Small, Micro, and Medium Enterprise (SMMEs) are the new economic language for developing countries. Encompassing small scale business, community cooperatives, hawkers, roadside traders and medium scale businesses, SMMEs give over 30 % of Botswana workforce the breadwinner status.
Currently contributing over 20% to Botswana‘s economy the SMME sector plays an integral role in Botswana’s economic path. This observations emerged at Botswana Institute of Chartered Accountants (BICA) dinner last week in Gaborone. The same observation has also been registered at different forums.
Renowned entrepreneur and well known former corporate executive Kate Mphage labeled SMEs as a pivotal sector towards moving Botswana ‘to a developed economy status. “There is great potential in SMMES as far as generating much needed employment and economic diversification is concerned” she said.
The former Mascom wireless executive is of the view that the nature of SMEs being businesses that are undertake by perceivably low income citizens and under privileged members of the society posse’s great ability to turn around economic status of the ordinary Batswana. “Imagine Botswana without the braiding, water melon selling, the roadside cooking ladies, the sewing ladies and taxi drivers. Each country in Africa has these buzzing hubs that reflect ordinary people making a living outside the formal sector,” she said.
Mphage underscored the imperative need to develop and resource SMMEs to unleash the great economic potential of the sector. She however highlighted the business challenges that come with the nature of the sector itself: “it is very paramount to always emphasize the benefit that accrue to all other economic industries and sectors in the economy when the SMMEs sector thrives, yet the sector is faced with challenges in the area of finance, poor quality of products, access to bigger markets and simple book keeping,” she explained. Ms Mphage pointed out the need for all stakeholders from government, funders, financial advisors, among others to rally behind contributing to SMMEs flourish, noting that the country and every one stands to benefit from a booming SMME sector.
BICA’s ROLE IN ECONOMIC DEVELOPMENTS
Addressing an audience that was dominated by Botswana Institute Chartered of Accountants (BICA) members, Mphage said accountants could play a pivotal role in assisting SMMEs as they were located in important financial institutions and departments and had the necessary skills required in turning small-scale entrepreneurs’ ideas into flourishing businesses.
BICA President, Rudi Binedell said accountants have a big role to play in economic development in Botswana. He said BICA intends to be a reputable stakeholder in government’s efforts to advance economic diversification and sustainable growth. He said the accounting body increased its membership to 3 355 members by the end of December 2016, from 2 085 in 2015. Binedell said they had drawn up a new strategic plan for the years 2017 to 2021.
The plan aims among other objectives to increase the number of qualified, professional citizen chartered accountants. Nametso Latsheng, Head of Capacity Building at BICA observed that the current economic challenges faced by Botswana could be solved by rigorous engagement of the SMME sector. “It is very critical now to come up with innovative ways, strategic blueprints and policy crafts that can change the situation around. We need to fast track employment creation – SMMEs sector can do wonders for our economy,” he said.
SHARING THE EXPERIENCE
In previous likeminded interactive seminars and economic forums, SMMEs have also been underscored as a critical sector for the economy. They could be used to realize the much needed diversification and sustainable growth. Renowned businessman, Dr Tiro Mampane of Boitekanelo Group of Companies which includes Boitekanelo College, observed earlier this year at First National Bank (FNB) 2017/18 Budget review seminar that trade laws and setting up business regulations need to be reviewed to accommodate more SMMEs to enhance economic growth.
He noted that Botswana must introspect on its trade and business laws. He indicated that the ease of doing business locally needed to be improved by rooting out cumbersome procedures which might end up discouraging investors. According to Dr Mampane, SMMEs must be empowered to create wealth and ensure economic survival for rural and low income people. “If you look into other businesses you will realize that they don’t necessarily require, for example a physical office to operate, thus they should be exempted from some trade licenses requirement,” he said.
In its quest to empower Batswana and realize economic diversification while also creating employment and sustainable growth the Government of Botswana has setup various business facilitation arms and also introduced a number of programs and initiatives. The Youth Development Fund under the Ministry of Youth Empowerment, Sports and Cultural Development intends to finance young people to start up medium enterprises in almost every sector from agriculture, manufacturing and ICT.
