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Business confidence improves despite challenges

Bank of Botswana has released the Business Expectation Survey for the last half of the year which shows that there has been an increase in overall business confidence. However businesses still remain wary of the uncertainties surrounding demand for commodities in the global market, which continues to threaten business operations.


The Bank undertakes the Business Expectations Survey (BES) twice a year in order to collect information on perceptions among the local business community about the prevailing state of the economy, as well as future prospects. Businesses are asked to respond to a range of questions relating to, among others, the business climate and prospects for economic growth, inflation and business performance over the survey horizon, which starts from the second half of 2016 until end of 2017.

The survey report shows that overall business confidence in the last half of the year is 43 percent, up by 7 percent from the level that prevailed during the first half of the year reported in the March 2016 survey. The higher confidence level in the second half of 2016 is, however, five percentage points lower than the 48 percent anticipated for the same period at the time of the March 2016 survey. Moreover, there is an improvement in the level of confidence for the rest of the survey period, rising to 51 percent in the first half of 2017 and to 58 percent for the entire 2017.

Domestic oriented businesses were much more optimistic with the level of confidence reaching 43 percent in second half, compared to 31 percent in the first half of the year. Looking ahead, the level of optimism improves to 46 percent in the first half of 2017 and 52% for the whole of 2017.

However, the survey reveals that the confidence level of export-oriented businesses declined significantly, from 71 percent in the first half of the year as reported in the previous survey, to 42 percent in the last half of 2016. Going forward, business confidence recovers markedly to anticipated levels of 75 percent and 92 percent in H1 2017 and the whole of 2017, respectively. Thus, the overall expected upswing in business confidence for 2017 is due to a more positive outlook by both export and domestic oriented businesses.


When it comes to national output growth, businesses are conservative about Gross Domestic Product (GDP) growth. On average, businesses expect real GDP to grow by 2 percent in 2016 and by 2.6 percent in 2017. These are lower than the government forecasts of 3.5 percent for 2016 and 4.1 percent for 2017, indicated in the Budget Strategy Paper for 2017/18.  According to the report, the expected economic growth rate for 2016 by the business community, is an improvement over the actual contraction of 0.3 percent realised in 2015, and is consistent with the improving business confidence.

In terms of capacity utilization, investments, input costs and job creation, the majority (85 percent) of businesses expect to utilise at least 50 percent of their productive capacity in the second half of 2016, while at the same time anticipating to raise investment and employment levels in the first half of 2017. This is in spite of strong business sentiments about rising costs of inputs in the period.

The survey indicates that 15 percent of the respondents anticipate operating below 50 percent of their productive capacity in the current period, while 54 percent expect to produce between 50 and 80 percent of their capacity; 31 percent of the businesses expect their productive capacity to exceed 80 percent. Thus, the current levels of capacity utilisation by businesses are broadly comparable with those reported in the March 2016 survey (46 percent anticipated operating between 50 and 80 and 33 percent expected to exceed 80 percent), hence suggesting that the business environment is still challenging, but stable.

Despite the challenging operating environment, the businesses surveyed are optimistic about demand for their products and services, expecting inventory levels to drop as they move more products and services in the first half of 2017.

“In turn, this feeds through to more positive expectations regarding production, employment and profitability in the current period and the remaining period of the survey. Nonetheless, expectations for investment in building, plant and machinery and other items in H2 2016, have been revised downwards in the current survey, compared to expectations for the same period expressed in the March Survey,” the report stated.

Still on that, the report highlighted that there is an improvement in expectations relating to investment in vehicles and equipment between the two surveys. Looking ahead, a majority of businesses anticipate to undertake more investment in the first half of 2017, indicative of the optimistic outlook for 2017.

The Business Expectations Report also reveals that sentiment amongst firms regarding rising cost of inputs is still strong and higher than in the March 2016 Survey. Nonetheless, expectations of higher costs eased for wages and utilities, while remaining broadly strong for materials, rent, and transport and other items in the first half of 2017. The survey from respondents show that expectations of rising costs of inputs decreases in the later period of the survey, consistent with moderating inflation expectations.

