The decision by Standard & Poor’s Global Ratings to downgrade South Africa’s foreign-currency debt has triggered concern that such move might have spill over effects to the country’s trading partners, Botswana included.
S&P Global Ratings cut South Africa’s foreign denominated debt from investment grade to junk status on Monday, just two days after President Jacob Zuma’s major cabinet reshuffle that resulted in the axing of the popular Finance Minister Pravin Gordhan. The credit ratings agency says its decision to downgrade South Africa’s 17 year old investment grade comes on the back of mounting concern that Africa’s most industrialised nation’s economic growths might be seriously hampered by its toxic political climate.
“The downgrade reflects our view that the divisions in the ANC-led government that have led to changes in the executive leadership, including the finance minister, have put policy continuity at risk. This has increased the likelihood that economic growth and fiscal outcomes could suffer,” S&P said in a statement on Monday before adding that they have put the country on negative outlook, reflecting their view that political risks will remain elevated this year, and that policy shifts are likely which could undermine fiscal and growth outcomes more than they currently project.
The reaction to S&P’s downgrade was swift and mainly felt in the financial sector as the country’s banking index fell to the lowest in six months. The banking index plummeted by more than 8 percent following the cabinet reshuffle, resulting in most bank stocks shedding billions of rands in value. The main concern for banks is the return on assets and equity, in light of fears that non-performing loans might spike. The downgrade means the banks’ cost of funding might go up, resulting in the banks charging more for their loans, hitting consumers the hardest.
Besides the banking sector appearing like the first casualty, the country’s often volatility currency is expected to fluctuate in the coming days. The performance of the South African rand is closely watched by its trading partners, particularly in Southern Africa, where the country dominates trade. The rand is now the worst-performing emerging-market currency over the past week, with a loss of 9.7 percent against the dollar. Only two weeks ago, the rand was the best-performing emerging-market currency, gaining 10.1 percent against the dollar since the beginning of the year.
“Pula is pegged to the rand 45% and therefore any weakness in rand will affect pula movement against its major crosses especially the dollar. At FNBB, we estimate that the rand explains at least 80% movement of the pula against the dollar – therefore, a weaker rand against the dollar, means a weaker pula against the dollar. Our main export receipts and in dollars, and therefore weaker pula could reduce our exports receipts in value terms,” Mr. Moatlhodi Sebabole, Research manager at FNBB, said by email.
“SACU receipts are a function of trade of the member states outside SACU and SA contributes 90% of the customs received within the block. It is my belief that on the backdrop of recovery in global demand and improvement in mineral prices, as well as more stable production side for South Africa, the trade prospects for South Africa still look better than there were last year. A slightly weaker rand than current levels could actually increase the competitiveness of SA exports, with a trade-off to higher costs of imports of course and how that could impact local production and balance of payments.”
Mr. Sebabole further said in their view as FNBB, the global positives offset the local negatives, citing their models which show that the rand reacts 40% to local fundamentals and 60% to the global dynamics. As a result, they expect a relatively stable rand that will hover around an exchange of USD/ZAR at 13.00 for 2017 and 10.34 for BWP/USD. He said the SACU receipts forms least of their worries from the rand perspective, instead their focus is on upside risks that could arise from lower demand and slower recovery in commodity prices.
“Therefore at this moment, we do not anticipate any meaningful economic spillovers to Botswana. However, if the political risks heighten to instability and disruption of services, it will affect local business since we import over 60% from South Africa. Services like postal, logistics and fuel transportation could get disrupted should there be nation-wide SA services breakdown.” On the possibility of the banking stocks rout spreading over to Botswana Stock Exchange’s listed banks, home to one of the bank owned by a South African bank, the FNBB maestro says such possibility is unlikely.
“Given the weak-form efficiency of Botswana’s stocks, I do not anticipate the shocks that the banking sectors shares are taking in the JSE to be felt to that extent in the BSE-listed banking shares,” Mr. Sebabole said. “Of the 3 listed banks, only 1 is parented in South Africa and has not shown signs of weakness when its parent listing underwent significant price reduction in the past two weeks. The correlations between the JSE and BSE listed equities remain low and therefore casualty effect of declining stock prices in SA will not directly cause local stocks to underperform.”
