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The DCI on recovery mode

The Botswana Stock Exchange’s Domestic Company Index (DCI) seems to have bottomed out and on its way up to recovery, heralding a change in investor sentiments. The DCI which tracks the performance of listed domestic companies has been on a downward spiral since the beginning of the year, losing 3.8% in the first quarter and followed by other declines which pushed second quarter losses to 4.74%.

On August 19th, the index hit new lows of -10.5% to end at 9506 points. However, improved market sentiments seem to have returned as shown by a one month rally that added 291 points to trade at 9797, reversing the losses by 28% . This means that the DCI is now down by -7.59%. The index’s momentum has been aided in part by some of the following listed companies that have delivered solid returns, particularly in the last 30 days, with some going from negative returns to positive returns.

Cresta

The tourism and leisure company pulled a strong performance in the last 30 days after gaining almost 8.8% to trade at P1.30, bringing its year-to-date (YTD) to 22.42%. In its latest financials for the half year, the group achieved revenue of P159.9 million, up by 6% from the corresponding period. The profit was up by 16% to P16.4 million. An interim dividend of 4 thebe has been declared, this follows the 7 thebe dividend declared for the year ended December 2015.

Cresta is recognised in the local market as the largest hotel operator both in the number of rooms (eight hotels and 724 rooms) and in the geographical spread of its hotels. There is no other hotel operator that has such a dominant presence in the larger cities in Botswana as well as the key tourist areas.

Botswana Insurance Holdings Limited

The financial services behemoth with three subsidiaries that spans the insurance and investment management sector has been a consistent performer throughout the year. BIHL share price increased slightly by 2.32% in the past 30 days, delivering a YTD of 13.22%. The share price is currently P17.21. In its interim results ended June 2016, the group posted a lower profit of P263.8 million after declining by 9%. The lower profit did not dampen the mood as the shareholders were rewarded with a dividend payout of P202.4 million after a dividend of 55 thebe.

BIHL is a financial services titan originally established in 1975.BIHL has been listed on the Botswana Stock Exchange since 1991 and is the holding company for three subsidiaries (Botswana Insurance Fund Management, Botswana Life Insurance Ltd and Legal Guard) and holds a stake in two associate companies; Letshego Holdings and Funeral Service Group as well as a 21.5% stake in Nico holdings in Malawi.

Chobe Holdings

The tourism listed group is having a good year in the local bourse trading at an all time high of P7.51, bringing the yearly returns to 10.5%. Some of the gains were realised in the past days that have rallied the index, with Chobe gaining 1.3% in that period.

Through its wholly owned subsidiaries, Chobe Holdings Limited owns and operates ten eco-tourism lodges and camps on leased land in Northern Botswana and the Caprivi Strip in Namibia with a combined capacity of 290 beds under the brands Desert & Delta Safaris and Ker & Downey Botswana. Safari Air, a wholly owned air charter operator, provides air transport services to the group's camps and lodges. Desert and Delta Safaris (SA) (Pty) Ltd, another wholly owned subsidiary operating in South Africa, provides reservation services to the group. This year, the group, through its wholly owned subsidiary North West Air (Pty) Ltd, acquired Air Charter Botswana (Pty) Ltd’s aircraft maintenance operation at Maun International Airport.

Barclays Bank of Botswana

The bank is having its best days, churning out new products and services and delivering impressive financial results. It is not a surprise that investors have been rallying behind the company which has returned 8% in capital gains since the beginning of the year. The second largest listed bank went from P4.74 in mid-August to the current P4.86, representing gains of 2.5%. Barclays could also lay claim to be the only listed bank that has delivered positive returns to shareholders so far this year. Moreover, in the group’s half year results ended June 2016, the bank’s profit  before tax went up to P270 million, an increase of 144% from the corresponding period. As a further reward to shareholders, the bank has declared a dividend of 14.67 thebe which translates into a P125 million payout.

Engen

The company is staging a comeback in what has been so far a dismal performance in the stock market. Engen was one of the companies that were pulling down the DCI after its share price declined by 6% in the first quarter of the year. However by August the company had cut its share losses to just 2.5%. The upward trajectory continued in the last 30 days, with the share price moving from P8.30 to P9.20, gaining 10.4% to trade at all time high and delivering a YTD of 8.1%. The sudden positive momentum has been shadowed by the company’s latest cautionary note that warns of lower earnings in their upcoming interim results ended June 2016.

Engen is a petroleum company specializing in fuels and lubricants sales and distribution. It operates filling stations nationwide to service the retail market. Primary customers are the mines, government, parastatals, construction and transport sector.

G4S

This is one company that is also on the comeback trail after hitting lows of -0.6% in August. The security company pulled back with a stellar share price performance in the past 30 days, going from P3.62 to P3.85, representing gains of 6.35% since the beginning of the year. The share price is at an all time high. The group’s profit was up by 6.4% to P15.4 million in their recent interim results ended June 2016. An interim dividend of 11.36 thebe was declared.

G4S is the world’s leading international security solutions group, which specialises in outsourced business processes such as manned security, secure monitoring and response, cash management solutions and facilities management.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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