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Sluggish economy collides with BIHL targets

The BIHL Group has not escaped the repercussions of subdued economies and regional distress compounded by the recent Credit Rating downgrade of South Africa’s sovereign rating to sub-investment grade could potentially undermine growth by constraining private investment and household consumption – but the Group beat the odds and posted exceptional performances with most of its subsidiaries.

To demonstrate the domestic and external pressure, although the BIHL Group returned laudable profits under challenging circumstances with Operating Profit After Tax (OPAT) of P475 million, this is a decline of 19% compared to the previous year. The Group rightly attributes the decline in profitability can be attributed mainly to reduced investment returns resulting from subdued performance in world markets and a decline in single premium profits for the life company.

According to the company’s 2016 annual report, the weak commodities cycle continued, as did the volatility of investment markets. It notes that at home, GDP was 4.3% – a long way from the double digits of the past; and unemployment rates continued to rise – a situation exacerbated by the liquidation of two large mining companies, BCL and Tati Nickel.

The Group chairman notes that this had a significant impact on our society at large, and directly affected Botswana Life and the Botswana Insurance Company (BIC). In addition, she observes the high levels of indebtedness among ordinary Batswana as placing the affordability of insurance under pressure.

“There are many factors that affect the performance of any organisation both positively and negatively. Many of these are external factors, over which we, as an organisation, have no control. We have to ensure that we do whatever we can to mitigate the negative. Unfortunately, in 2016, negative external factors far outweighed the positive,” observed Mrs Batsho Dambe-Groth.

The challenges captured Mrs Dambe-Groth had a direct impact on Botswana Life’s net premium income which declined some 15% year-on-year to P2.07 billion. However, recurring premium income grew by an impressive 7% to P1.085 billion thanks to a significant upswing in retail recurring premium income. According to Dambe-Groth, the launch of the Affluent Division as well as the launch of three trailblazing products in the first half of 2016 also started to yield results towards the end of the year.

“Meanwhile our asset management business, Bifm, turned in excellent results, a truly remarkable achievement in the face of what was a turbulent and challenging year. Assets Under Management for the year grew an impressive 24% to P25.9 billion. Legal Guard, however, experienced a decline in new business and this was compounded by rising operating costs. Nevertheless, we are encouraged by the progress that is being made with the implementation of its new strategy, and by the fact that the business remains profitable,” she writes.

The BIHL Group is also very active outside Botswana borders, inflationary pressure in Zambia and Malawi affected the returns delivered by BIHL investments in those countries. During the review period, the Group advanced its diversification strategy by using the Group’s shareholder investment portfolio to make some significant investments. According to the annual report these included acquiring a 50% stake in Teledimo Pty, which owns Botswana Insurance Company, the leading and oldest short term insurance company in Botswana. BIHL also increased its shareholding of Letshego Holdings Limited from 23.17% to 26.28%.

“Although experiencing their own challenges in the region’s economic climate, our expansion of associated investments resulted in an increase in equity accounted earnings from P186,7 million to P224,7 million. It is also important to understand that a long-term view for new investments must be adopted. We are also investing in our future profitability by utilising technology to boost our operational efficiencies as well as to introduce innovative products. This includes, for example, Botswana Life’s LifeRewards card and Bifm’s Unit Trusts,” observes Dambe-Groth.


It is clear therefore that as a business, BIHL Group is doing well. We have the resilience and the agility needed to ensure that we continue to provide the products and services required by our markets as well as to deliver sound returns to our clients and shareholders. Dambe-Groth praises the partnership with Sanlam as “excellent, mutually beneficial partnership with that enables us to draw on their technical expertise where necessary and maximise synergies between our organisations. Sanlam recognises that BIHL is their largest contributor to their emerging markets business and is therefore keen to assist wherever possible to ensure our ongoing success.”

BIFM TURNAROUND, SLUGGISH ECONOMY  

Following a difficult year at BIFM, Mrs. Catherine Lesetedi-Letegele, the Group Chief Executive Officer reserved special recognition for BIFM noting that: “while 2016 was a challenging year, there were numerous positives, the most pleasing and energising of which was the excellent bifm turnaround. The previous year had been extremely difficult for bifm. Following the loss of a portion of the Botswana Public Officers Pension Fund (BPOPF) mandate, the entire organisation was restructured, and the staff complement rationalised to ensure employees were “fit-for purpose.”

She observes in her report that this was a traumatic process, yet the Bifm team adopted an aggressive recovery strategy, performed well and, ultimately, was able to regain some of the assets we had lost as well as new mandates. She writes that this put Bifm on the road to a solid recovery and well positioned for a strong start at the beginning of 2017.

