Basket of Currencies revised
The Bank of Botswana, acting in conjunction with the Ministry of Finance and Economic Development, has revised the pula basket of currencies in order to keep up with monetary policy developments in the country’s major trading partner countries, with a view of maintaining a stable and competitive real effective exchange rate of the Pula. This was revealed on Wednesday, as part of the bank’s annual review of….
The latest adjustment follows a similar exercise done in the beginning of 2016 when President Ian Khama approved the Ministry of Finance and Development Planning's recommendation to maintain the Pula basket weights at 50 percent South African rand and 50 percent SDR; and change the rate of crawl from zero to an upward crawl of 0.38 percent per annum.
In the previous years, the Pula basket comprised of the South African rand and the IMF's Special Drawing Rights (SDR) — consisting of the US Dollar, Japanese Yen, the Euro and the British Pound. However in the latest adjustment, the Chinese Renminbi has been added to the basket of currencies, following last year’s decision by IMF to approve China’s currency as part of SDR.
Under the newly approved pula basket, the South African Rand lost out as it is now assigned 45% down from 50%, while the SDR now occupies 55% up from 50%. Furthermore, the rate of crawl has been adjusted from the upward crawl of 0.38 percent per annum to an upward crawl of rate of 0.26 percent, effective 1st January 2017.
Botswana uses the Crawling peg/band mechanism: an exchange rate system where the value of the domestic currency is adjusted on a regular basis according to a pre-determined formula that takes account of, for example, actual or expected inflation differentials. If the rate of adjustment (or crawl) is determined precisely, then it is crawling peg; while, if some fluctuation allowed then it is a crawling band.
Before the adoption of the crawling peg in 2005, Botswana was using the floating exchange which saw a series of Pula devaluations: 7.5 percent in 2004 and the 12 percent in 2005. The explanation for the devaluations was to increase the competitiveness of Botswana’s exports. When adopting the crawling peg mechanism, the country sought to avoid discrete adjustments of the exchange rate while maintaining stability in the real effective exchange rate.
“It's all about the real effective exchange rate .We use the crawling peg system. Meaning we will always adjust the value of the pula using what we call the crawling rate to align it with our policy objectives which include stable and predictable inflation among others. Now you must have observed that the rand has been depreciating against US dollar and the sterling. So the issue is not the pula but the rand,” an official familiar with the matter from the Ministry of Finance and Economic Development explained.
The official who preferred to remain anonymous as the revision of the pula basket is predominantly handled by Bank of Botswana, further said since the currency is pegged to the rand and the SDR in the basket of currencies, the rand pulls down the pula as it depreciates. “Now against the SDR, it disadvantages us because mostly we import consumables from South Africa while importing productive goods from SDR countries. So we simply are putting the pula where it's supposed to be.”
The decision to reduce the weight of the South African Rand is seen as strategic as the biggest economy in Africa continues to face economic and political risks. The volatile rand remains at risk of plummeting as ratings agency have been giving strong hints of downgrading the country’s ratings to junk.
Furthermore, the risk of rate hikes rides on any sharp weakness in the rand and deterioration in expectations and wages. This poses risks for the pula as the country is the biggest trade partner (Botswana imports about 75 percent of goods from South Africa and exports about 16 percent to South Africa). Meanwhile, the rand finished 2016 stronger than the previous year, catching up on the Pula which depreciated by 7.5% against the rand.
On the other hand the Pula ended 2016 with strong gains against its other trade partners. The pula firmed against the dollar, appreciating by 5.5%. However the gains against the dollar are unlikely to last as the Federal Reserve Bank of America hiked interest rate at the end of 2016 with further indications of rate hikes in 2017, a process that will result in dollar strengthening against major currencies.
The pula appreciated the most against the pound at 27.5%, this follows the pummelling of the pound as markets still remain uncertain about the future of Britain after its shock referendum in favour of exiting the European Union. The pula’s value against the Euro was also up by 9.5% largely in part to the weakening of the Euro as the European Union grapples with terrorism fears, immigration concerns, and as well as mounting fears that more countries might leave the European Union.
Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.