Botswana’s only listed petroleum and oil outfit, Engen Limited emerged out of the 2017 sluggish economic conditions and unfavourable trading circumstances with satisfactory performance.
The company which operates multiple service stations in over 25 settlements in Botswana gathered over 140 million pula in net profits after taxation for the 2017 trading year, mirroring a 11.1 % increase compared to the year 2016. This, according to the company’s annual report is predominantly due to robust realignment of the business operations staged by the company management in 2017 to confront the year’s trading challenges. Engen Executive Director, Chimweta Monga observes that the realignment strategy enabled the company to achieve positive financial results despite the difficult market conditions.
Overall Group revenue for the year increased by 7.9% compared to that of 2016. According to the company’s annual report net profit after taxation growth consequently caused an increase in earnings per share, from 83.1 to 92.0 thebe. During the year under review, the retail side of the business grew by 3% while commercial volumes were up by 11% compared to the previous year. Commodity prices steadily improved and the price of crude oil strengthened to the extent that significant inventory revaluation gains were recorded over the previous year’s performance.
Just like many economic sectors which faced the wrath of 2016 mining activity halt in Francistown and Selibe Phikwe, shrinking money flow, the petroleum and oil business was not spared, however for Engen, against this mixed economic backdrop, market conditions remained fluid in the retail space especially in marketing areas that were predominantly dependent on disposable incomes from the mining activity.
The BSE listed fuel distributor reports that its retail market continued to be the cornerstone of the business, contributing around 60% of the company’s portfolio revenues compared to the commercial channel which contributed just below 40% of total revenues. Chimweta Monga, the Company Executive Director explained that in the trading period under review the business experienced intermittent product shortage particularly during the second half of the year due to an unplanned shutdown at one of the South African refineries. “This negated the usual marketing promotions that would normally have been employed to boost sales and increase turnover,” he said.
The company commercial businesses however did not escape the effects of collapses of some major mining companies. The constrained mining and associated support activities directly impacted the commercial segment due to reduction in demand in the market which depends mainly on heavy duty and industrial fuel uptake.
However, Engen was able to counteract this trend by diversifying its customer base through market penetration on the back of strong supply chain capability, “Our logistics partners continued to perform well, efficiently moving products from primary supply depots to secondary depots and to the diverse consumption points within Botswana,” highlighted the Executive Director.
According to the report the company was forced to draw from its cash reserves to fund operations during the year due to un-equalized pricing slate mechanism during the period January 2016 to December 2017. Monga revealed that discussions were underway to encourage the Government to settle the slate under recovery that is due to the petroleum industry in order to avoid disruption of the supply of fuel into the country, “A number of suggestions have been advanced to the government in order to resolve this matter. It is our hope that action will be taken sooner rather than later to contain this spiral,” he said.
Engen Botswana Limited also has direct interest in the property market; through a joint venture the company owns a shopping centre in Palapye which according to the report enjoyed a high occupancy rate, “Some upgrades to this property have been approved in order to maintain high standards consistent with the new shopping centres that have been developed in the area,” the report states. The Company’s second shopping centre, located in Maun, enjoyed a 100% occupancy rate with no loss of tenancy during the year.
Furthermore Engen added two new retail sites during the year 2017 one in Thamaga and the other at Tshekedi (Mmamashia) which were opened in November and December 2017 respectively, “Additional service stations are earmarked for 2018, beginning with Ramotswa where a retail site is nearing completion and scheduled to open early in the year.
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.
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.
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”