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Unfavourable 2016/17 budget outlook

Ministry of Finance and Development Planning (MoFDP) has hinted this week that the 2017/18 budget will likely be unfavourable. The budget for the next financial year will be the first since the adoption of NDP 11 and Vision 2036.

According to the 2017/2018 Strategy Paper presented by MoFDP on Thursday in Gaborone, the major downside risks to the budget outlook includes the “continued slow recovery in the global economy, undiversified revenue base, and unforeseen emergency expenditures to address water and electricity supply challenges, and natural disasters like drought and outbreak of animal diseases.”

In addition it states that among the risk to the budget outlook include the continued and sluggish global economic developments which impact on the domestic economy through low commodity prices translating into decreased diamond export earnings and lower revenues for government as well as continued reliance on diamond earnings. 

According to the strategy paper, the other risks include “water and electricity shortages which pose a threat to value addition of other economic sectors, public expenditure pressures, especially personnel emoluments under recurrent expenditure.”

It also says that the expansion of guarantees issued to back up parastatals’ loans and weak monitoring, evaluation and implementation of development programmes and projects as well as natural disasters such as recurring drought and animal disease outbreak are other notable risks highlighted in the strategy.

Health costs arising from test and treat initiatives and increased provision of drugs to HIV/AIDS; and Increase in Tertiary Education Funding, were also pointed out as contributing to high risk in the anticipated budget.

In terms of the budget outlook, it was said the financial year is projected to result in among others a “budget deficit of P6.8 billion” or -4.1 percent of GDP.

The paper goes on to explain that this is attributable to the projected “modest growth” in revenues, and “continued pressures” arising from the implementation of the much talked about Economic Stimulus package (ESP).

It further states that: “the expected growth in the real GDP of 4.0 percent in 2017/2018 is insufficient in addressing the development challenges of unemployment, poverty, and income inequality.”

“Despite this projected unfavourable 2017/2018 budget outlook, the Budget strategy paper posits that government remains committed to maintaining fiscal sustainability in the medium term. Thus, additional measures to raise domestic revenues or trim the planned expenditure during the implementation of the NDP 11 will be considered, if necessary, to restore fiscal sustainability.”

Moreover it says there is a need to use the impending financial year budget, which will be first financial year subsequent to the adoption of the crucial NDP 11 and Vision 2036, to align the implementation of the two documents, with a view to promoting growth, economic diversification, and employment creation.

It is understood that the preparation of the 2017/2018 Budget Strategy Paper drew from the national priorities identified in the draft NDP 11, while taking into account the country`s fiscal policy parameters.

The strategy paper maintained that: “however, there was also need to ensure that the implementation of the ongoing ESP is continued during 2017/2018 financial year, despite the budgetary pressures.”

The Budget Strategy Paper was prepared under continued difficult domestic economic conditions, with moderate growth expected due to weak recovery in the global economy.

2015/2016 Budget Outturn

The 2015/2016 budget outturn indicates that a total of P48.29 billion was collected as revenues and grants during the year; of which P35.76 billion was tax revenue, while P12.39 billion was non-tax revenue and P0.14 billion was grants. Figure 4 shows the share of tax revenue by major items. Of the amount collected as tax revenue, Customs & Excise accounted for the largest share of 44.0 percent, while non-mineral income tax contributed 26.0 percent.

Tax revenue collected in 2015/2016 was 2.0 percent above the estimate of P35.05 billion in the revised budget. Non-tax revenue, on the other hand, was 24.0 percent lower than the revised budget estimate of P16.38 billion. This was mainly due to low mineral royalties and dividends payments, which make up over 90.0 percent of non-tax revenue. Seventy-two percent or P9.98 billion was paid as royalties and dividends during the fiscal year, compared to the revised budget estimate of P13.84 billion, due to the operational difficulties faced by several mines in the country. Grants received were also low, amounting to P0.14 billion against estimated grants of P0.34 billion, due to a decline in recurrent grants.

Expenditure performance during 2015/2016, on the other hand, was satisfactory, with total expenditure and net lending amounting to P54.92 billion, or 98 percent of the revised budget estimate. This comprised: P40.93 billion recurrent expenditure; P12.77 billion development expenditure; P0.76 billion lending from the Public Debt Service Fund to state owned enterprises; P0.55 billion equity injections into state owned enterprises; and P0.07 billion of loans repayment. A further analysis of the two major components of expenditures shows that, Recurrent Expenditure stood at 98.0 percent of the revised budget estimate of P41.72 billion, while Development Expenditure was 89.0 percent of the revised estimate of P14.32 billion.

As a result of the revenue and expenditure performance, the overall fiscal balance for the 2015/2016 financial year was a deficit of P6.63 billion, or -4.5 percent of GDP. Whereas total expenditure remained within the projected threshold in the revised budget estimates, then deficit was mainly occasioned by the revenue shortfall, which underperformed by P3.47 billion or 6 percent, compared to the revised budget estimate of P51.8 billion.

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Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Choppies high on JSE rollercoaster volatility

25th November 2020

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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