The decision by the central bank to slash the bank rate in 2015  and 2016 has struck a chord with the business community as the survey shows that they anticipate an easy access to credit with a bias towards domestic borrowing in the early part of 2017 due to favourable interest rates, before opting to borrow from South Africa later in the year, taking advantage of the currency exchange. The report further reveals that for capital investment, companies would prefer to borrow domestically than abroad (South Africa and international markets) in the first half of 2017, but would opt to borrow from South Africa in the 12-months period to December 2017.

“Regarding borrowing costs, there is some anticipation of lower domestic interest rates in the first half of 2017 before rates start to rise in the later part of the year. Expectations of lower domestic interest rates are aligned to the reduction of the Bank rate from 6 percent to 5.5 percent since August 2016, together with prevailing low inflation, which continues to fluctuate around the lower end of the Bank’s 3 – 6 percent range,” part of the report reads.  

While in 2015 there were talks of liquidity crisis, the central bank eased the reserve requirements cap, allowing for more money in the banking sector to enable more lending. The decision appears to have opened doors for businesses. In terms of access to finance, there is a reduction in the proportion of businesses which believe access to credit is tight (44.9 percent compared to 50.8 percent in the previous survey), while the number of those viewing access as easy has fallen from 13.6 percent in the March 2016 Survey to 9 percent. However, there is a significant increase in the proportion of businesses which believe access to credit is normal (46.2 percent from 35.6 percent in the March 2016 Survey). In general, compared to the March 2016 survey, the business sentiment about access to finance has improved.


 
Despite inflation rate treading below the bank’s medium term range for most part of the year, the respondents projected inflation is above the current inflationary levels but within the Bank’s inflation objective, suggesting confidence in the bank’s monetary policy.

“Businesses have revised their inflation expectations for 2016 slightly downwards to an average of 3.6 percent from 3.7 percent in the March 2016 Survey. Inflation expectations of 3.8 percent for 2017 remained the same as in the March 2016 Survey. Despite the relatively low average inflation expectations, they still remain above actual inflation which averaged 2.8 percent in the 9 months to September 2016,” the report said and also adding that the majority of respondents expect inflation to be within the Bank of Botswana’s medium term inflation objective range of 3-6 percent in 2016 (66 percent) and 2017 (68 percent), possibly reflecting the sustained period during which inflation has been within the objective range, which adds to the Bank’s policy credibility.

In the previous surveys, local based businesses used to cite the water and power crisis as a major challenge to their operations. However in the latest survey respondents now point to weakening domestic demand coupled with reduced government spending as the first and second most significant challenges facing businesses due to perceived slow growth in household disposable income and public expenditure. According to the report, the next ranked impediments to business operations relate to regulatory and supervisory framework and availability of raw materials. Respondents also highlight unavailability of skilled labour and weak international demand among the serious challenges they face.

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Pan-African risk advisor Minet Group and Botswana’s Africa Lighthouse Capital acquire Aon Botswana

21st May 2021
Pan-African-risk-advisor-Minet-Group-

Strategic partnership offers inherent benefits of global knowledge, African insights, and local expertise and commitment

Minet Group and Africa Lighthouse Capital today announced that they have received regulatory approval and fulfilled all requirements to acquire Aon’s shareholding in Aon Botswana, and consequently will begin the process to rebrand to Minet Botswana.

Minet Group is a well-known and trusted pan-African risk advisory firm and Aon’s largest Global Network Correspondent and has been rapidly expanding its African footprint since 2017 through the acquisition of operations from global professional services firm Aon in Kenya, Lesotho, Malawi, Mozambique, Namibia, Tanzania, Uganda, and Zambia.   Minet has been delivering world class products and services across Africa for over 70 years.

Africa Lighthouse Capital (ALC) is a leading Botswana citizen-owned private equity firm focused on investing in Botswana companies and propelling them into regional champions, with over BWP 500 million in funds under management.

The new entity will be rebranded to Minet and will inherit deeply rooted respect by its clients for their innovative and locally relevant solutions, responsiveness, and efficient processes. Furthermore, it shall have the benefit of consistency in leadership and staffing, with Barnabas Mavuma, previously Managing Director of Aon Botswana, continuing to lead the business as the MD supported by the local management team.

 “The addition of Minet Botswana to our growing African network affirms our belief in the great opportunities for growth that Africa offers, driven by rising consumer demand, huge investment in infrastructure and quick adoption of new technology,” says Joe Onsando, CEO at Minet Group.

