Choppies is running at a high speed in a race against time to avoid the risk of being delisted from the Botswana Stock Exchange Limited (BSEL) end of this month.
Release of financials remains a thorn for Choppies as many believe the retail giant is a sinking ship following explosive speculations on its financial operations, delay of financial results and a fight for shares at Choppies Zimbabwe. Earlier this week, BSEL warned Choppies to release audited financial statements for the ended June 2018 or face strict repercussions. According to a statement released by BSEL, Choppies is in contravention with the BSEL Listing Requirements and “is under threat of suspension and possible termination.”
In an interview with BusinessPost this week, Choppies CEO Ramachandran Ottapathu promised that they will release the results before the stipulated time and that the retailer will not be delisted. Motswedi Securities Head of Research Garry Juma said in an interview that he personally does not think Choppies will risk being delisted. He was confident that before the end of October, Choppies would have listed.
Choppies failure to release financial results saw the local grocer being suspended from the BSEL on 21 September resulting in its share price dropping drastically from P1.25 to 40 thebe. The suspension of Choppies took six days, and prompted a lot of activity in the JSE where its value fell by 85 percent. After the fall, the price rebounded by 22 thebe in the BSEL to trade at 62 thebe.
According to Motswedi Securities recent Weekly Financial Markets Highlights, it will take time for the retailer to recover from its crash. “…the likelihood of the stock recovering all of the losses , of which currently stand at -74.4%, in the remaining three months are very slim, considering that they have already notified the public that they expected a profit after tax decline of 20% or more in a trading statement on the 21st of September,” said Motswedi Securities.
Motswedi Securities has also observed that investor confidence in the stock has waned considerably and without any further clarification on the company’s situation, a lot of uncertainty may cloud the performance of the stock. Choppies is estimated to have lost about P1.7 billion in value following the drop in share price. Ottapathu has relieved that on paper in the past weeks Choppies would have lost almost quarter of a billion but “everything is going well operationally despite all the speculations.”
Ottapathu believes the Choppies fall in value is due to delay of financial statements which created a lot of perception and speculation in the market. A change of auditors from KPMG to PricewaterhouseCoopers (PwC) is blamed in delay of financial results and Choppies recently released a statement saying:
“The Board of Directors of Choppies Enterprises Limited advises that they have instructed management to perform more detailed procedures on verification and valuation of inventory in conjunction with the new external auditor PricewaterhouseCoopers (PwC), appointed on 31 January 2018. This process will only be completed by 30 April 2018 and hence creates uncertainty regarding the impact of any potential adjustments, if any, on the results.”
Choppies share price over-punished and the JSE effect
Market researcher Juma is of the view that the Chopppies price was “over-punished” because of Zimbabwe shareholder fight and the delay of financial results. He believes that Choppies should have made a quick statement of clarification on any issue which threatens to mar its reputation or lessen investor confidence. According to him, clarity should have been made on delay of financial results and the Zimbabwe shareholder war.
Juma also stated that the Choppies share price fall in BSEL was because of the influence from the big market that is the Johannesburg Stock Exchange (JSE). Juma said Choppies fall in value was a trend set in South Africa where investors were having fears over the Zimbabwe shareholding saga and delay of financial results, the retailer was following suit of what is happening in the JSE.
Juma explained that JSE is a huge market which can influence market trends of smaller markets like the BSEL. The researcher explained the sensitivity of the South African economy which can be ‘touched by anything’ as the South African Rand also thrives in “free floating exchange rate.” He was explaining a scenario of if JSE catches flu, BSEL would catch flu too.
Choppies, Shoprite scramble for Africa
Choppies, built from humble beginnings from a hilly beef town of Lobatse, grew in leaps and bounds and became a force to be recon with for years. In 2012 Choppies listed on BSEL with market capitalization of P2.4 billion and three years later it got its secondary listing on JSE and listed about 277-million ordinary shares at R4.90 per share. After JSE listing Choppies embarked on a crusade of taking over Africa retail markets and market its presence in neighboring countries like South Africa.
But there was another bull on the kraal in Shoprite, a big player for decades, to compete with Choppies. Market observers believe Choppies has failed in the South Africa market and according to Juma, the South African retailer remains with an upper hand over the local grocer. As Choppies’ rise almost diminished the presence of Shoprite in Botswana, the case is vice versa at South Africa and Juma believes this market dynamics will take a long time to change.
Just days after the last month’s decline in Choppies market value, a South African analyst predicted in the Business Day that the fall in the local retail price could make it a target for the likes of Shoprite while Choppies was still under pressure. The analyst sees Choppies as a “small player in a big pond. Also, this publication has recently intercepted information that Shoprite may be planning to “take Choppies out of the game” by a hostile takeover following the local retailer’s market misfortunes. Information from the JSE suggests that Shoprite may be involved in “fronting for Choppies shares.” Ottapathu was not aware of such move by Shoprite and the South African retailer did not respond to our questions on the issue before press time.
However some market enthusiasts are doubtful that Shoprite sees Choppies as a rival, but it is “just an irritant.” According to observers, it is unlikely that there was anyone buying a lot of Choppies shares without buying during the past couple of days as this may be a possibility for a hostile takeover to happen.
