Sechaba brewery has warned that the current regulatory challenges will weigh on the company’s profits, as the traditional beer unit issued a trading update ahead of its half year results.
The Group expects results for the six months ended 30 September 2016 will be lower than that of the corresponding period ended 30 September 2015.
“This is mainly attributable to the current regulatory challenges environment in which the Group operates,” the statement reads.
Sechaba, which is a partnership between SABMiller and government through investment arm, Botswana Development Corporation (BDC), has been trying to negotiate with government on the alcohol levy which has been a bane to the group’s business.
Since the introduction of the alcohol levy about seven years ago, government has been increasing the alcohol tax by five percent every year with the intention of reducing harmful impact of alcohol. Initially government intended to increase the levy year on year till it reaches 70%, something that Sechaba thought would do more harm to their business.
Briefing the media in July this year, the managing director for Sechaba Johan De Kok he said they have requested that all alcohol with a percentage greater than five percent should be levied at 55% while the ones fewer than five percent should be levied 50%.
According to KBL, the opaque beer portfolio has suffered sustained challenges in its trading environment as a result of the traditional beer regulations that were implemented in July 2012, which effectively banned the sale of traditional beer in residential areas.
The traditional beer unit has lost a lot as a result of the alcohol levy. So far, government has been paid over P1 billion approximately, in the alcohol levy. The Chibuku division specifically has suffered a lot.
Previously these presented approximately 80% of the trading channels for KBL opaque beer division’s traditional heritage product, Chibuku.
In a period of seven months, the harsh trading environment forced KBL to close down production activities at its opaque brewery operations in Selebi-Phikwe and Lobatse impacting on 142 jobs. This followed the closure of the KBL Palapye Brewery operations in 2013.
Traditional Beer Regulations that were implemented in July 2012 banned the sale of traditional beer in residential areas that previously represented approximately 80 percent of trading channels for KBL opaque beer division’s, Chibuku. Over this period close to 10 000 entrepreneurs earning a living out of selling Chibuku have been reduced to as little as 750 in all.
For the year ended March 31, 2016 Sechaba Brewery Holdings recorded a P202 million profit for the year, which was a 7.8 percent increase from the P187 million registered in the prior year.
The group attributed the increase to a combination of volume growth from clear beer, alcoholic fruit beverages, sparkling soft drinks categories, selective pricing, improved brand, pack mix and focus on production and distribution efficiencies.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”