Mr. Sebabole went on to sound caution that should South Africa receive further downgrades from other ratings agencies then it will lose its investment grade. The possibility of that is highly likely as Moody’s, another ratings agency, says it is assessing the economic impact of the changes to leadership in key government institutions and it is expected to announce its rating on Friday. Furthermore, ratings agency Fitch is likely to follow rival S&P and cut South Africa's sovereign credit rating to below investment-grade.
“If South Africa loses investment grade, then government and corporate borrowings will increase, and given that large corporates operating in Botswana originate from SA – an increase in cost of borrowing for parent SA companies might affect the corporates who fund from their SA counterparts. Additionally, foreign funding for banks might increase and cost of capital for placement of local funds in the SA institutions will rise in a risk-weighted adjusted basis,” Mr. Sebabole warned.
Homegrown LED light manufacturing company, The Bulb World, has kick started operations in South Africa, setting in motion the company’s ambitious continental expansion plans.
The Bulb World, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017, announced last year that it will enter the South African market in the Special Economic Zone (SEZ) of North West province under the auspices of North West Development Corporation (NWDC).
The company has already secured a deal with South Africa authorities which entails production factory shells and tax incentives arrangements.
The company founder and Chief Executive Officer, Ketshephaone Jacob has also previously stated that the company is looking for just under P50 million to finance its expansion strategy and is reaching out to institutional investors such as Botswana Public Officers Pensioners Fund (BPOPF) and government investment arm, Botswana Development Corporation (BDC).
However, Jacob told WeekendPost that instead of sitting and waiting for expansion funding the company has started hitting the ground running.
“We have decided to get in the streets of SA, start selling lights from door to door, ” said Jacob who is in currently in Rusternburg to oversee the introduction of The Bulb World products in the market.
Jacob explained more brand activations will be undertaken in South Africa. “The plan is to do it the whole of North West and Limpopo province, through hawkers, we give the hawkers the lights to sell at a factory price and they put a mark up and make a living,” he said.
The Bulb World operates from Selibe Phikwe, it currently employees 65 young people, 80 % of which are Phikwe youth. The company plans to add 100 jobs this year alone as it forges ahead with its regional and continental expansion plans.
In July this year Bulb World products will hit South African Shelves: Pick n Pay, Checkers and Africa’s largest retailer Shoprite.
The Bulb World has been registered as a company in South Africa; the company will start producing lights from Mogwasa after striking a special economic zones deal with North West Development Corporation in North West Province South Africa.
“Over the next 10 years we are looking to create over 5,000 jobs in Africa. Through our expansion into all of Africa we will be able to create employment for various individuals in different sectors namely; manufacturing, distribution electronics and retail,” Jacob told this publication earlier this year.
Jacob said if all goes well, the plan is to have taken over Africa or rather penetrated, and have prevalent presence in the African market.
“We are gunning to have at least 30 percent market share by then. According to a 2016 Market Survey, the total valuation of sales for LED Lighting was 57BN, a portion of which we plan to have taken over by then,” he said.
While the company has set its eyes on Africa, Jacob said, the company has not fully exploited its local growth, indicating that there could be strategic factories built to supply neighbouring countries of Angola and Zimbabwe.
“There is potential for further local expansion as well to other areas of Botswana if things run smoothly as anticipated. Hopefully in the long-term if our fellow Africans and all these markets receive us well we are planning to build another factory,” he said.
“We are looking to build another factory in the Chobe/Ngamiland Area that will give priority to markets in Zimbabwe and Angola,” he said
The Maun based Okavango Research Institute (ORI) has downplayed the impacts of oil and gas exploration in part of Okavango delta arguing that given the distance proposed the likelihoods of negative impacts drilling these exploration wells on the surface water systems is likely to be negligible.
The Institution released a position paper titled ‘Proposed Petroleum (Oil and Gas) Exploration Operations in the Petroleum Exploration License (PEL) No. 73,’ with findings stating that, in the event of discovery of economically viable hydrocarbon deposits, much more careful consideration of the impacts and economic benefits of development of the resource will be needed.
For example, the fracking process for gas and oil extraction is known to require large volumes of underground water.
It further argues that increased extraction of the underground water is likely to affect the water table level and further affect the overall water availability in the river-basin.
“The effect on water availability and use may become worse if surface water is reticulated or sourced by any means from the Kavango River. Should the exploration and fracking for oil and gas expand to Block 1720, 1721 and 1821, the impact on water availability and quality will be significant, especially if the wastewater is not well managed,” said the paper.