Juma also does not buy the logic that Choppies may be up for a hostile takeover, putting his confidence on two major shareholders Ottapathu and Farouk Ismail, saying they will not let that happen so easy. He said “not now, not anytime soon.” Juma reminded how the two men build Choppies from humble beginnings to a retailer giant it is today.
Adamant and unmoved by the recent market misfortunes that happened for Choppies, Ottapathu told BusinessPost that a hostile takeover by anyone whether bigger than Choppies or small, is impossible. Ottapathu was unfazed saying business will go on like normal and financial results will soon be released in few days. Shoprite refused to comment allegation of its attempted hostile take-over of Choppies but said: “Regrettably we cannot comment on any public speculation.”
The partnership between Debswana and Botswana Oil Limited (BOL) which was announced a fortnight ago will create under 100 direct jobs, and scores of job opportunities for citizens in the value chain activities.
In a major milestone, Debswana and BOL jointly announced that the fuel supply to Debswana, which was in the past serviced by foreign companies, will now be reserved for citizen companies. The total value of the project is P8 billion, spanning a period of five years.
“About 88 direct jobs will be created through the partnership. These include some jobs which will be transferred from the current supplier to the new partnership,” Matida Mmipi, Head of Stakeholder Relations at Botswana Oil, told BusinessPost.
“We believe this partnership will become a blueprint for other citizen initiatives, even in other sectors of the economy. Furthermore, this partnership has succeeded in unlocking opportunities that never existed for ordinary citizens who aspire to grow and do business with big companies like Debswana.”
Mmipi said through this partnership, BOL and Debswana intend to impact citizen owned companies in the fuel supply value chain that include transportation, supply, facilities maintenance, engineering, customs clearance, trucks stops and its support activities such as workshop / maintenance, tyre services, truck wash bays among others.
“The number of companies to be on-boarded will be determined by the economics at the time of engagement,” she said. BOL will play a facilitatory role of handholding and assisting emerging citizen-owned fuel supply and fuel transportation companies to supply Debswana’s Jwaneng and Orapa Letlhakane Damtshaa (OLDM) mines with diesel and petrol for their operations.
“BOL expects to increase citizen companies’ market share in the fuel supply and transportation industries, which have over the years been dominated by foreign-owned suppliers. Consequently, the agreement will also ensure security of supply for Debswana operations, which are a mainstay of the Botswana economy,” Mmipi said.
“Furthermore, BOL will, under this agreement, transfer skills to citizen suppliers and transporters during the contract period and ensure delivery of competent and skilled citizen suppliers and transport companies upon completion of the agreement.”
Mmipi said the capacitating by BOL is limited to providing citizen companies oil industry technical capability and capacity to deliver on the requirements of the contract, when asked on helping citizen companies to access funding.
“BOL’s mandate does not include financing citizen empowerment initiatives. Securing funding will remain the responsibility of the beneficiaries. This could be through government financing entities including CEDA or through commercial banks. Further to this, there are financial institutions that have already signed up to support the Debswana Citizen Economic Empowerment Programme (CEEP),” Mmipi indicated.
While BOL is established by government as company limited by guarantee, it will not benefit financially from the partnership with Debswana, as citizen empowerment in the petroleum value chain is core to BOL’s mandate.
“BOL does not pursue citizen facilitation for financial benefit, but rather we engage in citizen facilitation as a social aspect of our mandate. Citizen facilitation comes at a cost, but it is the right thing to do for the country to develop the oil and gas industry,” she said.
Mmipi said supplying fuel to Debswana comes with commercial benefits such as supply margins. These have traditionally been made outside the country when supply was done by multi-nationals for a period spanning over 50 years. With BOL anchoring supply for Debswana, this benefit will accrue locally, and BOL will be able to pay taxes and dividends to the shareholders in Botswana.
PwC Africa has presented the eighth edition of the VAT in Africa Guide – Africa re-emerging. This backdrop of renewal informs on the re-emergence of African economies and societies which have been affected by the COVID-19 pandemic.
In this edition, which has been compiled by PwC Africa’s indirect tax experts, covers a total of 41 African countries. It is geared towards sharing insight with our clients based on the constantly changing tax environments that can have a significant impact on business operations.
Within Africa, governments continue to focus on expanding the tax net by improving revenue collection through efficient compliance systems and procedures. PwC Africa has observed that revenue authorities also continue to take a keen interest in indirect taxes as part of revenue mobilisation initiatives.
Maturing VAT system and upskilling SARS
“In South Africa, VAT is becoming more relevant as a revenue source for the government,” says Matthew Besanko, PwC South Africa’s Indirect Tax Leader. “Strides have been made to upskill South African Revenue Service (SARS) staff and identify VAT revenue leakages, particularly in respect of foreign suppliers of electronic services to people and businesses in South Africa.”