Gender Affairs Fund in the Ministry of Gender funds women in groups and partnerships to a tune of up to P350 000 to turn community cooperatives and indigenous small and medium businesses into profit making entities. The Local Enterprise Authority ( LEA) under the Ministry of Investment Trade & Industry is a co-ordinate and focused one-stop shop Authority operating as a parastatal that provides development and support services to the local industry needs of SMMEs. The Authority's key sectors are manufacturing, tourism, agriculture, and any services that support the three business sectors. In particular, LEA targets women, youth, and the unemployed.
LEA also endeavors to build competencies in quality and efficiency, and to encourage import substitution and export oriented products and services. In delivering their mandate and mainly supporting the Small Micro & Medium Enterprises LEA conduct entrepreneurship awareness workshops annually across the country to cultivate the spirit of entrepreneurship in youth and the unemployed. LEA provide capacity building incubation, training and facilitates funding and access to markets.
Adding to these efforts is the Citizen Entrepreneurship Development Agency (CEDA) which operates as an investment arm and financer to viable projects and feasible business ideas. CEDA funds various project to a tune of up to tens of millions, for SMMEs CEDA recently introduced a tailor made funding initiative for small and medium scale businesses called “Mabogo Dinku”.
Through the program, CEDA provides subsidized loans for various micro-entrepreneurs to enable citizen participation in enterprise development. Mabogo-Dinku loan offers micro-enterprises an opportunity and enables citizen participation in enterprise development. The loan provides micro-enterprises with funds for their business needs ranging from working capital to small asset finance. Mabogo Dinku offers short term loans from P500.00 to a maximum of P150, 000.00 per person, payable in 3-12 months to citizens who are micro-entrepreneurs to assist in the growth of their business.
Strive Masiyiwa, a Zimbabwean multimillionaire is of the view that education must be provided to small medium entrepreneurs. He writes that Entrepreneurship should be taught as a subject in all schools across Africa. “By far the biggest employer of people in Africa is what is generally called the "informal sector."
“Whilst most of the people in this sector are generally literate, having been to school, there's very little in our education system that actually prepares them for a life running their own business.” According to Masiyiwa, governments should publicly acknowledge that the "informal sector" is the central activity in their economies. “Whether people are smallholder farmers, street traders, or tradesmen and women, don't be ashamed to acknowledge them as real economic players. They are contributing to the economy just like the biggest businesses that you have in your country,” he says.
Masiyiwa who owns multinational businesses agrees with Mphage’s sentiments that SMMEs importance must be recognized with action. “Acknowledge the importance of this sector by putting in place policies that enable them to prosper. When they prosper, they will grow, employing more,” he says. He is of the view that governments should introduce entrepreneurship training into the formal education curriculum.”By the time someone has completed seven years of school, they should be able to put together a basic profit and loss statement, and a basic balance sheet. They should also be able to read financial statements.
Government has made some adjustments0 in fiscal policy, as some taxes and levies are to be imposed from the beginning of March this year. It is expected that effective 1st March 2021, government will announce an increase on fuel levy followed by increases in tax items including VAT and tax on sugar-sweetened beverages.
FILL UP AND PAY CAESAR TOO AMID FUEL CRISIS
Ministry of Mineral Resources, Green Technology and Energy Security in 2017 approved 17.5 thebe per litre which will be in addition to the already existing fuel levy of 13.5 thebe per litre. Apparently Botswana consumes 1.2 billion litres of petroleum products and the levy could raise P210 million per annum which could be used to; purchase of stocks for Botswana Oil Limited, meet insurance premiums for government oil storage facilities and construction of other strategic storage facilities around the country.
According to investment manager Kgori Capital, the new tax might not immediately lead to an increase in fuel pump prices as the National Petroleum Fund (NPF) might be able to cushion the effect of the tax in the short term. Kgori Capital said this however could see increased outflows from the fund which could be unsustainable over the long term.
Recently government released a ‘National Fuel Supply Update’ announcing that the shutdown of three refineries in South Africa, making Botswana look elsewhere to increase sourcing from alternative suppliers. As assurance government stated that it is currently able to meet fuel demand, that back-up is available, it would only be deployed if the situation deteriorates.
