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Banks still walking the tight line

Linah Mohohlo, BoB Governor

The moratorium on bank charges imposed by the central bank comes to an end this year giving commercial banks a sigh of relief, however diminishing profits margins continue to reflect on their spreadsheets.

First National Bank Botswana, Barclays Bank Botswana and Standard Chartered Bank, the country’s leading commercial banks listed on the bourse, this month issued cautionary notes, warning shareholders to expect low profits.

Statistics indicate that local commercial banks’ profits dropped 32 percent in the first nine months of 2015 compared to an earlier period in 2014.

This was attributed to a two-year moratorium on bank charges increase affected on January 1, 2014 in response to growing public concern on high bank has been attributed to bank losses.

In addition, subdued economic growth and tight liquidity conditions were also mentioned.

However, authorities applauded the suspension of bank charges, citing that the exorbitant changes are a deterrent to savings mobilisation in the country.

BoB also denied any liquidity crisis in the commercial banking arena, despite reducing Primary Reserve Requirement (PRR) for commercial banks from ten to five percent, effectively releasing P2.3 billion into the market in a move aimed at improving lending in commercial banks.

At the time, Linah Mohohlo, BoB Governor, implored banks to improve on their risk management processes as well as to come up with products to attract to potential depositors.

This year, while there is a silver lining in the cloud, as moratorium comes to end banks’ other external challenges will not be easily wished away.

With the inflation outlook looking positive, the BoB will not be in any rush to hike the bank rate.

A lower bank rate allows for cheaper borrowing which eats away at the interest income banks would have made on loans had the interest rate been set high.

Already the sluggish economic growth compounded by depressed diamond sales has heightened concerns about the possibility of a budget deficit. Should the deficit be large enough, government employees will likely not get salary increment, creating a tough trading environment for banks, as their bulk loan book is subscribed by civil servants.

Meanwhile banks have been trying to buck the trend of dwindling profits post 2014 by introducing various products to lure new customers and retain existing ones.

With the future of banking pointing to digital banking, major banks in the country have fully embraced mobile banking and they are making money out of it.

The convenience of mobile banking has seen people take on the service rather than going to bank branches. Mobile banking has also become a cash cow for banks as they have found a loophole amid confusion between BOCRA, Mobile networks and BoB as to how mobile transfers are priced.

Other products launched include deposit taking ATMs, first launched by FNB then later by Barclays while other banks like BancABC (part of Atlas Mara) are in the process of installing them.

The fierce competition between banks has led them to be quick in identifying opportunities and quickly cashing on them.
During the power crisis, FNB announced a new product in the form of loans for generators which was quickly followed by smart device loans which allows its customers to buy smart phones directly through them in the form of monthly payments. Standard Charted Bank hit bank with a 100% mortgage financing, taking advantage of people’s appetite for the lucrative property market in Botswana. Some banks have also formed strategic partnerships with other companies in a bid to stamp their authority.

However, despite this innovative approach by banks to improve their profitability, the banks have been caught wanting in attracting deposits.

The banks still offer low interest rates for savings accounts and fixed deposit accounts. The nominal and effective interest rates are a little above the inflation but not enough to attract deposits for savings.

According to the FinScope consumer survey Botswana 2014; 50 percent of the population is unbanked.

The main barriers to banking according to the study are not having a job (54%), irregular income (45%), and not having money to save (22%). So in terms of attracting deposits, the economic fundamentals works against the banks: the rising unemployment amongst the productive group of society, and the high cost of living coupled with low pay.

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Grit divests from Letlole La Rona

22nd March 2023

Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.

The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.

Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.

This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.

In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.

Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.

The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.

“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said

In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.

The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.

Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.

Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.

Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.

Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.

“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.

LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.

The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.

An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.

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Stargems Group establishes Training Center in BW

20th March 2023

Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.

The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.

“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.

In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices.  Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.

“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.

Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy,  Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.

“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.

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Food import bill slightly declines

20th March 2023

The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.

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