“In the review period, Assets Under Management increased by 54% to P1.5 billion ending with a small profit of P1.2 million. The turnaround of Bifm and Bifm Unit Trusts business is a testament to the people we have at the company, their focus and determination, and their efforts in creating and maintaining meaningful and mutually beneficial relationships with clients.”

Meanwhile Lesetedi-Letegele notes that Botswana Life as a business dependent on discretionary income, its performance was negatively affected by the sluggish economy, which was characterised by retrenchments, mine closures and high unemployment. The harsh economic conditions resulted in underperformance of some of the company’s business lines. According to the 2016 BIHL annual report the net premium income for the Life Company shrunk by 15% year on year at P2.07 billion during 2016 compared to P2.44 billion achieved in prior year.

“This was primarily due to the non-recurring one-off schemes that were signed in 2015 on single premiums. Recurring premium income grew by an impressive 7% from P1 billion in December 2015 to P1.085 billion for the full year to December 2016 spurred by a 9% growth in retail recurring premium income. Despite the challenging economic environment, the quality of new business written saw the Value of New Business, which represents the present value of future profits from new business premiums written remain stable at 99% of prior year.”

The report further indicate that operating profit was 9% lower than prior year showing resilience despite the significant dip in single premiums. “Given the pressure on sales volumes, management focused on containing expenditure and the 2016 administration expenses were 2% (P4 million) below prior year; this was so despite funding the introduction of new segments that are expected to deliver revenue growth in the near future.”

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Inflation will bounce back to objective range in 2022- BoB

25th October 2021
Moses Pelaelo

The Monetary Policy Committee (MPC) of the Bank of Botswana decided to maintain the Bank Rate at 3.75 percent at a meeting held on October 21, 2021.  Briefing members of the media moments after the meeting Bank of Botswana Governor Moses Pelaelo explained that Inflation decreased from 8.8 percent in August to 8.4 percent in September 2021, although remaining above the upper bound of the Bank’s medium-term objective range of 3 – 6 percent.

He said Inflation is projected to revert to within the objective range in the second quarter of 2022, mainly on account of the dissipating impact of the recent upward adjustment in value added tax (VAT) and administered prices from the inflation calculation; which altogether contributed 5.2 percentage points to the current level of inflation.  Overall, risks to the inflation outlook are assessed to be skewed to the upside.

These risks include the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production; possible maintenance of travel restrictions and lockdowns due to the COVID-19 pandemic; domestic risk factors relating to regular annual price adjustments; as well as second-round effects of the recent increases in administered prices and inflation expectations that could lead to generalised higher price adjustments.

Furthermore, aggressive action by governments (for example, the Economic Recovery and Transformation Plan (ERTP)) and major central banks to bolster aggregate demand, as well as the successful rollout of the COVID-19 vaccination programmes, could add pressure to inflation.  These risks are, however, moderated by the possibility of weak domestic and global economic activity, with a likely further dampening effect on productivity due to periodic lockdowns and other forms of restrictions in response to the emergence of new COVID-19 variants.

A slow rollout of vaccines, resulting in the continuance of weak economic activity and the possible decline in international commodity prices could also result in lower inflation, as would capacity constraints in implementing the ERTP initiatives. Real Gross Domestic Product (GDP) for Botswana grew by 4.9 percent in the twelve months to June 2021, compared to a contraction of 5.1 percent in the corresponding period in 2020.

The increase in output is attributable to the expansion in production of both the mining and non-mining sectors, resulting from an improved performance of the economy from a low base in the corresponding period in the previous year. Mining output increased by 3 percent in the year to June 2021, because of a 3.2 percent increase in diamond mining output, compared to a contraction of 19.3 percent in 2020. Similarly, non-mining GDP grew by 5.4 percent in the twelve-month period ending June 2021, compared to a decrease of 0.7 percent in the corresponding period in 2020.

The increase in non-mining GDP was mainly due to expansion in output for construction, diamond traders, transport and storage, wholesale and retail and real estate.  Projections by the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) suggest a rebound in economic growth for Botswana in 2021. The Ministry projects a growth rate of 9.7 percent in 2021, moderating to a growth of 4.3 percent in 2022.  On the other hand, the IMF forecasts the domestic economy to grow by 9.2 percent in 2021; and this is expected to moderate to a growth of 4.7 percent in 2022. The growth outcome will partly depend on success of the vaccine rollout.

