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Finance ministry unveils new strategic plan

Ministry of Finance and Economic Development this week launched its new frameworks contained in the six and five-year strategic plan and communications strategy respectively.

The ministry’ strategic plan, envisioned to drive the country‘s close monitoring and management of its fiscal and finance matters as well as maintaining economic stability has been running since 2017, and  will be implemented until 2023, while the new  communication strategy will be implemented from this year until 2023. Ministry of Finance has the vital mandate of coordination of national development planning; monitoring implementation, mobilising and managing financial and economic resources.

Minister Matambo noted that his ministry has been able to vehemently deliver on this mandate for years, guiding Botswana’s Macroeconomic frameworks and fiscal policies and protecting the country against domestic and global economic challenges. The cardinal deliverables in the new strategic plans intends to come up with economic stimulus initiatives that are designed to boost economic activity, while at the same time avoiding the risk of burdening the economy with unsustainable public spending.

“The whole point is to predominately help the country mitigate any looming threat from both internal and external threats such as domestic fiscal collapse and global economic recession,” he said.  Matambo underscored that as the ministry in charge of public coffers, one of its key functions was to guard against misuse of public funds and reckless government spending.

“Inability to save for tough economic times is a window for various problems such as reduced availability of fiscal buffers needed to stimulate the economy in rough times; this also reduces the average portion of public finances available for long term investments in infrastructure, health or education in turn disrupting countries’ long-term development outlook,” he said.

To ensure the ministry harness maximum benefit from the plan, the ministry partially outsourced the formulation of the strategic plan to take advantage of available expertise and technical skills in the private sector while the communication strategy was developed in-house by a steering committee comprising of representatives from respective divisions within the ministry, under the leadership and guidance of senior management.

 “The launch of these two documents sets out the ministry’s goals and objectives, gearing the ministry ‘s readiness and in full swing to the achievement of the priorities of the country’s  eleventh National Development Plan (NDP 11) and ultimately the pillars of Vision 2036 and by extension, the sustainable development goals,” explained Matambo

Matambo said the ministry’s strategic plan contained eight key priority areas being accelerated implementation of the public finance management reforms; strengthening of monitoring and evaluation; re-engineering and automation of systems and processes; improving production of timely and accurate statistical information; implementing the initiative to increase and widen revenue base; improving project management processes; enhancing critical skills and transitioning to the new fiscal rules.

In order to enable successful implementation of these priorities, the ministry divided the strategic goals into three strategic themes, namely operational excellence, macroeconomic and financial management excellence and strategic partnerships.  “These are expected to steer the focus towards our vision of becoming leaders and a model of excellence in financial and economic management for the prosperity of this country,” said Matambo

Giving an update on the ministry’s recent undertakings Matambo noted that inflation declined from 8.2 per cent in 2009 to between 3 per cent and 6 per cent since June 2013 to date. He highlighted that the Ministry improved regulatory framework of the country’s financial sector by setting up a Financial Stability Council in a bid to close-up and tighten oversight coordination.

The council consists of high ranking officials from Bank of Botswana together with Non-Bank Financial Institutions Regulatory Authority (NBFIRA) working with the Financial Intelligence Agency. The Council primarily focuses on coordinated macro-prudential monitoring, analysis and response with respect to any financial system imbalances or distress.

Matambo explained that the council will reinforce collaboration, cooperation and communication amongst the relevant authorities to achieve comprehensive monitoring and enforcement of legislation and regulations in order to maintain integrity and stability of the financial system.
The ministry also recently introduced and rolled out automated systems like the Integrated Procurement Management System (IPMS) under the Public Procurement and Asset Disposal Board (PPADB), e-filling and e-payment of tax returns under Botswana Unified Revenue Services (BURS), electronic funds transfer system under Office of the Accountant General and decentralisation of some services to ministries and departments in their regional offices.

The Special Elected Member of Parliament, who has been Finance Minister since 2009 added that lack of preparedness for sluggish economic times, causes fiscal challenges.  “This requires us to restrain and control as well as prioritize public spending in a period of modest growth, and be keen to  negative external shocks, such as oil price increases ,mineral commodities  that may arise anytime unexpected,” emphasised Matambo.

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New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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