The bank that has made it its mandate to push the Public Private Partnerships, First National Bank Botswana (FNBB) has through its half year financial results shown signs that it remains well within its set margins.
Although the PPP is progressing at a slow pace, in the past 6 months the bank has registered performance that is driven by the limited growth opportunities. The bank with a 65 percent market share has indicated that at least 95 percent of its transactions are digital and thus affecting slightly their turnover. The Chief Financial Officer (CFO) Makgau Dibakwana of FNBB who has been promoted to group level has explained that the bank is well able to cover its costs with its revenue as they have a stabilized cost to income ratio policy.
All the same the reduced growth in advances resulted in the Bank posting overall balance sheet growth of 6.7% from P22.4billion to P23.9billion on the back of growth in their retail and business deposit base. The released 6 moths unaudited consolidated and summarized financial results of the bank show that the growth was particularly in current accounts, which strengthened the Bank’s customer base.
In addition the results show that growth was posted in the term deposits, coupled with a further issuance of senior debt during the second quarter. Both these initiatives are noted to have been aimed at further lengthening the Bank’s funding profile. As a result of the deposit and credit base, the deposits to customers and borrowings posted a significant growth of 4% and 21% respectively leading to a stable loan to deposit ratio of 85% resulting in a stable market share price.
The Chief Executive Officer (CEO) of FNBB, Steve Bogatsu noted that they have realized an improved growth in emerging markets which prompts their 2018 global growth upwards. With a slowed local growth of 1.8 percent for the year on year on 2017, Bogatsu has noted that the growth is 0.5 percent lower than in 2016 same period. He highlighted that in the short term, his bank has anticipated at least 4 percent growth in 2019 with a medium term range of 4.1 percent.
With an economic growth of 38 percent, the CEO has highlighted that financial systems have been driven up by the higher levels of capitalization in the global banking system. He has further noted that the bank did not suffer too much from the negative African region financial backdrop as they benefited from the positive global backdrop. He noted that despite the Brexit being surrounded by the uncertainties the Eurozone economies strengthened. He further noted that the United Kingdom (UK) remains Southern Africa’s major trading partner.
The results show that the decision by the Bank of Botswana to cut the benchmark rate from 50 Basis Points (BPS) to 5 percent due to a relatively stable inflation and real effective exchange which were slightly higher than the predicted 25bps is an indicator that there might be an extension of this expansionary policy.
The bank explains that the decision by Botswana to announce that the Pula basket weightings to remain unchanged at 45 percent of the South African Rand and at 55 percent of the Special Drawing Right (SDR) and an adjusted crawl to -0.3 percent which is a depreciation from +0.3 appreciation point. The many fuel-price increases in the year 2017 influenced the average inflation for 2017 by 3.3 percent, being just 0.1 percent below the 2017 forecast of 3.4 higher than the average rate of 2.8% rate in 2016.
The Bank though stresses that the weakening of the ZAR against the Pula (BWP) cushioned consumers partially in respect of inflation as low wage increases and the residual effects on unemployment from the closure of BCL, restrained consumer spending. There is a little indication of significant job creation in the short-term, resulting in limited demand-pull effects on inflation.
The steady weight reduction of the ZAR in the past few years, slowly made crosses such as BWP/USD and BWP/EUR less volatile. The results show that since there has been no change in the weightings that have been made for 2018, the Pula should continue to trade within the range witnessed in 2017. Bogatsu highlighted that a marginalized forecast in the annual headline rate is expected to be 3.8% in 2018.
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.
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.
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.