Botswana’s second largest and the country’s best Private sector Fund Debswana Pension Fund (DPF) continues t grow with its total asset now sitting at over 7 billion pula.
Recent report on the Fund’s 12 month performance ended December 2017 on its investment portfolio shows a modest outcome. According to the Fund’s E-Brief released recently the fund’s financial figures reflects a much improved performance relative to the 2016 year end. For the period under review the top performing sector was Global Emerging Markets Equities, posting a return of 26.3 percent. The next top performing asset class was Global Equities, posting a return of 12.6 percent for the period, as measured by the MSCI Word (BWP).
For the Fund, Global Equities were up 16.8 percent for the period, outperforming the benchmark by 4.2 percent. Orbis was the top performer in this space, posting a net return of 19.2 percent for the 12 months to December, outperforming the benchmark by 6.6 percent. “All global equities managers in the Fund outperformed the benchmark net of fees” states the report. The fund was established in 1984, and its housing and expanding retirement dues for one the world’s largest diamond companies and Botswana’s largest private sector employer Debswana.
DPF says its worst performing asset class was Local Equities, posting a return of -5.8 percent for 12 months to December 2017 while Global Bonds returned -0.5 percent over the 12 months to December 2017. PIMCO outperformed the benchmark by 1.47% DPF also note in the brief report that taking into account its history the Fund’s approach towards local asset manager mandates has been to award balanced or generalized mandates, however given the growing DPF asset base, the DPF Board of Trustees has since found it prudent to change from that tradition and re-issue specialist mandates for the local market going forward.
“This is mainly for the purpose of ensuring focused and optimal performance by the local managers. A request for proposals was issued in 2016 and the new specialist manager appointments were finalized in Q1 of 2017 as follows” reads the report. The Fund also reports that as part of the ongoing implementation of the Fund’s investment policy and manager service level agreements, the DPF Board of Trustees resolved in the Board sittings of Q2 and Q4 2017 to disinvest from Aberdeen and Kgori Capital respectively.
The Debswana Pension Fund prides itself with a sparkling investment performance history. Prior to the year 2004, the DPF investment strategy was based on a smoothed return process. Through this strategy, members were awarded investment return bonuses equally across the board based on market performance subsequent to bonus declarations. In the 6 years up to 2003, the Fund was fortunate enough to earn record returns well above inflation.
The market downturn of 2001/2002 however brought about new lessons for the Fund. Near retirees were hardest hit by the -12.13% loss on their fund credits, hence therefore leaving the immediate retirees with reduced pension savings in that year by the Trustees. Following from that experience the DPF Board of Trustees reviewed and identified the Life Stage Investment Model as the best way to mitigate and minimize future potential losses for vulnerable members.
The general principle of the life stage model is to invest member funds based on their presumed risk appetite. Capital preservation for near retirees is therefore pursued through reduced exposure of their assets to high risk investment instruments. Conversely, Members far from retirement are invested aggressively in high risk-high yield vehicles. Under life staging, member assets are split into three portfolios that have different investment objectives. Market portfolio (18-53) Conservative Portfolio (age 57-60) and a Pensioner Portfolio (above 60). The Life stage investment model was affected in 2004.
In 2014, DPF revised its investment strategy to increase domestic property investment exposure to 12.5% of assets over the next 3 years while also developing a strategy to take advantage of local and African investment opportunities. The DPF in its quest to fulfill its investment strategy and according figures and financial performance the Gosego January led fund is on the right track.
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”