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