First National Bank Botswana (FNNB) on Tuesday held its annual budget review a day after the Ministry of Finance and Economic Development unveiled the 2017/2018 budget. The FNBB’s event, in its 24th year of existence, seeks to stimulate discussion and reflect upon some of the key points that were raised during the National Budget Speech.
Mr. Steven Bogatsu, FNBB’s CEO, said there has been a global trend of sustained economic instability, which came to a head in 2016, citing Brexit and the past American Elections as having played a significant part in the markets. “On home front, the ripple effects of some of the occurrences of last year, such as the liquidation of BCL and others, will manifest during the course of this year. Against a backdrop of worldwide and local uncertainty, we have cause to remain cautiously optimistic,” he said.
Mr. Bogatsu says it’s possible to move away from the economic rut by drawing on lessons and strategies learned over time from past gatherings and conferences. He however noted that the key to the success of these strategies will be the grit and dedication with which they are implemented, monitored and adapted.
“Much of this has to do with stepping down out of the ivory tower and having an intimate understanding of what the needs of Batswana are, on the ground. As Government devises policies and drafts legislation with the prosperity of the country at heart, this shift will be instrumental in catalyzing and stimulating our economy.”
He ended his opening remarks by adding that small, medium and macro enterprise (SMMEs) will require efforts both from the private and public sector in ensuring their survival through provision of skills and knowledge as well as a conducive environment to operate in. Mr John Cairns, one of the four panellists at the budget review, said Botswana’s economy remains at risk on the backdrop of global markets. He said the global markets have not sufficiently recovered post the 2008 financial crises, noting that while there has been recovery, the growth pace has been slow and still below the growth trend experienced prior to 2008.
Mr. Cairns, Currency Strategist at Rand Merchant Bank, also explained how Botswana’s dependence on diamonds and close economic ties with South Africa could impact its economy this year. He said South Africa remains under the radar of ratings agencies that are closely monitoring the country’s economic and political manoeuvrings which might impact negatively on the country.
On the issue of diamonds, he says while there was notable recovery in diamond prices and output in 2016, a lesson to be learned is that resources based economies remains at high risk as evidenced by the commodity slump that was felt heavily in 2015 as global demand for commodities waned.
Reformation or regression? That was the rhetoric question asked by Mr. Moatlhodi Sebabole, FNBB’s Research Manager, as part of his contribution to the panel. Mr. Moatlhodi started off, by showing how Africa’s perspective has changed over the years in the eyes of investors. From the break of the millennium, the resources rich Africa was viewed with scepticism, then the financial crisis happened and investors looked somewhere else where the contagion did little damage.
So post 2008, investors were upbeat about Africa, and money was flowing in. Then came the commodity slump in 2015, revenues declined for most African states, and the negative effects tickled down to the households and businesses. At the moment, Mr. Moatlhodi says the sobering reality is Africa remains as vulnerable to the global markets like the rest of the world.
In the case of Botswana, he says the economy remains heavily reliant on mining revenues even though there has been notable growth in other sectors of the economy. He implored the private sector to play a meaningful role in the economy as part of efforts to move away from diamonds.
In order to achieve sustained future growth, it was suggested that Botswana get on with the times and tap on the ongoing fourth industrial revolution. This was suggested by Ms. Bogolo Kenewendo, an especially elected member of parliament and also a trained economist who has been vocal about the country’s slowness in adapting in the rapidly changing global landscape. Ms. Bogolo said the 4th industrial revolution has changed the way we work and live, noting that technology is driving the next economic wave. She explained how early adopters of technology have reaped benefits by investing in the information, communication and technology sector.
Ms. Kenewendo said there is more to technological advances than the internet and broadband. She says countries and companies are now leveraging on the underlying technologies to create value and monetise things in a way never thought possible, giving examples of how traditional models have been usurped by efficient and convenient digital models. She also noted that the buzz word now is internet of things, where the machines can be automated to act as our assistants, powered by artificial intelligence, a new technology that’s being greatly pursued.
Furthermore, Ms. Kenewendo said Botswana can start playing on that field by modernising the government through enhancement of transparency, accountability and good governance. She says government must be more result-oriented, efficient and customer centric, also adding that the country needs secure ICT infrastructure, regulatory friendly laws that will enable innovation. Ms. Kenewendo said it was imperative that the government focuses on equipping its citizens with ICT skills that will see them actively participating in the new economy that will be driven by technology.
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.