U.S. stock futures and Asian shares slid on Thursday, hit by soft U.S. economic data, a relatively hawkish Federal Reserve and a media report that U.S. President Donald Trump is being investigated by a special counsel for possible obstruction of justice.
S&P mini futures dipped as much as 0.3 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.7 percent, led by resource shares. Japan's Nikkei fell 0.3 percent. European shares were expected to get off to a tentative start, with spread-betters looking at a flat open in Germany's DAX and a 0.1 percent fall in Britain's FTSE. The Federal Reserve raised interest rates as expected on Wednesday and gave a first clear outline on its plan to reduce its $4.2-trillion portfolio of bonds.
Fed Chair Janet Yellen said the process could start "relatively soon", while projections of the Fed board members also showed they expect one more rate hike by the end of year. A majority of Wall Street's top banks now expect the Fed to start reducing re-investment in bonds in September, compared to their previous median forecast of such a move in December. Yet the Fed's decision and confidence in continued U.S. economic growth was over-shadowed by surprisingly weak data released earlier in the day.
"The Federal Reserve was a little bit more hawkish than market expectations. They are following up on their plan outlined in March even as inflation has fallen short of forecast for three months in a row," said Tomoaki Shishido, senior economist at Nomura Securities. Consumer prices unexpectedly fell on month in May and the annual increase in core CPI slipped to 1.7 percent, the smallest rise since May 2015, after advancing 1.9 percent in April.
Investors' inflation expectations gauged by the spread between the 10-year inflation-linked bonds and conventional bonds fell to 1.726 percent, completely wiping out its rise since the U.S. presidential election. Retail sales fell 0.3 percent last month – the largest fall since January 2016 and way below economists' expectations for a 0.1 percent gain – amid declining purchases of motor vehicles and discretionary spending.
Risk sentiment was also hit by fear of more U.S. political turmoil after the Washington Post reported that Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice. Mueller is investigating alleged Russian interference in the 2016 U.S. presidential election and possible collusion with the Trump campaign. Trump's legal team denounced the report. The news came just after the No. 3 Republican in the House of Representatives, Steve Scalise, was shot by a gunman angry with Trump and other Republicans. Scalise was listed in critical condition.
The weak U.S. data had knocked the dollar and U.S. bond yields to its lowest level in seven months against a basket of currencies. The dollar index was little changed on Thursday after sliding to as low as 96.323 on Wednesday, having shed nearly 6 percent on the year, before bouncing back a tad on the Fed's policy tightening. The euro traded at $1.1220, after scaling a seven-month high of $1.1296. The dollar fetched 109.54 yen, not far from Wednesday's eight-week low of 108.81 yen.
The 10-year U.S. Treasuries yield had slipped to as low as 2.103 percent and last stood at 2.134 percent. "You cannot help the impression that there is a gap between the Fed's bullish inflation forecast and the weakness in actual data," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. "The Fed seems to think the weakness is temporary. But that view will be tested in coming months," he added. Money market instruments such as Fed fund futures show market players see the likelihood of one more rate hike this year as less than 50 percent.
Following the Fed's rate hike, China's central bank left interest rates for open market operations unchanged on Thursday, unlike in March when it lifted short-term interest rates in what economists said was a bid to stave off capital outflows and further depreciation pressure on the yuan. Analysts had been split on whether China would follow the Fed again, noting the yuan is in much better shape than a few months ago after authorities' recent moves to flush out depreciation bets against the currency.
The yuan held stable in early trade, trading at 6.7854 per dollar in the offshore trade. The British pound stood little changed at $1.2746 ahead of the Bank of England's policy meeting that is widely expected to keep interest rates on hold. Crude oil prices were listless after having slumped nearly 4 percent to their lowest close in seven months on Wednesday, on an unexpected large build in gasoline inventories.
Brent crude futures fetched $46.83 per barrel in late Asian trade, flat on the day but not far from a five-month low of $46.64 touched in early May. Many other commodity prices are also under pressure. Thomson Reuters CRB index tumbled to 14-month lows, having fallen almost 12 percent from this year's high hit in January.
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.