“This transaction significantly adds to the diversity and skills base of our team and will have a positive impact on the range of products and services we provide. Our Correspondent agreement with Aon gives us access to global expertise and data driven insights and uniquely positions us to deliver risk advisory solutions that reduce volatility, thus driving improved performance for our clients. This is a very exciting time to be Minet in Africa.”

“The significantly increased Botswana citizen shareholding effected by this transaction gives rise to an exciting era of local market focus and growth for Minet Botswana,” says Bame Pule, Founder and CEO of Africa Lighthouse Capital.  “We intend to work with Minet Botswana’s local management team to further localise the business in terms of product development, while at the same time investing in local skills development and business development.  We look forward to this exciting journey, which will result in a significantly enhanced service offering for Minet Botswana’s clients.”

Consequently, and similar to the other members of the Minet Group, Minet Botswana becomes an Aon Global Network Correspondent, retaining its access to Aon’s resources, technology, and best practises, combined with the benefit of independent, local agility. This transaction furthermore significantly increases local shareholding, enabling operations to become even nimbler and better positioned to unlock new and existing growth opportunities.

Clients of Minet Botswana will experience continuity of product and service delivery standards in the short term. In the near future, they can expect an enhanced offering that combines agility with technology and product innovation, tailormade for their specific needs.

Together, Minet and ALC bring a sound understanding of local market conditions, strong governance, and an established track record in the region. These qualities, combined with Aon’s global capabilities and expertise, will bring clear benefits for clients.

This transaction vastly increases citizen ownership with shareholders who are going to be active in the business. The transfer of equity interests in Botswana to investors with local and regional expertise, presence and commitment will allow the businesses to move quickly in line with market movements, and to introduce products that are tailored to the local market.

“Minet’s commitment and drive to incessantly adapt to changing market conditions, and to innovate to meet the unique insurance demands of the African continent, while maintaining the high standards customers have come to expect – Onsando concludes – will continue to grow and give Minet a powerful competitive edge within the African market”.

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Africa scores $285 Billion IMF deal

21st May 2021
IMF-Managing-Director-Kristalina-Georgieva

French President Emmanuel Macron received 21 Heads of state and government officials from Africa during the recent summit on the Financing of African Economies that focused on Africa to take full advantage of the tectonic shifts in the global economy and the call for a joint effort for financial and vaccination support for the continent.

President Emmanuel Macron stressed that “Most regions of the world are now launching massive post-pandemic recovery plans, using their huge monetary and fiscal instruments. But most African economies suffer the lack of adequate capacities and such instruments to do the same. We cannot afford leaving the African economies behind.

We, the Leaders participating to the Summit, in the presence of international organizations, share the responsibility to act together and fight the great divergence that is happening between countries and within countries.

This requires collective action to build a very substantial financial package, to provide a much-needed economic stimulus as well as the means to invest for a better future. Our ambition is to address immediate financing needs, to strengthen the capacity of African governments to support a strong and sustainable economic recovery and to reinforce the vibrant African private sector, as a long-term growth driver for Africa.”

For her part, International Monetary Fund (IMF) Managing Director Kristalina Georgieva highlighted that “there is urgency to focus on financing Africa. Last year, the pandemic-caused recession shrank the GDP of the Continent by 1.9 percent – the worst performance on record. This year, we project global growth at 6 percent, but only half that 3.2 percent for Africa.” Adding that Africa needs to grow faster than the world at 7 to 10 percent to meet the aspirations of its youthful populations, and become more prosperous and more secure.

Georgieva revealed that the price tag on the shot is estimated to be “$285 billion through 2025. Of this $135 billion is for low-income countries. This is the bare minimum. To do more – to get African nations back on their previous path of catching up with wealthy countries – will cost roughly twice as much. These are large numbers. They may seem out of reach. But to quote Nelson Mandela: impossible until it is done.”

The main areas of interest to achieve this include; first, end the pandemic everywhere, 40 percent of the population of all countries is targeted to get vaccinated by the end of 2021, and at least 60 percent by mid-2022.

Second, bilateral and multilateral development financing grants and concessional loans ought to go up. Over the last year, the IMF have swiftly ramped their financing for the Continent, including providing 13 times their average annual lending to sub-Saharan Africa. And are working to do much more. The IMF has also received support to increase access limits so they can scale up their zero-interest lending capacity through the Poverty Reduction and Growth Trust.

