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CA reports back on mergers

The Botswana Competition Authority has said post- merger impact assessment regarding mergers and acquisitions since 2011 shows that a majority of their decisions have had a positive impact on job creation and citizen empowerment.

Giving a 2016/17 assessment report, Director of Mergers and Monopolies,  Madeline Gabaraane said this year alone, they assessed six mergers of which five of them were approved and by far are performing to expectation. She said most of the mergers attracted public interest as the authority was interested in protecting jobs and creating employment as well as advancing business expansion from those acquisitions and mergers.

It emerged at the briefing that the Authority has been assessing mergers and acquisitions; and making determinations pertaining to mergers and acquisitions since November 2011. The Authority’s mandate with regards to the assessment of mergers and acquisitions does not end at the stage of issuing a decision but extends to the post-decision stage through conducting compliance monitoring and post-merger impact assessments.  The post-merger impact assessments are intended to establish the market effects of the decisions taken by the Authority.

“The post-merger assessments provide an opportunity to check whether the conditions/remedies imposed were sound, given the information available at the time; and if the assumptions on which the conditions were made were sensible. The following seven (7) transactions are a summary of the cases that were assessed during the 2015/16 and 2016/17 Post-merger Impact Assessments,” said Gabaraane.

Gabaraane gave a report card on the acquisition of 100% interest in the operations of the liquid Petroleum Gases (LPG) of Puma energy by Easigas Botswana which was approved by the authority. She indicated that it was doing well at the moment, “The impact of approving the take-over has beard fruit. Through Easigas Botswana employment creation and maintenance has been recorded, stability in the supply of LPG supply in Botswana. Further there has been advancement of citizen economic empowerment initiatives,” Gabaraane said on Thursday morning.

LACK OF CITIZEN PARTICIPATION

However she said they are concerned by the citizen participation in the mergers. “Most of these are cross border and we concerned by the low citizen participation. We will influence them in the future to take part in.” Citing an example, Gabaraane said this is worsened by the fact that the citizen owned company, such as Pinks family outfitters which was controlling 22 Woolworths franchise stores will be taken by Leaping Eagles investment from South Africa, 100% control interests in Woolworths Group.

Retailing and Manufacturing companies are said to be leading the chain in both mergers and acquisitions, mostly from South Africa. By far the authority is traversing the road to prosperity in competition. They blocked Choppies attempts to take over Payless and Super Save supermarkets. In the year under review the authority refused to give G4S the green light to acquire both Trojan and Shield security companies as it raised competition concerns. “The merger would result in reduced competition due to the removal of a small but significant competitor and enhanced market power for the acquiring enterprises,” Gabaraane said.

Out of the six acquisitions G4S was the only one rejected. Others were approved looking at the fact employment will not be lost, and there would be network expansion. Others were allowed to be swallowed by international investors under conditions that they will source raw materials from citizen owned companies and that they will retain staff complement.

JOB CREATION IS ALSO KEY

From Gabaraane’s report it was evident that the Competition Authority pays attention to citizen empowerment and or participation in the mergers. When the Authority approved the acquisition of 100% interest in the operations of the LPG business of Puma Energy Botswana by Easigas Botswana, it was on the condition that:  The merged entity does not engage in any conduct or activity that is tantamount to abusing its dominant market position since it is classified as a dominant firm as per Section 4(a) of the Competition Regulations;

and  Further, that the proposed merging entities that during their establishment of the merger and their future existence, they should take cognisance of the need to advance citizen economic empowerment initiatives or enhance the competitiveness of citizen-owned small and medium sized enterprises.

Following an impact assessment, it was established that on ‘Employment creation or maintenance’ the merger yielded positive results. “As at the time of the transaction, there were no stand-alone employees dedicated to the running of the LPG division of Puma Energy Botswana but by end of January 2017, Easigas Botswana reported a staff complement of 20 Batswana working full time directly under Easigas Botswana. Furthermore, through Easigas Botswana’s leasing of their distribution plants to be independently managed, a total of 68 individuals were employed between the four different depots.”

The merger also led to stability in the supply of LPG in Botswana. The Authority reported that Easigas Botswana has managed to constantly supply LPG in Botswana following the consummation of the merger, and did not endanger continuity of supplies, as per section 59(1).
On the important aspect of advancement of citizen economic empowerment initiatives, the Competition Authority has established that Easigas Botswana has since adopted a strategy to assist indigenous Batswana businesses, especially those that are youth-led, in retailing LPG to corporate clients. 

“Easigas Botswana’s support to the youth-owned companies has been in the form of assisting these businesses to set up cages necessary for the required handling of LPG cylinders, as well as through offering those businesses credit facility. Moreover, Easigas Botswana provides technical support to these companies, in order to ensure service standards are maintained,” said Gabaraane.

Another transactions that was approved in April 2012 and in April 2015, respectively, taking into consideration the commitments made by Manuli Fluiconnecto Holdings B.V. Led to employment creation as a result of expansion. It has emerged that Manuli has been able to employ seventeen (17) additional employees through the two (2) new Service Points (Palapye and Karowe Mine) and expansion of the Francistown Service Point.

The decision also led to the establishment of a partnership programme to train local apprentices. Fluid Systems Botswana has completed training of three (3) students from Selebi-Phikwe Technical College and other stakeholders that normally require their services, such as the Botswana Defence Force (BDF), local colleges and universities. The company is also in regular contact with the Botswana Qualifications Authority (BQA) for advice in an effort to provide quality training.

The Competition Authority is the primary enforcement agency for competition law and policy. It was established under the Competition Act of 2009 to monitor, control and prohibit anti-competitive trade or business practices in the economy of Botswana. The Competition Authority is a parastatal which falls under the Ministry of Trade and Industry.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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