The biggest ever financial scam of all times was perpetrated by a financial services firm. Bernard Madoff, shook the American regulation regime from its deep slumber.
The big ponzi scheme, which involved the staggering amount of $50 billion (P500 billion), was perpetrated by a person once a non executive director of the NASDAQ stock exchange, who was widely regarded as the epitome of clean business. Madoff used a scheme, which lures investors in by guaranteeing unusually high returns. The name originated with Charles Ponzi, who promised 50 percent returns on investments in only 90 days.
Ponzi schemes are run by a central operator, who uses the money from new, incoming investors to pay off the promised returns to older ones. This makes the operation seem profitable and legitimate, even though no actual profit is being made. Meanwhile, the person behind the scheme pockets the extra money or uses it to expand the operation. To avoid having too many investors reclaim their "profits," Ponzi schemes encourage them to stay in the game and earn even more money.
Bringing it back home, Botswana has not experienced misconduct in the pension fund sphere, “by the grace of God,” as an observer has put it.
And now the pension fund sector will be required to be more transparent, communicate better and be more explicit in laying out how it operates, because of new legislation.
Parliament last year, approved the Retirement Funds Bill of 2014 which will regulate pension funds in Botswana. The Act will repeal the Pension and Provident Funds Act and re-enact it under a new name, the Retirement Funds Act.
The latest available figures show that management companies and asset managers held total Assets Under Management of P59.7 billion as at March 31, 2014 being a 7 percent growth from P55.9 billion recorded as at March 31, 2013.
In a question and answer session with BusinessPost, the organisers of a workshop aimed at familiarizing industry stakeholders with the new Act, gave some insight on the new Act.
“The big stick here is that those who breach this Act will face punitive action,” said Jeremy Andrew, the facilitator of the workshop, who had an integral role in the drafting of the new law.
“Many will say that NBFIRA is toothless; this new law gives it the power to perform its oversight role,” Andrew said succinctly.
“What has impressed me most is that code of conduct as it has come to make the trustees to look more inwardly and ask themselves if they are doing the right thing,” explained Edna Dambe, CEO of Money Matters, the facilitators of workshop to school local service providers in the pension fund spectrum, on the ramifications of the new legislation.
“It is a service they have promised and they are going to append their signatures to this promise. If you look at how the required communications, investment and risk policy feed into each other, they really offset the possibility of making risky investments with members’ monies,” said Dambe.
Juliana White, an independent consultant said that the new Act would not only bring transparency, it will ensure that there are no perceptions of malpractice.
“Investment strategies should be laid out so that there are no questions about investments that are made; members of the funds will see for themselves that investments made are in line with the investment policy,” said Mrs White.
In the period ended December 31, 2013 there were ninety-three (93) active Standalone Pension Funds licensed in Botswana, including six (6) Umbrella Funds with two hundred and fourteen (214) sub-funds. On the part of asset managers, Afena Capital managing director, Bakang Seretse, said that they “highly embrace new Act as it improves the whole ecosystem of retirement funds.”
Seretse said that with the law requiring service providers to be locally domiciled or having their principal offices in Botswana, it gives the regulator the power to perform its role of oversight.
“Botswana is approaching a period of transition and structural changes. So the challenge for pension funds, regulators, service providers such as ourselves, and Government is to reassess how to best achieve the investment objects of retirement fund long-term savings with a consideration for the long-term development objectives of the country,”
“Yes, pension Funds are already being used in Botswana to finance infrastructure projects, real estate development and other forms of private equity. Yet, the average asset allocation to these alternative asset classes is still relatively low for most pension funds at below 2 percent so there is definitely scope for more “new investments” to be designed to create long term, sustainable opportunities,” Seretse said.
However, a public servant who preferred to remain anonymous, told this publication that the reduction of the number of board members is actually a reduction in the representation of employees as the public service is a very broad constituency that needs represented well.”
“I prefer the Namibian model that sets out two boards for every fund; one that oversees governance and another that oversees investments,” said the source.
“Currently there is some semblance independence as the different committees; with the new Act, there will be no segregation of roles as the same few people will sit in the same committees and oversee themselves.” Seretse said the new legislation goes a long way in addressing some of the risks associated with the industry.
The regulator, NBFIRA (Non Bank Financial Institutions Regulatory Authority), articulated in its 2014 annual report that the pension fund landscape in Botswana are faced with risks such as:
Interest Rate Risk: The possibility that the demand for money market instruments may decline due to an increase in interest rates. Increased interest rates mean less borrowing by consumers;
Concentration Risk: Of the twelve (12) registered asset managers; seven (7) handle pension funds, six (6) of which are mandated to manage the government pension funds.