Other determinants of fuel price dynamics could be the Rand vs US Dollar. This week on Thursday the Rand rallied for another day, retaining gains from the previous day, as risk appetite stayed high on hints that the new US administration would be in support of a huge stimulus to uplift the economy.
On Thursday commodity news oil prices were supported for yet another day on Wednesday, climbing above US$56 per barrel in mid-afternoon trading, supported by expectations that the incoming US administration would approve a large stimulus package to boost the economy and in turn support oil demand.
According to stockbroker Motswedi Securities, also supporting the commodity’s pricing were ongoing supply cuts by the Organization of Petroleum Exporting Countries as well as expectations that US crude inventories are forecast to decline for the week ended 15 January 2021.
Last week the FNBB researchers said they expect a possibility of a rebound in oil prices as economic activity recovers this year. FNBB said it is probable that fuel prices will be increased to mimic international oil price movements.
First National Bank of Botswana Quantitative Analyst, Gomolemo Basele, in his recent analysis of December inflation, said over the course of this year inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from P0.12 to P1.12, effective 1st March 2021.“We also expect further pressures on the administered prices of water and electricity, as well as increases in tax items,” said Basele on behalf of his FNBB economy research team.
VAT TO GO UP SOONER THAN EXPECTED, JOB LOSSES
Amid being met with a lot of opposition, FNBB expect an increase in VAT from 12 percent to 14 percent, effective 1st April 2021. Last year permanent secretary in the Ministry of Finance and Economic Development, Wilfred Mandlebe told Parliamentary Committee on Government Assurances (PCGA) that as part of economic recovery from Covid-19 shocks, VAT will be increased from 12 percent to 14 percent in the next financial year.
This is despite Basele in his December inflation report warning that the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.
State of Emergency which bars employers to lay off employees might end the same time when government imposes an increase in VAT, this is why FNBB expects inflation to average 2.8 percent in 2021 and anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25 basis point.
INTRODUCTION OF SUGAR LEVY
The beginning of the next financial year will see tax on sugar-sweetened beverages be 2 thebe per gram over and above 4 grams per 100 millilitres. This tax will be implemented by a Statutory Instrument to be issued by Ministry of Trade and Investment.
According to World Bank last year September, sugar-sweetened beverages (SSBs) are non-alcoholic beverages that contain caloric sweeteners, such as sucrose (sugar) or high-fructose corn syrup (HFCS). SSBs include carbonated soft drinks (carbonates), energy drinks, concentrates or syrups, sports drinks, less than 100 percent fruit or vegetable juices such as juice drinks or nectars, ready-to-drink teas and coffees, sweetened waters, and milk-based drinks.
SSBs are said to be the main factors of overweight and obesity which leads to a number of chronic non-communicable diseases (NCDs), including coronary heart disease (CHD), stroke, diabetes, and at least 12 cancers (cancer of the mouth, pharynx and larynx, oesophagus, stomach, pancreas, gallbladder, liver, kidney, prostate, colorectal, endometrium, ovaries, and post-menopausal breast).
In his first State of the Nation Address (SONA) in 2018, President Mokgweetsi Masisi blamed the increasing incidence of people who are overweight and obese amongst the Botswana population on the increased consumption of sugar sweetened products, especially beverages.
HOUSING INFLATION TO SOAR INTO THE NEXT FINANCIAL YEAR
Botswana Housing Corporation is expected to rise to the occasion this year by taking more from Batswana pockets in the coming financial year. The housing utility will adjust rentals by more than 100 percent margin effective 1st April 2021.
This could further spike future inflation into the housing and utilities group index which in December registered a rise of 0.3% m/m owing to higher costs associated with materials for the maintenance and repair of dwellings (0.9% m/m).
INFLATION TO REMAIN SUBDUED AND UNDER THE OBJECTIVE RANGE
The December 2020 inflation remained unchanged at 2.2%, bringing the 2020 inflation average to 1.9%. While Basele believes the 2021 inflation should receive some upward pressure from volatile items, particularly the transport group index as the fuel levy is anticipated to increase from, he said the demand side will remain muted this year as the bulk of Botswana’s labour force will be faced with unemployment challenges as well as pressures on disposable income levels due to diminished economic activity.