The research unit recommends close communication between the relevant Basin State Ministries (Mineral Resources, Environment) and the Permanent Commission on the Okavango River Basin, OKACOM, and other stakeholders must be facilitated.
This will facilitate sharing of the correct information on the desired intentions of the basin states and compromises sought for the sustainability of the ecosystems in the downstream of the Cubango-Okavango river Basin, states the position paper.
ORI as a key stakeholder with scientific information says it is positioned to provide scientific advice and guidance to decision-makers on the potential impacts of both exploration and development and operation activities.
It also recommends that while the impacts might be minimal at the exploration stage, environmental impacts during the development and extraction process are significant.
Findings also state that the SADC Protocol places a mandatory duty to make a notification of planned measures undertaken in any riparian state in cases where such measures hold the potential to cause ‘significant adverse effects.’
It further states that where the planned development is trivial and not expected to cause any significant harm, the development state is not under duty to notify other riparian states.
Given that the drilling in the Kavango Region in Nambia is merely for exploratory purpose and the possibility of harm is minor, it is therefore not surprising that the Namibian government did not inform Botswana.
However, should it be found that the oil can be profitably or economically exploited, the Namibian government would be under a duty to notify both Angola and Botswana.
The institution further states that to ensure sustainable development in the Okavango Delta the following in the context of exploration for and potential development of hydrocarbon deposits within the Cubango-Okavango River Basin, it must be considered that the Okavango Delta is a World Heritage Site listed in 2014 by UNESCO and one of the binding requirements of the listing is the non-permissible commercial mining of any mineral, gas or oil within the World Heritage Site.
It states that the Okavango Delta is also a RAMSAR site in which mining is not allowed.
Should the exploration for minerals, oil and gas be allowed, there is a high chance that a mineral, oil or gas may be found given that the Delta is sitting on karoo sediments and shale rocks which in other parts of the world have been found to be sources of oil and gas deposits. Should oil or gas be discovered, there will be a strong socio-economic pressure to mine oil or gas and create jobs for the masses.
Manufactured in Turkey, Pakmaya Instant Dry Yeast can be used in the production of various fermented products, as it is suited for both traditional and industrial baking processes. All kinds of breads, buns and fermented pastry products are typical examples of applications.
Pakmaya Africa Sales Manager Cem Perdar says Pakmaya has 4 plants in across the world, further indicating that all of the plants have the highest standards of quality certificates and approvals. Regarding raw material, molasses is the main ingredient for yeast. Concerning production activities, yeast manufacturing requires high know-how and capability. Pakmaya has all those capabilities and aspects more than 45 years.
According to Perdar, Pakmaya has been existent in African markets since 30 years. From South to North, Central to East and West, a consumer can find Pakmaya in nearly every part of Africa continent.
“With its high quality, rich product selection and good service, our brand has become the favorite yeast of many Africans. On the other hand, our distributors in African countries are working very hardly and loyally in order to promote our products in their markets. After some time, we are becoming like families with our exclusive distributors in Africa and this enables both parts to work harder and keeps our product sustainable in market,” he said in an interview this week.
The yeast manufacturing giant made its way to Botswana market. The company has been smoothly working with Kamoso Distribution, a local distribution company. Perdar told BusinessPostthat two entities have been working hard to earn is market locally.
“At the moment we have a good market share with them in Botswana market. I’m sure during 2021 long, we will be increasing our sales and market position. Soon we are going to start a marketing campaign in Botswana, so that means Batswana will see and recognize Pakmaya more and more. Pakmaya wants to be the best friend of bakers in bakeries and ladies at homes in Botswana.”
As per global COVID-19 regulations to curb the spread of the COVID-19, Botswana just like other country closed borders. Providentially, the restrictions did not affect the company destructively.
Perdar says “Kamoso Africa is a very important and strong partner in Botswana territory. With Kamoso’s hard work and strict measurements, we have done a very good job. So as Pakmaya, we have not suffered any distribution problem. Our partner is doing the needful at the reaching our products to end users.”
He further said “We are doing well in Botswana market and hoping to make much more. Our aim is to enter every single corner in Botswana territory. With our new marketing campaigns, we are planning to be the most preferred yeast in Botswana market.”