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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.

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China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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