This moves FNBB to expect inflation to be just below the 3-6 objective range and be lower at 2.8 percent, the bank’s researchers further anticipate that the Bank of Botswana will remain accommodative this year and cut the bank rate by 25bp.
Botswana Government through Ministry of Mineral Resources, Green Technology & Energy Security (MMGE) has underscored its intention to support power generation through Coal-Bed- Methane (CBM).
This week Tlou Energy, one of the publicly listed companies exploring CBM power generation revealed in a circular to shareholders that the Ministry’s commitment to support the industry was a significant push to its ambitions.
Tlou Energy is focused on delivering power solutions to Botswana and southern Africa to alleviate some of the chronic power shortage in the region. The company is currently developing projects using gas and plans to add solar power projects to provide a cleaner power source. Botswana has a significant energy shortage and generally relies on imported power and diesel generation to fulfill its power requirements.
Last year Tlou Energy and state owned Botswana Power Corporation (BPC) singed a Pilot Power Purchase Agreement (PPA) for the first 2 Mega Watts of power from the Lesedi project. A grid connection agreement was also signed which enables the injection of power into the BPC grid.
These according to Tlou are key agreements that will facilitate development of the power project and the sale of first power. The company says things are promising for a larger power purchase agreement. The BSE listed energy outfit revealed that, “Botswana’s Ministry of Mineral Resources Green Technology and Energy Security (MMGE) has provided confirmation that negotiations on a larger PPA are due to commence in February.”
Tlou’s Managing Director, Mr Tony Gilby commented, “It is great to see that Botswana is open for business and the Government is motivated to get the gas industry up and running.” Gilby revealed that his company plans to start development of the Lesedi project as soon as possible noting that “confirmation of the Government’s enthusiasm to provide the necessary support to ensure commercial development of CBM is very well received.”
“In addition, we have also recommenced negotiations with Botswana based project financiers this month as we aim to close a deal for funding as soon as possible. After what was an extremely challenging year the Company is already making progress in 2021 and anticipate further advancement on all fronts in the coming term. We look forward to updating the market with further developments in due course,” he said.
Tlou said it has received written confirmation from MMGE of the “intention of MMGE to fast track the development of Coal Bed Methane (CBM) in Botswana.” MMGE also stated that it is “happy to provide the necessary support to ensure commercial development of CBM.”
In relation to the current tender to implement up to 100MW of CBM fired power plants MMGE has stated that negotiations with preferred bidders are due to commence in February 2021. The letter also acknowledged that the “Government is fully committed to seeing this project coming to fruition, as it will promote the gas industry, contribute toward import substitution, as well as to improve the livelihood of Batswana.”
“We welcome this update and look forward to negotiation and finalization of the tender process in the near term,” Tlou Energy Directors said.In 2018, MMGE issued a Request for Proposal for Development of up to 100 Mega Watts of CBM fueled power plants in Botswana.
Tlou submitted a comprehensive response to the tender including a plan to develop the project in stages, as well as outlining project feasibility, proposed field development, installation of power generation facilities and supply of power into the grid in Botswana.
Kgalagadi Breweries Limited (KBL) has suspended its operations indefinitely owing to the tough trading conditions occasioned Government decision to ban the sale of alcohol at the beginning of this month.
The brewer announced the decision today (Wednesday). KBL Corporate Affairs Manager Madisa said from the 25th January 2021 only a minimal number of critical roles will continue to be staffed and all other operational activity will stop.
KBL also acknowledged the impact this will have on the overall supply chain and those whose livelihoods depend on the beer industry and requests their understanding.
The current ban is expected to end on 31st January 2021, KBL said should the ban be extended past this date, suspension of its operations will continue.
KBL explained that its Tuesday meeting with suppliers was to align with them that due to the current situation, the brewer will suspend payments as of 6th February 2021, up for review pending the outcome of the current alcohol ban.