According to the October 2021 World Economic Outlook (WEO), global output growth is forecast at 5.9 percent in 2021, 0.1 percentage point lower than in the July 2021 WEO update.  The downward revision reflects downgrades for advanced economies mainly due to supply disruptions, while the growth forecast for low-income countries was lowered as the slow rollout of COVID-19 vaccines weigh down on economic recovery.  Meanwhile, global output growth is anticipated to moderate to 4.9 percent in 2022, as some economies return to their pre-COVID-19 growth levels.

The South African Reserve Bank, for its part, projects that the South African GDP will grow by 5.3 percent in 2021, and slow to 1.7 percent in 2022.  The MPC notes that the short-term adverse developments in the domestic economy occur against a growth-enhancing environment.  These include accommodative monetary conditions, improvements in water and electricity supply, reforms to further improve the business environment and government interventions against COVID-19, including the vaccination rollout programme.

In addition, the successful implementation of ERTP should anchor the growth of exports and preservation of a sufficient buffer of foreign exchange reserves, which have recently fallen to an estimate of P47.9 billion (9.8 months of import cover) in September 2021.  Overall, it is projected that the economy will operate below full capacity in the short to medium term and, therefore, not creating any demand-driven inflationary pressures, going forward.

The projected increase in inflation in the short term is primarily due to transitory supply-side factors that, except for second-round effects and entrenched expectations (for example, through price adjustments by businesses, contractors, property owners and wage negotiations), do not normally attract monetary policy response. In this context, the MPC decided to continue with the accommodative monetary policy stance and maintain the Bank Rate at 3.75 percent.  Governor Moses Pelaelo noted that the Bank stands ready to respond appropriately as conditions warrant.

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SEZA to boost investment through Mayors forum

25th October 2021
SEZA-CEO-Lonely-Mogara

The Special Economic Zones Authority (SEZA) recently launched the Mayor’s forum. The Authority will engage with local governments to improve ease of doing business, boost investment, and fast track the development of Botswana’s Special Economic Zones (SEZs).

The Mayors Forum was established to recognise the vital role that local authorities play in infrastructure development; as they approve applications for planning, building and occupation permits. Local authorities also grant approvals for industrial licenses for manufacturing companies.
SEZA Chief Executive Officer (CEO) Lonely Mogara explained that the Mayor’s Forum was conceptualised after the Authority identified local authorities as critical partners in achieving its mandate and improving the ease of doing business. SEZA intends to develop legal instructions for different Ministries to align relevant laws with the SEZ Act, which will enable the operationalisation of the SEZ incentives.

“Engaging with local government will bring about the much-needed transformation as our SEZs are located in municipalities. For us, a good working relationship with local authorities is the special ingredient required for the efficient facilitation of SEZ investors, which will lead to their competitiveness and ultimate growth,” Mogara stated.

The Mayors Forum will focus on the referral of investors for establishment in different localities, efficient facilitation of investors, infrastructure and property development, and joint monitoring and evaluation of the SEZ programme at the local level. SEZA believes that collaborating with local authorities will bring about much-needed transformation in the areas where SEZs are located and ultimately within the national economy. Against this background, the concept of hosting a Mayors Forum was birthed to identify and provide solutions to possible barriers inhibiting ease of doing business.

One of the key outcomes of the Mayors Forum is the free flow of information between SEZA and local authorities. Further, the two will work together to change the business environment and achieve efficiency and competitiveness within the SEZs. Francistown Mayor Godisang Rasesigo was elected as the founding Chairman of the Mayors Forum. The forum will also include the executive leadership of all city, town and district councils, among them Mayors, City or Council Chairpersons, Town Clerks and District Commissioners.

Mogara explained that initial efforts would engage the local government in areas that host SEZA’s eight SEZs: Gaborone, Lobatse, Selebi Phikwe, Palapye, Francistown, Pandamatenga and Tuli Block. Meanwhile, Mogara told WeekendPost that they are confident that a modest 150 000 jobs could be unleashed in the next two to five years through a partnership with other government entities. He is adamant that the jobs will come from all the nine designated economic zones.

This publication gathers that the Authority is currently sitting on about P30 billion worth of investment. The investment, it is suggested, could be said to be locked up in government bureaucracy, awaiting the proper signatures for projects to take off. Mogara informed this publication that the Authority onboard investors who are bringing P200 million and above. He pointed out that more are injecting P1 billion investments compared to the lower stratum of their drive.

