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Buoyant MVAF joins big guns in property market

Motor Vehicle Accident Fund (MVAF) finally got approval to purchase shares in a company that owns the lucrative Airport Junction Mall-one of the Fund’s biggest investment this year, after months of waiting,

MVAF acquired 24.85 percent shareholding in Feune Pty Ltd from Exrod Pty Ltd. Feune owns Airport Junction Mall meaning the Fund now owns the plush mall which is adjacent to; the A1 road which goes to the north and the Airport road heading to Sir Seretse Khama International Airport. The MVAF-Exrod merger which was under the keen perusal of the Competition Authority finally got approved by the antitrust body last week.

The antitrust body said it has determined through the analysis of the facts of the merger that, “the 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 markets under consideration. The market structure in the relevant market will not be altered, and as such this transaction does not raise any competition concerns. In addition, there are no public interest concerns that could arise as a result of the proposed transaction.”

MVAF provides universal compensation to people affected by road accidents, hence does not sell any products or services for a fee.  In its latest financial statement released last week, MVAF recorded that total assets increased from P3.82 billion in 2016 to P3.83 billion in 2017.
On the back of increases in non-current assets from P3.0 billion to P3.1 billion while current assets reduced from P808.7 million to P727.2 million. Also, according to the Fund financial results, the reserves reduced from P2.7 billion in 2016 to P2.6 billion in 2017 while non-current liabilities increased from P794.6 million in 2016 to P999.9 million in 2017.

Current liabilities on the other hand reduced from P313.0 million in 2016 to P247.2 million in 2017 according to the fund’s financials. The revenue streams of the Fund are the fuel levy, third party cover, investment income and Government subvention.  The fuel levy rate is 5 thebe per litre of petroleum product sold. The Fuel levy revenue comprises fuel levy charged to fuel importers into Botswana. This levy income is accounted for on an accrual basis and its rate is 5 thebe per litre.

 According to the latest financial results, the net fuel levy income increased by 3.6% from P50.1million in 2016 to P52.0 million in 2017. In its bid to increase its revenues, MVAF has perpetually advocated for the increase of the fuel levy rate for years. According to MVAF CEO Micheal Tlhagwane in the Fund’s latest financial results, the accident compensation fund is planning  “engagement with government for the restoration of fuel levy to its previous rate of 9.5 thebe per litre are ongoing as the Fund now heavily relies investment income to meet the costs of claims and operating costs, which poses serious financial risks.”

 
Tlhagwane said the Fund will also initiate a limited legislative review to ensure that both the MVA Fund Act of 2007 and the MVA Fund Regulations of 2008 are relevant to the current operating environment geared towards improving administration of claims. The other revenue source, Third Party cover, comprises of premiums charged on foreign registered vehicles which enter the country.  The Third Party Cover decreased by P2 million from P10 million in 2016 to P8 million in 2017.  

The investment income comprises of the of the following: (a)Interest income which is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Fund. (b)Dividends are recognised when the right to receive payment is established. These relate to investments in local and offshore investments.

Lastly, the other part of investment income is (c) rental income revenue includes gross rental income, service charges and management charges from properties and income from property trading. Rental income is accrued on a straight-line basis over the contractual periods as and when the Fund becomes entitled to the income.  Even though the investment income has decreased by P78 million from being P94 million in 2016 to P16 million in the current year, the Airport Junction Mall will directly falls in this portfolio.

The latest MVAF investment venture, Airport Junction mall, will be buoyed by currently undergoing extension where there will be 30 shops and 488 parking area according to information reaching this publication.  There are currently 74 tenants, 51 145m² of two retail floors, 104 stores and 2378 parking bays. Since its inception Airport Junction has always been a money spinning venture according to property experts and investors with a space of 41 445m².

Property expert Sethebe Manake said for anyone investing in property; whether an individual or a company, it will depend on how deep the pocket is because currently there are lots of risks involved in the property venture. She said she hopes anyone in the property venture knows what they are doing given the fact that household utility or the cost of living is currently higher-cushion needs to be exercised.

With a huge decline in investment income, MVAF hopes that buying Airport Junction mall will boosts its investment in property.  According to the MVAF the Fund’s Investment Portfolio was valued at P3.73 billion as at 31st December 2017, recording a marginal increase of P10.0 million from P3.72 billion reported as at 31st December 2016. According to MVAF CEO, the year 2017 was another challenging year in the history of MVA Fund, as for a second successive year, the Fund recorded a high total comprehensive loss owing to depressed primary sources of income like the fuel levy, high unrealized offshore foreign exchange losses and high claims provisions.

However on a positive, the Fund received 2 934 claims during 2017, representing a decline of 3% when compared to 3 019 claims received in 2016 and the decline was attributable to reduction in serious injuries. But the Fund failed to settle claims well as the settled claims were 2 340 in 2017 unlike 2 568 claims settled in 2016.According to MVAF chairman Abraham Botes, the Fund was affected negatively by unrealized foreign exchange losses on offshore investments as the Botswana Pula continued to strengthen against the United States Dollar.

The Airport Junction Mall will join others in MVAF property portfolio which consists of the MVA Fund Head Office building, residential property investments in Gaborone and Francistown as well as retail partnership properties in Palapye, Francistown and Maun.  According to MVAF, the portfolio was valued at P155.5 million as at 31st December 2017, recording an increase of P22.0 million from P133.5 million recorded in 31st December 2016. “The overall impact of the negative performance by the local equities as well as the decrease in money market instruments affected the asset growth despite the strong run by the offshore investments,” said the MVAF financial statement.

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

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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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