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Doha talks collapse: the implications…

Collapse of talks in Doha, Qatar by world’s biggest oil producers last Sunday sent oil prices tumbling to around $40 per barrel. The talks were initiated to nail a deal to freeze oil output to prop up prices in a market that has seen uncertainties over the past few months. So desperate was the situation that in an unusual fashion, OPEC members and non-members met for the deal.

Iran, which sanctions were lifted in January as part of the nuclear deal it signed with world powers, stayed away from the meeting. It insisted that it would not accept proposals to cap its production until it recovered a similar market share to that which it held before the sanctions were imposed. However, according to diplomats and officials at the talks, Saudi Arabia insisted on Iran signing up to any agreement.

Prices jumped back marginally to around $45 per barrel on Thursday as the market focused on supply outages: an oil-worker strike in Kuwait which removed 1.3 million barrels a day from the market, pipeline problems in Nigeria removed another 440,000 barrels, 150,000 barrels a day of Iraqi crude has come off the market because of a pipeline dispute between the central government and Kurdish regional authorities, and the North Sea production maintenance is expected to remove another 160,000 barrels.

The $45 per barrel price marks a significant drop from the $110 per barrel price seen in mid-2014. Analysts have attributed the dramatic fall in prices to a deliberate move by Saudi Arabia for an oil price crush in response to threats posed by new forms of renewable energy — windmills, tidal power, and solar power. The Saudis also wanted to keep in check fracking in the United States which threatened to displace their production.

One analyst, Philip Verleger, an economist and consultant who has watched the oil market for more than 40 years, has argued; “Saudis now want cheaper oil, in part to slow down the fracking revolution in the U.S. — and to signal to the developing world: Don't worry — you don't need to invest in alternative energy. You can buy cheap oil from us.”

Botswana, as a price taker, has benefitted from low global oil prices leading to a reduction in fuel pump prices in December 2014 and a bulging National Petroleum Fund (NPF).

With the oil output freeze intended to prop up prices not realized, will we enjoy an extended period of cheap fuel and is there is a possibility we will see another fuel pump price decrease. Batsumi Rankokwane, Principal Energy Officer in the Ministry of Minerals, Energy and Water Resources responded that government reviews prices on a monthly basis and adjusts pump prices, if necessary,  in order to align with international trends.

Further, he mentioned other factors that are taken into consideration to adjust local retail prices such as the position of the National Petroleum Fund (NPF) balance and unit rates movement. “Any decision by the government to adjust fuel pump prices shall always be communicated as has been the norm in the past after satisfying all necessary procedures and processes,” he said.

On the question of the health of the NPF, Rankokwane assured that the NPF has enough funds to continue cushioning the effects of fluctuating oil prices. He also acknowledged that the fund balance has been increasing as a result of over recoveries recorded in the previous months.

AN INTERNATIONAL PERSPECTIVE

Yes negotiations for the Doha round of trade liberalisation have been suspended indefinitely. In the words of Brazilian foreign minister Celso Amorim, ‘The Doha round is as near to a catastrophe as one can imagine’.

Andrew Charlton is a research economist in CEP’s globalisation programme, and co-author with Nobel laureate Joseph Stiglitz of Fair Trade for All: How Trade can Promote Development (Oxford University Press,2006) is of the view that the Doha failure may undermine WTO credibility and ferment distrust in developing countries

He points out that this outcome was not a foregone conclusion. For the last six months, a deal had been close, at least in the sense that its parameters had been fairly well-defined and each party knew the likely compromises that would be required to reach an agreement.

“The United States knew that its compromise lay in offering more farm subsidy cuts; the European Union knew it would be required to cut agricultural tariffs; and the larger emerging countries knew they would have to offer deeper industrial and agricultural tariff cuts. Yet after more than five years of preparations, when the deal was there for the taking, none of the key players stepped up to make it happen.”

Charlton says at this stage, the critical question is whether the collapse of the Doha round is a catastrophe for the world. As it stands, the answer is no. he writes that the World Bank’s estimates of likely gains from a successful Doha round are $100 billion, most of which would accrue to the rich countries. Much of the remainder (the Bank is at pains to say) would probably be eroded by concessions on ‘special products’ and other loopholes.

Further, Charlton says had the negotiators been more ambitious, perhaps there would be larger potential gains from a successful agreement. But with the minimalist agenda that evolved, it is hard to identify any serious grouping of countries for which a successful deal is of critical significance.

He view is that the Cairns group of agricultural exporters – a diverse coalition that includes Argentina, Australia, Brazil, Canada, Indonesia, New Zealand and South Africa – is a possible exception.

“But in the longer run, the collapse of the Doha round may be more significant. There is a long-term economic cost that is difficult to quantify, and there is an obvious symbolic failure. This may undermine the credibility of the World Trade Organisation and ferment distrust in the developing countries whose promised ‘development round’ has conspicuously failed to materialise.”

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Business

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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Business

Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

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
Foschini

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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