This exposes the Asset Managers to concentration risk as they are largely dependent on the one client;
Valuation Risk: The local market faces risk in the companies’ valuation processes and abilities, arising from the fact that the processes are carried out by the group companies in South Africa while local staff is not fully equipped with knowledge of the processes and consequently, are unable detect marginal errors as only reasonability tests are performed;
Over Reliance on Group or Foreign Counterparties: Asset Managers and Management Companies that are part of a group or have foreign counterparties tend to adopt groups policies and fail to align them to the specific businesses they are undertaking, resulting in policies that do not capture the essence of their operations.
Regulatory Challenges: The key challenge for the Investment Institutions section is the process that is undertaken in the promulgation of legislation, this process has delayed the section’s efforts to issue licenses to CMIs (asset managers).
Newly established wholly indigenous citizen owned retail chain Payless Retail (PTY) Ltd is set to partake in the first session of Botswana Stock Exchange (BSE)’s Tshipidi Mentorship Program (TMP) on Monday June 29th.
The TMP aims to train and capacitate SMEs so they can operate as corporates and eventually list on the local bourse. According to local bourse, BSE, the program aims to provide practical training to potential issuers through a comprehensive and interactive program that covers the key themes necessary to position a company to list on the BSE.
Payless Retail is a newly established supermarket chain whose mission is to become a convenient one-stop shopping destination as it is one of the Botswana oldest retailing brands. It started off as Corner Supermarket in January 1976, and to date boasts of nine stores in, among others, Gaborone, Mochudi, Molepolole and Tlokweng. Payless was recently acquired by Ellis Retail Group, which is led by businessman Elliot Moshoke.
The takeover catapulted Ellis Retail to the envious position of being the first wholly indigenous owned major retail chain. “We jumped at this opportunity because it gave us a chance to prove to Batswana that the retail business is open and lucrative.”
The objective is to create a proudly Botswana retail chain that fully supports our national Vision, economic development and citizen economic empowerment ambitions,” Moshoke told BusinessPost.
He further emphasized that Batswana are capable and able to run large scale businesses hence they need to accept invite foreign investors who will come in to support us not take the business. “Our win as Payless in the Fast Moving Consumer goods (FMCG) industry is a win for Batswana. We need their support in this difficult and challenging journey.
As you are aware, Payless is the only retail chain in the hands of Batswana ba Sekei. We need to take advantage of this to generate employment and create small businesses in retail and Agri businesses,” he explained.
The retailer has also partnered with Botswana Investment & Trade Center (BITC) on their #PushaBW campaign with a view to initiating earnest engagement with local producers to iron out bottlenecks and ensure seamless trading.
“Local producers have to be part of the phenomenal growth of the Payless brand. This will in turn facilitate employment creation and economic growth. We did this because we have the utmost respect for local manufacturers and producers,” he mentioned.
Payless is currently restocking all of its stores; a development that Moshoke says is testament to the retailer’s commitment to growing the brand and ensuring continuity of business. He further revealed that renowned retail suppliers like PST and CA Sales have reignited their trust in Payless, opening their doors for Payless as they have faith in the retailer’s new owners.
The takeover has reportedly saved more than 200 jobs and gave a new lease of life to the previously fledging Payless brand. According to a press release from the management team, the Payless work forces are also extremely excited about what the future holds. The TMP is a comprehensive and interactive program that covers the key themes necessary to position a company to list on the BSE.
The program is administered by experts within the listing ecosystem and seeks to bring the potential issuers closer to the listings advisers, investors and leaders of already listed companies. “As a strategic initiative, the BSE decided to set up this mentorship program in a bid to assist SMEs to strategize, corporatize and acclimatize in order to list to access equity finance and expand operations,” said the BSE.
The TMP will avail to SMEs practical insights, knowledge and feedback from institutional investors, increased awareness of the BSE listing requirements as well as an intimate network of advisors and CEOs of listed companies. After training, Payless will graduate with improve governance structures and better knowledge of articulating its business strategy. The retailer will also gain increased visibility through BSE marketing platforms.
Despite Covid-19 interrupting trade worldwide, exporting companies in Botswana which benefited from the Botswana Investment and Trade Centre (BITC) services realised P2.96 billion in export earnings during the period from April 2020 to March 2021.
In the preceding financial year, the sale of locally manufactured products in foreign markets had registered export revenue of P2, 427 billion against a target of P3, 211 billion BITC, which celebrates 10 years since establishment, continues to carry out several initiatives targeted towards expanding the Botswana export base in line with Botswana’s desire to be an export led economy, underpinned by a robust export promotion programme in line with the National Export Strategy.
The main products exported were swamp cruiser boats, pvc tanks and pvc pipes, ignition wiring sets, semi-precious stones, veterinary medicines, hair braids, coal, textiles (towels and t-shirts) and automobile batteries. These goods were destined mainly for South Africa, Zimbabwe, Austria, Germany, and Namibia.
With Covid-19 still a problem, BITC continues to roll out targeted virtual trade promotion missions across the SADC region with a view to seeking long-lasting market opportunities for locally manufactured products.
