The Botswana Stock Exchange appears to be making a recovery from the previous year’s slump that resulted in major equities losing value. The Domestic Company Index (DCI), which tracks the performance of local listed companies, ended the first quarter of the year weaker but better than the corresponding quarter in 2016.
The DCI started the year with 9389.34 points but has since lost 164.12 points in the last 3 months to close the first quarter at 9225.22 points. This means the DCI has declined by 1.68 percent, however, this compares favourably with 2016’s first quarter decline which stood at 3.8 percent. The narrowed loss in the first quarter of the year points to a slow recovery for the BSE’s DCI that declined by 11.3 percent in 2016. Moreover, the improvement in the first quarter of the year has brought down losses in the past 12 months to 9.54 percent.
The downward pressures exerted by certain sectors on the DCI in the previous year have spilled over to this quarter as the same sectors continue to affect the overall performance of the local bourse. In its 2016 market performance report, the BSE said the DCI’s decline of 11.3 percent in 2016 was attributable to the negative performance of the Retail & Wholesaling and the Banking sectors as well as the Financial Services & Insurance and the Information & Communications Technology (ICT) sectors.
During the first quarter of the year, the DCI’s losses were led by three retail titans from the influential Wholesaling and Retail sector. Leading the losses was Sechaba, the local brewing giant, which lost 22.2 percent in the quarter under review. The blue chip stock ended the quarter to trade at P21, a decline of 30 percent from its all time high price of P30. This has extended the stock’s decline to 26.3 percent in the past 12 months. Further complicating the matter for the brewer is the tough trading conditions it finds itself operating under. The group has warned shareholders to expect lower profits.
Sefalana, another key player in the Wholesaling and Retail sector, closed off the first quarter 17.7 percent under to trade at P10.70. This stock price is now 23.6 percent off its 12 month high price of P14. Sefalana’s stock has been on a steady decline since late last year, bringing its total losses in the past 12 months to 20.6 percent. The embattled furniture and consumer goods retailer, Furnmart, continues to struggle on the stock market after losing 7.1 percent in year to date returns. The stock which is trading at 0.65t is 39.3 percent lower than its 12 month high price of P1.07.
The banking sector which has recently been boosted by higher earnings from all the listed banks is yet to reach peak performance in the local stock market. First National Bank Botswana, the largest bank in the country and also the biggest company by market capitalization, has continued the downward trend that started last year into the first quarter of the year, dropping 7.1 percent to trade at P2.75. At the current stock price, the bank’s stock value has declined by 24.7 percent in the last 12 months.
Standard Chartered Bank of Botswana might have shocked many after declaring higher profits in its end of year results but the bank’s stock price continues to be under pressure following negative sentiments from investors that have been fuelled by the bank’s previous financial performances which was marked by declining profits. The oldest bank in the country closed the quarter under review trading at P7.35, down by 5.2 percent. This has extended the bank’s losses in the stock market to 31.9 percent in the past 12 months.
Letshego was the only loser in the Financial Services and Insurance sector after dropping 5.7 percent to trade at P2.16, stretching its losses in the last 12 months to 13.6 percent. At the current share price of P2.16, the stock is trading at 19.1 percent lower than its 12 month high price of P2.67.
Other notable losses in the first quarter of 2017 include the leading security and cash management firm, G4S, which dropped 2 percent in stock value to trade at P4, which means the stock has also dropped 2.4 percent from its 12 month high price of P4.10. However the stock’s returns remain solid over the 12 months period with returns of 10.5 percent. The decline of the DCI in the first quarter of the year, and the subsequent narrowing of losses from 2016 was offset by strong performances from mostly the same companies that had held firm in 2016 when the DCI tumbled.
Botswana Telecommunications Corporations Limited (BTCL)’s spectacular rebound has led the rally in the local equities board, rising sharply by 31 percent in the last three months to end the quarter trading at P1.28. At that price, the stock is trading at a premium of 28 percent from its listing price of P1 in April 2016. The stock spent most of 2016 being battered; even reaching lows of P0.85 thebe but in the fourth quarter of 2016 the stock began its rebound buoyed by strong financial performance and attractive dividend payouts. BTCL forms part of the broader Wholesaling and Retail sector on the BSE.
Barclays Bank Botswana continues to buck the trend in the banking sector as far as stock market performance is concerned. In 2016 the second largest bank in the country became the only banking stock to appreciate in value. Barclays has extended its exploits to this year’s first quarter, registering share price gain of 13.1 percent to trade at P5.70. The stock is trading at its all 12 month high, bringing total gains in the last 12 months to 25.3 percent.
The property sector has also shown its resilience in the first quarter as it tapped on the previous year’s overall satisfying performance for the sector. New African Properties (NAP) is becoming the investors’ favourite when it comes to picking up property stocks. NAP advanced by 7.1 percent to trade P3.15, ending the quarter at its highest price in 12 months. This also brings NAP’s gains to 15.8 percent in the last 12 months. Other property stocks that did well during the quarter under review involve Primetime and Letlole La Rona (LRR). Primetime is up by 1.9 percent to trade at P3.16, taking its overall gains in the past 12 months to 6.8 percent. LLR’s share price increased by 1.8 percent in the first 3 months of the year.
Choppies, the leading local grocer, is trying to stage a comeback from the dismal performance on the BSE in the previous year. Choppies which has set its eyes firmly on regional expansion had to watch its stock price plunge by 40 percent in 2016 following declining profits. The grocer whose recent half year results show a 49 percent decline in profits will be pleased with the first quarterly performance on the stock exchange. Choppies stock ended the quarter trading at P2.55, up by 6.3 percent. Nonetheless the stock price is off its 12 month high of P4.2o, representing a loss of 37.8 percent in the past 12 months.
The less influential tourism sector has brought its delightful performance from the previous year to this year’s first quarter as all listed tourism and leisure companies recorded gains. Chobe Holdings Limited ended the quarter trading at a 12 month high of P8.03, up by 4.3 percent. This brings the tourism outfit’s gains to 16.7 percent in the last 12 months. Cresta Marakanelo Limited-which led the rally last year by gaining the most- has advanced slightly by 1.8 percent to trade at P1.30 by end of quarter. While the stock is 0.8 percent off its 12 month high of P1.31, its gains remain solid at 17.1 percent in the past 12 months. Wilderness Holdings Limited ended the first quarter with an increase of 0.6 percent to trade at a 12 month high of P5.20, bringing its 12 month gains to 6.1 percent.
The financial services behemoth, Botswana Insurance Holdings Limited (BIHL), held steady in the first quarter as the blue chip stock advanced by 2.8 percent. At the closing price of P18.05, the stock is trading at its 12 month high. In the past 12 months the stock has gained 15.7 percent. BIHL with its sprawling portfolio remains the favourite in the Financial Services and Insurance sector.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”