SEZA’s mandate hinges on the nine Special Economic Zones – being Gaborone (SSKIA), whose focus is of Mixed-use (Diamond Beneficiation, Aviation); Gaborone (Fairgrounds) for Financial services, professional services and corporate HQ village; Lobatse for Beef, leather & biogas park; Pandamatenga designated for Agriculture (cereal production); Selibe Phikwe area which is also of a Mixed-Use (Base metal beneficiation & value addition), Tuli Block Integrated coal value addition, dry port logistics centre, coal power generation and export; Francistown is set aside for International Multimodal logistics hub/ Mixed Use (Mining, logistics and downstream value-adding hub); whilst Palapye is for Horticulture.

The knowledge economy buzz speaks to SEZA’s agenda, according to Mogara. The CEO is determined to ensure that SEZA gets the buy-in from the government, parastatals and the private sector to deliver Botswana to a high economic status. “This will ensure more jobs, less poverty, more investment, and indeed wealth for Batswana,” quipped the enthusiastic Mogara. SEZA was established through the SEZ Act of 2015 and mandated with establishing, developing and managing the country’s SEZs. The Authority was tasked with creating a conducive domestic and foreign direct investment, diversifying the economy and increasing exports to facilitate employment creation.

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De Beers Q3 production up 28 %

25th October 2021
De-Beers

De Beers rough diamond production for the third quarter of 2021 increased by 28% to 9.2 million carats, reflecting planned higher Production to meet more robust demand for rough diamonds. In Botswana, Production increased by 33% to 6.4 million carats, primarily driven by the planned treatment of higher-grade ore at Jwaneng, partly offset by lower Production at Orapa due to the scheduled closure of Plant 1.

Namibia’s Production increased by 65% to 0.4 million carats, reflecting the marine fleet’s suspension during Q3 2020 as part of the response to lower demand at that time. South Africa production increased by 34% to 1.6 million carats due to the planned treatment of higher grade ore from the final cut of the Venetia open pit and an improvement in plant performance. Production in Canada decreased by 13% to 0.8 million carats due to lower grade ore being processed.

Demand for rough diamonds continued to be robust, with positive midstream sentiment reflecting strong demand for polished diamond jewellery, particularly in the key markets of the US and China. Rough diamond sales totalled 7.8 million carats (7.0 million carats on a consolidated basis) from two Sights, compared with 6.6 million carats (6.5 million carats on a consolidated basis) from three Sights in Q3 2020 and 7.3 million carats (6.5 million carats on consolidated basis) from two Sights in Q2 2021.

De Beers tightened Production guidance to 32 million carats (previously 32-33 million carats) due to continuing operational challenges, subject to the extent of any further Covid-19 related disruptions. Commenting on the production figures, Mark Cutifani, Chief Executive of De Beers parent company Anglo American, said: “Production is up 2%(1) compared to Q3 of last year, with our operating levels generally maintained at approximately 95%(2) of normal capacity.

The increase in Production is led by planned higher rough diamond production at De Beers, increased output from our Minas-Rio iron ore operation in Brazil, reflecting the planned pipeline maintenance in Q3 2020, and improved plant performance at our Kumba iron ore operations in South Africa. “We are broadly on track to deliver our full-year production guidance across all products while taking the opportunity to tighten up the guidance for diamonds, copper, and iron ore within our current range as we approach the end of the year.

“Our copper operations in Chile continue to work hard on mitigating the risk of water availability due to the challenges presented by the longest drought on record for the region, including sourcing water that is not suitable for use elsewhere and further increasing water recycling.”
On Wednesday, De Beers announced the value of rough diamond sales (Global Sightholder Sales and Auctions) for the eighth sales cycle of 2021. The company raked in US$ 490 million for the cycle, a slight improvement when compared to US$467 million recorded in 2020 cycle 8.

Owing to the restrictions on the movement of people and products in various jurisdictions around the globe, De Beers Group has continued to implement a more flexible approach to rough diamond sales during the eighth sales cycle of 2021, with the Sight event extended beyond its normal week-long duration.   As a result, the provisional rough diamond sales figure quoted for Cycle 8 represents the expected sales value from 4 October to 19 October. It remains subject to adjustment based on final completed sales.

Commenting on the cycle 8 sales De Beers Group Chief Executive Officer Bruce Cleaver said that: “As the diamond sector prepares for the key holiday season and US consumer demand for diamond jewellery continues to perform strongly, we saw further robust demand for rough diamonds in the eighth sales cycle of the year ahead of the Diwali holiday when demand for rough diamonds is likely to be affected by the closure of polishing factories in India.”

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