Broadening the tax base and digital economy
In the past year, South Africa, Mozambique and Zimbabwe saw updates to their VAT legislation, or introduced specific legislation targeting electronically supplied services (ESS), which is in line with the global trend of attempting to tax the digital economy. “The expectation is that Botswana will also introduce VAT legislation in due course, while the National Treasury in South Africa has also made mention of revising the rules to account for further developments in the digital economy,” Besanko says.
South Africa’s National Treasury has also drafted legislation with the intention to introduce a reverse charge on gold, which is expected to come into effect later in 2022. While in Zimbabwe, revenue authorities have introduced a tax on the export of raw medicinal cannabis ranging between 10% and 20%, which came into effect on 1 January 2021.
ESG and carbon tax
Key strides have also been made within the Environmental, Social and Governance (ESG) space. “ESG leadership, strategising and reporting is essential now for organisations that wish to flourish and remain relevant,” Kabochi says. He adds that companies need to consider how ESG and tax intersect, since tax is a significant value driver when businesses need to deliver on their ESG goals.
In South Africa, a carbon tax regime, which is being implemented in three phases, has been adopted. The second phase was scheduled to start in January 2023, however phase one was extended by three years until 31 December 2025.
Until then, taxpayers will enjoy substantial tax-free allowances which reduce their carbon tax liability. At the beginning of 2022, the South African government increased the carbon tax rate to R144 (about US$9), which is expected to increase annually to enable South Africa to uphold its COP26 commitments.
With effect from 1 January 2023, carbon tax payers in South Africa will also be required to submit carbon budgets and adhere to the provisions of the carbon budgeting system which will be governed by the Climate Change Bill. Where set carbon budgets are exceeded, the government plans to impose penalties. “At PwC, we are continuously focused on our renewed global strategy, ” The New Equation,” Kabochi says. “Through this strategy, a key focus area for PwC Africa is to support clients in adding value to their ESG ambitions and building trust through sustained outcomes.”
The New Equation is also an acknowledgement of the fundamental changes in the business environment in which PwC’s clients and other stakeholders operate. PwC continues to reinvent and adapt to these changes as a community of problem solvers, combining knowledge and human-led technology to deliver quality services and value.
Local and international economists have lowered their projections on Botswana’s economic growth for 2022 and 2023, saying the country is highly likely to fail to maintain high growth rate recorded in 2021 hence will not reach initial forecasts.
Economists this week lowered 2022 forecasts for Botswana’s economic growth rate, from the initial 5.3% to 4.8% and added that in 2023 growth could further decline to 4.0%. The lower projections come on the backdrop of an annual economic growth that recovered sharply in 2021 with figures showing that year-on-year real Gross Domestic Product (GDP) growth increased to 11.4%, up from a contraction of 8.7% in 2020.
Economists from the local research entity, E-consult, this week stated that the 2021 double digit growth that exceeded projections made at the time of the 2022 budget may be short lived due to other developments taking place in the global economy. E-consult Economist Sethunya Kegakgametse stated that the war in Ukraine has worsened supply problems in the global economy and added that before the war, macroeconomic indicators were seen as improving and returning to pre-COVID levels.
According to the economist the global economy was projected to improve in 2022 and 2023. Recent figures show that global growth projections have been revised downwards from the initial forecast of 4.9% in 2022 with the World Bank’s new estimate for global growth in 2022 at 3.2%.
The statistics also shows that International Monetary Fund revised their growth projections for 2022 and 2023 down by 0.8% and 0.2% respectively, falling to 3.6% for both years. “The outbreak of war has severely dampened the global recovery that was under way following the COVID-19 pandemic,” said the economist.
She stated that despite Botswana being geographically removed from the conflict, the country has not and will not be exempt from the disruptions in the global economy. “The disruptions to global supply chains resulting from the war will have a negative effect on both Botswana’s growth and trade activities.
The economic sanctions against diamonds from Russia will add uncertainty to the market which will have knock on effects to Botswana’s growth, exports, and government revenues,” said the economists who added that the disruptions are driving prices up and result with very high inflation in the local economy.
Kegakgametse projected that in an attempt to limit inflation Bank of Botswana will be forced to raise interest rate “Should the sharp increase in both global and local inflation persist, Bank of Botswana much like other central banks around the world will be forced to raise interest rates in a bid to control rising prices. This would mean an end to the expansionary monetary policy stance that had been adopted post COVID-19 to aid economic growth,” she said.
In the latest projections, the UK based economic research entity Fitch Solutions lowered 2022 real GDP growth forecast for Botswana from 5.3% to 4.8% “In 2023, we see economic growth rate decelerating to 4.0%,” said Fitch Solutions economists who also noted that the 2022 and 2023 economic growth projections may come out lower than the current forecasts, as it is possible that new vaccine-resistant virus variants may be identified, which could result in the re-implementation of restrictions. “In such circumstances, we cannot rule out that Botswana’s economy may post weaker growth than our baseline scenario currently assumes,” said the economists.
According to the projections, Fitch Solution stated that there is limited scope for Botswana government to increase diamond production and exports, following the economic sanctions imposed on Russian diamond mining companies operating in Botswana. The research entity added that De Beers is unlikely to scale up diamond output from Botswana in order to prop up diamond prices.