Recently, the Centre facilitated participation for Botswana companies at the Eastern Cape Development Council (ECDC) Virtual Export Symposium, the Botswana-Zimbabwe Virtual Trade Mission, the Botswana-Zambia Virtual Trade Mission, Botswana-South Africa Virtual Buyer/Seller Mission as well as the Botswana-Namibia Virtual Trade Mission.
BITC has introduced an e-Exporting programme aimed at assisting Botswana exporters to conduct business on several recommended e-commerce platforms. Due to the advent of COVID-19, BITC is currently promoting e-trade among companies through the establishment of e-commerce platforms and is assisting local companies to embrace digitisation by adopting e-commerce platforms to reach export markets as well as assisting local e-commerce platform developers to scale up their online marketplaces.
During the 2019/2020 financial year, BITC embarked on several initiatives targeted at growing exports in the country; facilitation of participation of local companies in international trade platforms in order to enhance export sales of local products and services into external markets.
BITC also helped in capacity development of local companies to compete in global markets and the nurturing of export awareness and culture among local manufacturers in order to enhance their skills and knowledge of export processes; and in development and implementation of trade facilitation tools that look to improve the overall ease of doing business in Botswana.
As part of building export capacity in 2019/20, six (6) companies were selected to initiate a process to be Organic and Fair Trade Certified. These companies are; Blue Pride (Pty) Ltd, Motlopi Beverages, Moringa Technology Industries (Pty) Ltd, Sleek Foods, Maungo Craft and Divine Morula.
In 2019 seven companies which were enrolled in the Botswana Exporter Development Programme were capacitated with attaining BOBS ISO 9001: 2015 certification. Three (3) companies successfully attained BOBS ISO 9001:2015 certification. These were Lithoflex (Pty) Ltd, General Packaging Industries and Power Engineering.
BITC’s annual flagship exhibition, Global Expo Botswana (GEB) to create opportunities for trade and strategic synergies between local and international companies. The Global Expo Botswana) is a premier business to business exposition that attracts FDI, expansion of domestic investment, promotion of exports of locally produced goods and services and promotion of trade between Botswana and other countries.
The portal also provides information on; measures, legal documents, and forms and procedures needed by Botswana companies that intend on doing business abroad. BITC continues to assist both potential and existing local manufacturing and service entities to realise their export ambitions. This assistance is pursued through the ambit of the Botswana Exporter Development Programme (BEDP) and the Trade Promotion Programme.
BEDP was revised in 2020 in partnership with the United Nations Development Programme (UNDP) with a vision to developing a diversified export-based economy. The programme focuses mostly on capacitating companies to reach export readiness status.
Prices for goods and services in this country continue to increase, with the latest figures from Statistics Botswana showing that in May 2022, inflation rate rose to 11.9 percent from 9.6 percent recorded in April 2022.
According to Statistics Botswana update released this week, the largest upward contributions to the annual inflation rate in May 2022 came from increase in the cost of transport (7.2 percent), housing, water, electricity, gas & other Fuels (1.4 percent), food & non-alcoholic beverages (1.1 percent) and miscellaneous goods & services (0.8 percent).
With regard to regional inflation rates between April and May 2022, the Rural Villages inflation rate went up by 2.5 percentage points, from 9.6 percent in April to 12.1 percent in May 2022, according to the government owned statistics entity.
In the monthly update the entity stated that the Urban Villages inflation rate stood at 11.8 percent in May 2022, a rise of 2.4 percentage points from the April rate of 9.4 percent, whereas the Cities & Towns inflation rate recorded an increase of 1.9 percentage points, from 9.9 percent in April to 11.8 percent in May.
Commenting on the national Consumer Price Index, the entity stated that it went up by 2.6 percent, from 120.1 in April to 123.2 in May 2022. Statisticians from the entity noted that the transport group index registered an increase of 7.3 percent, from 134.5 in April to 144.2 in May, mainly due to the rise in retail pump prices for petrol and diesel by P1.54 and P2.74 per litre respectively, which effected on the 13th of May 2022.
The food & non-alcoholic beverages group index rose by 2.6 percent, from 118.6 in April 2022 to 121.6 in May 2022 and this came as a result of increase in prices of oils & fats, vegetables, bread & cereal, mineral waters, soft drinks, fruits & vegetables juices, fish (Fresh, Chilled & Frozen) and meat (Fresh, Chilled & Frozen), according to the Statisticians.
The Statisticians said the furnishing, household equipment & routine maintenance group index rose by 1.0 percent, from 111.6 in April 2022 to 112.7 in May 2022 and this was attributed to a general increase in prices of household appliances, glassware, tableware & household utensils and goods & services for household maintenance.
The prices for clothing & footwear group index moved from 109.4 to 110.4, registering a rise of 0.9 percent during the period under review. Bank of Botswana has projected higher inflation in the short term, associated with the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices and added that the possible increase in public service salaries could add also upward pressure to inflation in this country.