“However, it is regrettable that this latest total ban on alcohol sales has resulted in the suspension of KBL’s operations, which will remain in place for as long as the alcohol ban persists. KBL continues its efforts to engage government on this critical issue, which is having an enormous impact on the industry and its extensive value chain,” said Madisa.
On Tuesday afternoon, KBL conducted an ‘emergency meeting’ with its suppliers addressing some business decisions the company has made amid the current alcohol ban. Botswana has several alcohol bans since the first lockdown of March.
Mostly alcohol has been banned as a measure of curtailing the spread of Covid-19 and government then lived with putting stringiest operating hours for alcohol sales and distribution for a long time. Next week Monday KBL will be shutting down its operations, after a two weeks ban on liquor.
Sources say ever since the 4th of January 2021 when the December curfew regulations were extended, KBL has been brewing stacks of liquor for stockpiling. This is solely the reason why the brewer decided to close shop and stop manufacturing alcohol, because KBL’s depots no longer needed supply. On Tuesday suppliers were told to stop supplying KBL as next week the plant will be closing.
Air of uncertainty was hovering in the KBL plant premises on Tuesday as many workers feared mostly for their jobs. No one knows when alcohol ban will be lifted or if Botswana is going for a hard lockdown following the recent surge of Covid-19 infections. Botswana has 18,630 coronavirus cases, with 88 deaths and 14,624 recoveries.
KBL owner Botswana Stock Exchange (BSE) listed Sechaba Holdings came into contact with response to Covid-19 in March when Botswana recorded its first cases and that was the time when the company was doing well for years since the shedding of alcohol levy.
Sechaba associates, KBL and Coca Cola Beverages Botswana (CCBB), that time according to the holding company in its abridged financial results for the year ended 31 December 2019, continued to forecast growth in 2020 notwithstanding the challenges related to COVID-19.
Sechaba that time saw the business environment has been generally positive including relationship with stakeholders and the associates continue to manage the performance and business continuity risks.
Ten months ago the brewer underestimated the damage that can come with the pandemic and expected Covid-19 disruptions to be “temporary and the business will survive.”
That time Sechaba’s sole associate, KBL operates traditional beer breweries, alcoholic fruit beverages and a clear beer brewery.
In the period that just ended in December 2019, KBL contributed 72 percent to Sechaba’s revenues while CCBB contributed 28 percent. KBL also performed high in contribution to profit after tax with a share of 74 percent while CCBB contributed 26 percent.
Sechaba holds 49.9 percent in the local headline alcohol brewer KBL and 49.9 percent in the non-alcoholic drinks associate, CCBB. Sechaba holds 60 percent of the shares of KBL while SABMiller Botswana B.V. holds 40 percent. SABMiller Plc has management control in the operating company. The Botswana Development Corporation has a 25.6 percent shareholding in Sechaba Breweries Holdings Limited.
The glitter on the glass of KBL or Sechaba, is of December 2019 financial results which was downplayed and turned into a bearish affair in the financial results for the half year ended 30 June 2020. For those results, there was a spill in profit by Sechaba cash cow KBL by 72 percent while CCBB recorded a decline in profit by 15 percent, both and respectively in correspondence with the same period in 2019. All this downfall comes down to a loss of 60 percent of profit by the parent company. That was more than the 60 percent fall expected before the release of results.
In September during the release of the June 2020 results, Sechaba admitted that the intervention put by government since April, to fight the Covid-19 pandemic, negatively impacted its business performance and its associates, KBL and CCBB bore the full brunt. Revenue collected for KBL was lower by 37 percent while for its sister associate; CCBB, the numbers were down by 7.1 percent. This is the time when sale of alcohol was banned and manufacturing of soft drinks was not part of essential services.
Sechaba Chairman, Bafana Molomo last year said even though Covid-19 interventions would have an impact on the associates, this impact is expected to be temporary and the businesses will survive.
“However, it is advised that the situation is changing constantly and that it will be monitored closely. The Group’s associates continue to forecast growth in 2020 notwithstanding the challenges relating to Covid-19. The business environment has been generally positive, and the Group continues to enhance relationships with all stakeholders. The associates continue to manage the performance and business continuity risks,” he said.