had depreciated by 7.2 percent, reflecting the cushioning effect of dividends over the year to date period. The depreciation in market performance during the period under review is also mirrored by a significant decline in equity turnover. Trading activity was noticeably reduced during the period under review. As at 30 September 2018, the BSE has recorded a turnover of P1, 231.3 Million from 470.7 million shares traded.

During the same period in 2017, the BSE had registered a turnover of P2, 144.4 million and a total volume of 655.6 million shares traded mirroring a significant decline in traded shares volume and turnover. An in-depth analysis of the turnover during the period from January to September 2018 depicts that the trading activity was relatively unstable compared to the same periods in the previous four years.

 BSEL observes that a relatively lower number of companies accounted for a relatively larger amount of turnover over this period compared to the same period in 2017.  “This further explains the lower stability of turnover compared to 2017,” reads the report. Zooming into the figures it is evident that the top 3 traded companies in terms of value, on a year to date basis, were; Letshego at P376.8 million, NAP at P293.2 million and CA Sales at P194.4 million and these accounted for 70.2 percent of total turnover during the first three quarters of 2018.

During the same period in 2017, three companies accounted to 50.2 percent of turnover, an indication of turnover concentration in 2018 relative to 2017. This according to BSEL further substantiates the deduction in traded shares volume. During the year to September 2018, local companies contributed 57.1 percent to total turnover compared to 56.9 percent in the corresponding period in 2017.

Furthermore, local individuals contributed 4.4 percent of total turnover recorded during the period 1st January to 30 September 2018 compared to 5.1 percent in the year 2017 corresponding period. On a slight positive note Exchange Traded Funds (ETFs) realised a hike in traded value during the first three quarters of 2018 compared to the same period in 2017.

The value of units traded increased in the year to date period, reaching P216.2 million compared to P133.2 million in the corresponding period in 2017 whereas the number of units traded amounted to 2.4 Million units in 2018 compared to 3.2 Million units in 2017. Another positive performance during the period under review can be noted under the Bond Market, BSEL reports that activity in the bond market has improved compared to the same period in 2017.

The value of bonds traded during the period January –September was P1, 608.6 Million in comparison to P273.0 million traded during the same period in 2017. Bank of Botswana (BoB), on behalf of Government, held three bond auctions this year . At its first bond auction of 2018 on 2 March, additional tranches of BW007 (P77 Million, BW008 (P100 Million and BW011 (P100 Million) amongst other bonds and treasury bills were offered.

At the second auction of the year conducted on 1 June, BoB re-opened three more bonds while the third Government Bond Auction conducted on 31 August saw the re-opening of the BW013 and the issuance of two new bonds; BW014 and BW015. Issuing of long dated bonds by government has been noted by industry commentators as progressive move that sparks confidence and boosts the annuity book across investment & insurance market.

Catherine Lesetedi-Letegele, Chief Executive Officer (CEO) of leading financial services, insurance and investment group Botswana Insurance Holdings Limited (BIHL) also remarked these sentiments early last months. Lesetedi-Letegele noted that government decision to participate more, coming up with a reviewed framework that speaks to a specified and defined interval of bond issuing was commendable.

“We are quite pleased that at the last auction Government came to the market with a new bond BW 0015 which is a 25-year tenure bond, and this is very helpful for anyone who is in the market for annuities to manage their liabilities,” she said. BSLE chief, Tsheole also quoted in previous interviews saying: “We need to have more government bonds issued to maintain a robust risk-free curve and the viability of the existing BSE bond indices.

These wide gaps in the yield curve negatively impact the pricing of assets such as corporate bonds that ordinarily reference risk free assets and this brings distortions in pricing and compromises the liquidity and the appetite for debt instruments,” he said in July 2017. BSLE has registered five corporate bond listings during the first three quarters of 2018, on the back of issuances, the nominal amount in issue of listed bonds increased to P13.8 billion compared to P12.9 billion as at the same period in 2017.

This year BoB has left bank rate unchanged at 5.0 percent on several monetary policy committee sittings, in view of the positive outlook for price stability. With Inflation decreased from 3.2 percent in December 2017 to 2.9 percent in September 2018 BSEL says a low inflationary environment helps the bond coupons maintain purchasing power.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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