The IMF has also devised exceptional measures. Their membership backs an unprecedented new allocation of Special Drawing Rights (SDR) of $650 billion, by far the largest in their history. Once approved, which is intended to be achieved by the end of August, it will directly and immediately make about $33 billion available to African members. It will boost their reserves and liquidity, without adding to their debt burden.

Over the course of the last year, the IMF has built experience in facilitating the on lending of SDRs – thus managing to triple their concessional lending capacity as a result.

The Third being, actions at home. According to Georgieva “a crisis is an opportunity for transformational domestic reforms that increase domestic revenue, improve public services, and strengthen governance. For instance, digitalization can improve tax administration and revenue collection, and the quality of public spending. And with radical transparency, Africa can tap into new sources of finance – such as carbon offsets.

There is ample scope for countries to encourage private investment, including in social and physical infrastructure. New IMF research, published today, highlights that domestic and international investors could provide at least 3 percent of GDP per year of additional financing by the end of this decade.”

Reforms of international taxation can also support Africa’s growth. For a long time, the IMF has been in favor of minimum corporate tax rates to reduce the race to the bottom and tax avoidance. And they strongly support an international agreement on digital tax, something France has been a leading voice for. It is important to secure fair distribution of tax revenues, so they can contribute to closing Africa’s financial gap.

Georgieva called on to each and every one to step up. Reminding the attendees that from history they are all familiar with what a shock of this magnitude can do if not countered forcefully and effectively.

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Indian COVID-19 variant hits Botswana diamond sales

20th May 2021
Indian-Covid--19-variant-hit-rough-diamonds-sales---De-Beers-

De Beers’ Group, the world’s number one diamond producer by value, this week attributed the downfall of its sales for the fourth cycle week to the second wave of the Covid-19 variant (B.1.617.2) which was first discovered in India.

Diamond trading conditions have been hit by the Covid-19 crisis in India which is a major cutting and polishing centre for the world’s diamond trade.

The outbreak of the new variant has led to a humanitarian crisis with 280, 284 fatalities of the disease reported.

The London headquartered company said the sales in its fourth cycle fell to $380m (about P4.1 billion) down from $450m (about P4.8 billion) in the third cycle though it was higher than the fifth cycles of last year when the group shifted only $56m (P600 million).

De Beers emphasized that they continued to implement a more flexible approach to rough diamond sales during the fourth sales cycle of 2021, with the Sight event extended beyond its normal week-long duration.

The De Beers group Chief Executive Officer (CEO), Bruce Cleaver said the company continues to see robust demand for diamond jewellery in the key US and China consumer markets.

“However, the scale of the second wave of Covid-19 in India, where the majority of the world’s diamonds are cut and polished, has led to reduced midstream capacity and subsequently lower rough diamond demand, during what is already a seasonally slower time of year for midstream purchases,” said Cleaver.

Meanwhile Botswana health officials have confirmed the new Covid-19 variant in Botswana. The Ministry of Health and Wellness -through a press statement- informed members of the public that the variant (B.1.617), was confirmed in Botswana on 13th May 2021.

According to Christopher Nyanga, spokesperson at the Ministry, this followed a case investigation within Greater Gaborone, involving people of Indian origin who arrived in the country on the 24th April 2021.

Moreover the World Health Organization (WHO) recently announced that the Indian Covid-19 variant was a global concern, with some data suggesting that the variant has “increased transmissibility” compared with other strains.

The India variant (B.1.617.2) – is one of four mutated versions of the coronavirus which has been designated as being “of concern” by transitional public health bodies, with others first being identified in Kent, South Africa and Brazil.

Nevertheless when speaking at Bank of America Global Metals and Mining conference, Anglo American Chief Executive Officer, Mark Cutifani said the company portfolio is increasingly tilted towards future enabling products and those that need to decarbonise energy and transport in order to meet consumers’ needs – from home appliances, electronics and infrastructure, to food and luxury goods.

“We see material opportunity for Anglo American to continue to set itself apart in terms of the performance of our diversified business, further enhanced through sector-leading 25% volume growth over the next four years, led by copper and the platinum group metals,” said Cutifani.

“Most importantly, as the supplier of such critical materials, it is the duty of our industry to ensure that in everything we do, we act responsibly and deliver enduring value for our full breadth of stakeholders, including our planet.”

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