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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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Dark days as Aviation industry collapses

22nd November 2020
Air Botswana

As the Aviation industry takes a COVID-19 pummeling, for Africa the numbers are staggering, Chief Executive Officer of the International Air Transport Association (IATA), Alexandre de Juniac has observed.

Speaking recently at the African Airlines Association (AFRAA) has been hosting an Annual General Assembly, de Juniac said traffic is down 89% and revenue loses are expected to reach $6 billion. And this figure is likely to be revised downwards in the next forecast to be released later this month. “But the impact is much broader. The consequences of the breakdown in connectivity are severe,” he surmised.

According to de Juniac, five million African livelihoods are at risk while aviation-supported GDP could fall by as much as $37 billion. That’s a 58% fall.

“We have a health crisis. And it is evolving into a jobs and economic disaster. Fixing it is beyond the scope of what the industry can do by itself.”

He said they need governments to act, “And act fast to prevent a calamity.”

“We are in the middle of the biggest crisis our industry has ever faced. As leaders of Africa’s aviation industry, you know that firsthand. Airline revenues have collapsed. Fleets are grounded. And you are taking extreme actions just to survive. We all support efforts to contain the COVID-19 pandemic.  It is our duty and we will prevail. But policymakers must know that this has come at a great cost to jobs, individual freedoms and entire economies,” he said.

de Juniac used the AFRA general assembly platform to amplify IATA’s call for governments to address two top priorities: “The first is unblocking committed financial relief. Airlines will go bust without it. Already four African carriers have ceased operations and two are in administration. Without financial relief, many others will follow.”

Over US$31 billion in financial support has been pledged by African governments, international finance bodies and other institutions, including the African Development Bank, the African Union and the International Monetary Fund.

Unfortunately de Juniac pointed out, in his words, “Pledges do not pay the bills. And little of this funding has materialized. And let me emphasize that, while we are calling for relief for aviation, this is an investment in the future of the continent. It will need financially viable airlines to support the economic recovery from COVID-19.”

The second priority, according to IATA is to safely re-open borders using testing and without quarantines.

“People have not lost their desire to travel. Border closures and travel restrictions make it effectively impossible. Forty-four countries in Africa have opened their borders to regional and international air travel. In 20 of these countries, passengers are still subject to a mandatory 14-day quarantine. Who would travel under such conditions?” de Juniac quizzed rhetorically.

He suggested that countries should adopt systematic testing before departure provides a safe alternative to quarantine and a solution to stop the economic and social devastation being caused by COVID-19.

He admitted that it’s a frightening time for everyone, not least the millions of people whose livelihoods depend on a functioning airline industry. Right now, de Juniac said there essentially is no airline industry. He cited the example that China’s largest airlines sound optimistic, but in a vague way. “They gave no hard data about current yields, loads, or forward bookings, discussing only developments in 2019. Boy, does that seem like ages ago.”

Aviation’s darkest days

The IATA CEO said these are the darkest days in aviation’s history. “But as leaders of this great industry I know that you will share with me continued confidence in the future.

Our customers want to fly. They desire the exploration that aviation enables. They need to do international business that aviation facilitates. And they long to reunite with family and loved ones.”

He said the industry will, no doubt, be changed by this crisis, but flying will return. “Airlines will be back in the skies. The resilience of our industry has been proven many times. We will rise again,” he said.

de Juniac said Aviation is a business of freedom. “For Africa that is the freedom to develop and thrive. And that is not something people on this continent will forget or lose their desire for.”

 

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Inflation increased to 2.2% in October 2020

22nd November 2020

Headline inflation increased from 1.8 percent in September to 2.2 percent in October 2020, but remained below the lower bound of the Bank’s medium-term objective range of 3 – 6 percent, and lower than the 2.4 percent in October 2019.

According to Statistics Botswana, the increase in inflation between September and October 2020 mainly reflects the upward adjustment in domestic fuel prices {Transport (from -3.9 to -2.5 percent)}, which is estimated to have increased inflation by approximately 0.29 percentage points.

“There was also a rise in the annual price increase for most categories of goods and services: Alcoholic Beverages and Tobacco (from 6.2 to 6.6 percent); Clothing and Footwear (from 2.5 to 2.7 percent); Communications (from 0.6 to 0.9 percent); Housing, Water, Electricity, Gas and Other Fuels (from 6.4 to 6.6 percent); Recreation and Culture (from 0 to 0.2 percent); Miscellaneous Goods and Services (from 0.7 to 0.9 percent); Food & Non-Alcoholic Beverages (from 4.2 to 4.3 percent); and Furnishing, Household Equipment and Routine Maintenance (from 2 to 2.1 percent). Inflation remained stable for: Education (4.7 percent); Restaurants and Hotels (3 percent); and Health (1.5 percent). Similarly, the 16 percent trimmed mean inflation and inflation excluding administered prices rose from 1.8 percent and 3.1 percent to 2.2 percent and 3.4 percent, respectively, in the same period.”

[Source: Bank of Botswana]

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BDC injects further P64 million into Kromberg & Schubert

22nd November 2020
BDC

Botswana Development Corporation (BDC) has to date pumped a total of P100 million into the expansion of Kromberg and Schubert, a car harnessing manufacturing company, operating from Gaborone Old Naledi.

At the official ground breaking ceremony of the company‘s new warehouse today, BDC Managing Director, Cross Kgosidiile revealed the wholly state owned investment corporation has pumped P64 million into the expansion which entailed building of the new warehouse.

Kgosidiile explained that this follows another expansion project which was successfully launched in 2017, in which BDC invested P36 million, bringing the total investment into Kromberg at P100 million. The MD also acknowledged Botswana Investment and Trade Centre (BITC) as a partner in the project and for having facilitated the acquisition of the land.

 

Giving a keynote address, Minister of Investment, Trade & Industry, Peggy Serame highlighted the importance of infrastructural development in growing the local manufacturing sector and transforming the economy of Botswana.

Serame underscored the value of strategic partnerships between Government and the private sector, noting that when the two work together and pull together in one direction results will be evident and jobs will be created.

“With the prevailing conditions of depressed economy occasioned by COVID-19 pandemic, government is reliant on entities like BDC to bring in revenue and acceleration of private sector development in line with its mandate and strategic plan. This plan is supported by the need to invest in growth sectors and accelerate the implementation of the Economic Diversification Drive,” Serame said.

Minister Serame noted that the partnership between BDC and Kromberg & Schubert begun in 2017 when the P36 million, 4100 square metres factory expansion for the company was launched.

 

She said the launch of the 7320 square meters factory expansion, to be built at the tune of P64 million signals the continuation of the good partnership between the two companies.

 

“I must commend BDC for their continuous efforts to build partnerships with the private sector geared towards contributing to economic development of this country.”

 

Minister Serame also added that BITC through its robust investor aftercare programme continues to provide value added and red carpet to Kromberg and Schubert under their One Stop Service Centre.

 

“In this regard BITC facilitated acquisition of land to enable this expansion. I therefore would like to commend BITC for their timely facilitation to make this expansion possible,” the minister said.

 

Kromberg & Schubert was incorporated in Botswana in 2009; The Company has grown to asset its position as a significant player in the regional automotive industry value chain.

 

The company is also a critical player in the economic development of Botswana, it currently employs 2100 Batswana across its operations. Kromberg exports on average P2.0 billion worth of goods annually, contributing significantly to foreign exchange.

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