The Bank of Botswana (BOB) has no contingency planning and crisis preparedness system in place, and this presents a dangerous status quo – Specially Elected Member of Parliament (SEMP), Bogolo Kenewendo has observed.
Kenewendo who has been screening the national treasury and its operations lately wanted Finance Minister, Kenneth Matambo to share with lawmakers whether the bank has a contingency planning and crisis preparedness system, and if so what its highlights are. Kenewendo who is a shrewd Economist also requested the Minister of Finance & Economic Development to brief Members of Parliament on the Bank of Botswana’s Financial Stability Unit functionality and also state its current assessment of the financial system.
When responding to Kenewendo, Matambo indicated that the Bank of Botswana Financial Stability Unit was functional. According to the Minister it was established in 2010 with technical assistance from the International Monetary Fund (IMF). “The bank has since 2012 incorporated the macro-prudential assessments in its Monetary Policy technical analysis,” he said.
Matambo added that the BoB continues to refine the scope, institutional design, policies and macro-prudential tools for an effective financial stability assessment. Further lecturing legislators on operations and financial position of the county’s central bank Matambo who is also a SEMP highlighted that based on the banking sector performance indicators, which include levels of capital, liquidity, profitability and default ratios, financial system was assessed to be sound and stable. “In particular, the aggregate ratio of non-performing loans to total loans has been consistently low by international standards and stood at only 5.5 per cent in March 2017,” he revealed.
However on a low note, Minister Matambo told legislators that the BoB does not have a contingency planning and crisis preparedness system. Contingency plans are very critical for financial service providers especially those of magnitude and national importance as a central bank, they are devised for an outcome other than in the usual. A contingency plan is often used for risk management when an exceptional risk that, though unlikely, would have catastrophic consequences. Each financial sector participant has an independent responsibility for reducing the risk in its own operations.
This responsibility includes developing stable operating solutions, proper backup and preparedness procedures and systems and a robust financial infrastructure. Most banks’ system preparedness work is closely tied to its responsibility for promoting an efficient payment system and ensuring financial stability. This applies internally to, for instance, the central bank’s own systems, including settlement system as well as externally to financial sector infrastructure, including the power to authorize and oversee interbank systems.
Matambo told lawmakers that plans were underway to put a BoB contingency planning and crisis preparedness system in place based on the International Monetary Fund Technical Assistance Mission which was engaged to align the banking safety nets, bank resolution mechanisms and crisis management framework in Botswana with the best international practices. Matambo revealed that the International Monetary Fund Mission identified lack of legal power as an impediment to a well-functioning crisis resolution mechanism and has recommended amendments of the Bank of Botswana Act and the Banking Act. “I am happy to indicate that both of these Acts are currently being reviewed in order to address the identified deficiencies.”
Kenewendo said that the BoB needed to move with speed to put in place such system in order to be ready for any unforeseen circumstances, risks and crush within the financial banking spaces especially due to possible global economic shocks. Kenewendo said BOB can learn and use assistance also from World Bank Group to complement International Monetary Fund (IMF) support .The World Bank offers support to financial sector authorities to help deal with emerging problems in financial institutions and financial markets, and to mitigate the risk of systemic crisis. The Bank provides technical assistance to strengthen authorities’ contingency plans for dealing with distress, and to test the authorities’ preparedness through the use of simulation exercises.
Mitigating lack of data and information at local level On other issues, Bogolo Kenewendo also asked the Matambo to state his ministry’s efforts towards mitigating the challenge of lack of data and information that has been collected in a consistent and systematic way especially at local level which she says has been cited as one of the key challenges of monitoring and evaluation and also what new surveys should be expected from these efforts.
In response, Minister Matambo said efforts continue to be made to avail relevant and timely information in the required format and disaggregation for planning purposes at all levels. He said to this end, a key effort towards enhancing the availability of data and information at the local level was on the roll out by Statistics Botswana under the Botswana Strategy for the Development of Statistics. “The strategy seeks to promote data collection and production of statistical reports, following internationally approved methods and standards,” he said. Matambo also revealed that new surveys which will provide some of the data and information at the local level which were almost at roll out stage included the Botswana Demographic Survey, the Multi-Topic Survey, which survey includes labour, poverty, literacy, health and nutrition statistics and the Botswana Aids Impact Survey.
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.”
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.”
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.