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State of the economy – according to Stan Chart

Botswana Economic Environment

Botswana economy registered a year-on-year growth of 0.8% in the first quarter of 2017, a reduction from the 4.2% reported in the last quarter of 2016. The decline in GDP was largely driven down by the Mining and Water & Electricity sectors, due to the closure of copper/nickel mines during the fourth quarter of 2016. The same sectors also impacted credit growth extended by commercial banks to business sector. While the slowdown in economic activity remains worrisome, it is expected that growth in the non-mining sector will continue to pick up.

Bank of Botswana has also through its monetary policy maintained the bank rate unchanged at 5.5% on the basis of the subdued economic environment. While inflation is expected to edge up in the short-term, the Central Bank expects it to remain within the 3 – 6% target band in the medium term.

Business and Financial Position Review

The current economic environment has shown signs of improvement although the consensus is that the outlook remains uncertain. The Group results for 2017 show a strong capital position and an improving loan book. The Bank has been encouraged by increasing client activity as it continues to offer a broader client value proposition to strengthen existing relationships whilst also building new ones. All in an effort to increase diversity in the Group portfolio and income streams.

The Group’s profitability was adversely impacted by a one off impairment for a specific client in our corporate business which resulted in a significant impairment loss. This resulted in the Group posting a loss for the half year. Focused efforts to reduce the deficit for the full year are under way. The subdued performance for the Group in the last three years was mainly caused by one off impairments; a diamond and jewellery client in 2015, a mining client in 2016 and another diamond and jewellery client in 2017.

The Group has taken the necessary actions to address the underlying problems which adversely affected earnings in the short term. The Bank has over the past few years been reducing its exposure in certain categories of its portfolio, whilst also tightening our risk tolerance, and optimising low-returning assets.

In spite of the results, there has been positive indicators of business growth. Retail Banking segment posted a growth in revenue compared to previous period as the business continued to focus on driving initiatives to improve the client experience, including the robust suite of features on our enhanced mobile and online banking platforms.

Other segments have also shown clear signs of progress; the Commercial Banking business has improved profitability and Corporate & Institutional Banking business is diversifying and expanding its client base and already seeing good momentum across a range of products.

The Group recently reviewed its strategy and has made steady progress against its strategic objectives; building strength and efficiency into all areas of the business, increased focus is on clients, people, leveraging on strong international network. This is crucial to delivering better value and returns for our stakeholders.
The fundamentals of the Group remain intact. The Group is clear on the issues we face. It is in our power to fix them and we will. The Group has the right strategy, a clear plan and making good progress. We have a fabulous franchise, outstanding client relationships, shareholder support, and the right team of people to turn this position around and return value to where it needs to be, all on the back of a strong balance sheet and well capitalised business.

Here for good

The Group saw an increase in its community engagements primarily driven by staff employee volunteering (EV) initiatives. Engagements ranged from an environmental focus to youth and retired professionals associations. Building on the success of the Seeing is Believing programme, the Bank supported a pilot screening programme – PEEK Vision – that presented 848 spectacles to school going children in the Good Hope district, the project has received a significant show of support as the Ministry of Health has given authorisation for this innovative programme to be rolled out across other districts in the country.

The first half of the year offered an additional opportunity for client and community engagement through the hosting of the local and regional finals of the SC Trophy 2017. The tournament was hosted on a global scale offering amateur football enthusiasts the opportunity to enter a 5-a-side team with the grand prize of playing the global finals at the iconic Anfield Stadium – the home of Liverpool Football Club.

Botswana embraced the opportunity by winning the regional finals against winners from Zambia and Zimbabwe and reaching the Quarter Finals at Anfield. Local media, both traditional and online, closely followed the progress of the tournament and Team Botswana while in the UK. A key focus for 2017 is commemoration of our 120-year anniversary. To support this, the second edition of the Business Journal was published focused on the Bank’s anniversary profiling key milestones and long-serving staff.

Dividend Declaration

A dividend of BWP49.7million (16.66 thebe) per ordinary share was declared and paid during the period out of the 2016 profits.

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New study reveals why youth entrepreneurs are failing

21st July 2022

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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BHC yearend financial results impressive

18th July 2022

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Commercial banks to cash big on high interest rates on loans

18th July 2022

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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