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Increased competition cripples Cresta earnings

Tourism’s contribution to Africa’s Gross Development Product (GDP) reached 7.8 percent  (USD 165.6 billion) in 2016, and was expected to rise to 7.9 percent of GDP to USD 170.5 billion 2017.

This contribution is predicted to grow by 4 Percent per annum to reach USD 268.2 billion by 2027. Cresta is one of those hotel service providers to be fortunate to cash into this expected growth although the cashing in has been in some factors been affected greatly by competition in the said market.

Following the good results of Cresta Zambia with an accumulated profit of Kwacha 987 million for the year ending 31 December 2017 after the 57 million lost in the year ending December 2016, the Botswana group notes that it has unlike Zambia registered an unsatisfactory year due to market competition.  Zambia has in the just ended period registered a 2 percent revenue increase from 2016.

The Cresta Marakanelo Group under the chairmanship of Moatlhodi Lekaukau has in the just ended December 2017 period registered a 1 percent growth in revenue from 2016’s P 333 million. Due to the increased competition in the sector, the group has explained that it has accumulated a significant loss in overall occupancy which was 67 percent in 2016 to 2017’s 57 percent. They further explain that the loss is associated with the low occupancy of the Maun Hotel which started operations late 2017. Three of the hotels Under Cresta Marakanelo are explained to have made losses in the just ended period.

Despite inclusions of the costs associated to the newly built Maun Hotel, total over heads are explained to have decreased marginally with total assets growing 2 percent. The group results further explain that even with hardships equity grew 4 percent while profit after tax decreased by 29 percent in 2017.

In 2016, domestic travel spending generated 63.7 percent of Africa’s Tourism GDP, and was  expected to rise by at least 2.8 percent in 2017 equivalent to USD 73 billion, and then by 3.6 percent equivalent to USD 104 billion in 2027. The report On the other hand further states , foreign visitor spending stood at 36.3 percent in 2016 equivalent to USD 40.7 billion expected to grow by 5.3 percent in 2017 to USD 42.9 billion, and then by 5.9 percent  per annum equivalent to USD 76.0 billion in 2027.

Even though the report states such, the Chairman, Lekaukau has through the results noted that the Group management is working on initiatives to drive down costs without actually affecting the quality of their service offer while also working on improving their overall value preposition. Lekaukau has further noted that the despite the Group’s decline in profitability they continue to be cash generative by registering a recorded 6 percent increase in 2017 from the same period in 2016 generated from operating activities. It is further noted that the group has embarked on a property refurbishment of over 40 million to be invested in 3 properties this year.

They further explain that the developments will continue into 2019 thus their outlook for a good 2018. Also trying to grow, the group explains that it continues efforts to diversify its portfolio by exploring opportunities regionally. The Cresta Marakanelo Group has explained that it continues to have a robust and stable base with 68 million of 2017 following 61 million same periods in 2016.

Like the previous year which ended 31 December 2016, the Group still continues with its efforts to continue growing shareholder value explaining that it has paid 6 thebe per share for the 2017 financial year in October 2017. As of 20 April 2018, the shareholders have declared a dividend of 8 thebe per share for the 2017 financial year to all registered shareholders.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status.  The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.

This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago.  In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.

However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced.  Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.

The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April.  For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.

Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.

Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).

“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.

Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.

This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.

For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.

Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers.  “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.

‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’

According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.

Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.

“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.

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