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Phasing out of Wheat levy will promote dumping

Local millers have warned that the 10 year phase out of the Wheat levy through a statutory instrument by government will cripple the industry as it will promote dumping.


The statutory instrument has peeved local millers who feel the phasing out of the import levy marks the collapse of the industry. In 2003 Botswana Government enforced a 15 percent levy on all wheat flour imported into the country to develop local industry.


Botswana millers, controlling 85 percent of the market, have warned that phasing out the levy will not only affect the confectionery industry but also extend to livestock rearing, trucking business, and small-scale farmers of wheat, food security and human resource development.


Nonetheless, some expects put it that the levy undermines the potential role of imports, which is essential in preventing collusion. However local millers maintain that there is a need for government to reassess the statutory instrument.


“If a substantive decision has been made to effectively remove the only anti-dumping mechanism that has been put in place, how then will the issue of dumping, which still exists, be addressed .Our concern is that this was our only tool against dumping and dumping still exists as s major threat to local industry,” said Nkosi Mwaba the Chairman of the Maize and Wheat Millers Association of Botswana.


Botswana has always been a dumping ground for South African wheat flour because Gauteng market consumes mostly cake flour. As such white bread flour being an additional component of the milling process, South African millers have excess white bread flour to dispose of.


 Mwaba said the levy was effective at 15% and the strength of this tool has been diluted within a short space of time.  


In a letter addressed to the minister of Trade and Industry, local millers have noted that the effective removal of the wheat levy places the entire milling industry in Botswana under imminent existential threat.  


“Botswana’s milling outputs only make up 4% of the South African Milling capability and as such, milling in Botswana will no longer be viable without an anti-dumping tool.  The market will simply be flooded by imports that are made available at dumped prices and local millers will be forced to adjust their business models to traders and divest from milling operations,” reads the letter.


Mwaba added that this will have a significant impact on employment figures as wheat millers employ over 800 Batswana.


“This goes against the grain of economic diversification and industrialisation efforts and will have an overall detrimental effect on the economy in our view. This has a significant impact on investor confidence as the future of this business in Botswana is now uncertain,” he said.  


Mwaba said this move government will force millers to adjust their business models. “Chances are there will be more imports and less local produce in the short term,” he said.


Millers have also highlighted that with the statutory instrument in place they will be forced to import finished products through traders and distributors as this is more viable in an environment where dumped products are allowed without counter measures.


Mwaba said millers will be forced to participate more aggressively in bakeries themselves as this will boost their margins and completely overshadow the very bakeries that currently exist as they are more resourceful and already have linkages in the trade.

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South Afrincan 501. V2 curfew blinds 2021 prospects

20th January 2021
Machines

Lockdown is back, but now with less stringent measure of curfew restrictions, and will affect the economy whose bounce back was expected to be this year.

Economic projections saw 2021 with glimmer of hope, where all the past Covid-19 ruins will be offset by things going back to normal. An anomaly of curfew has since come to this country’s shores after the discovery of a new Covid-19 variant.

Some Botswana’s trade partners are on complete lockdown ever since the beginning of the festive season when the new variant was reported to be spreading rapidly and uncontrollably.

Measures were since put in place to tame the new high spreading and uncontrollable coronavirus variant called South African 501. V2 which was discovered in Botswana’s neighbor South Africa and the similar variant also known as E484K discovered in the UK.

After South Africa put in a curfew restriction following a response to a second wave of infections driven by a new Covid-19 variant, also called 20C/501Y.V2

President Mokgweetsi Masisi announced on national television Botswana’s first restrictions which was a curfew from 7pm to 4am from 24 December 2020 to 4 January 2021.

This month curfew regulations were extended from 8pm to 4am until end of January and many business operations were either stopped or closed earlier, hence slowing of economic activity in Botswana.

Latest data showing how business operations are being affected is not yet available. But many businesses are already crying foul and showing frustrations.

Lining of economic data with Covid-19 measures shows that at a time when there were lockdowns the economy slumped by 24 percent.

The GDP data of the second quarter of 2020, a time when Botswana got into its first lockdown amid national panic, shows that the real Gross Domestic Product contracted by 24 percent “due to the impact of measures that were put in place to combat the spread of the Covid-19 pandemic.”

But Botswana expected a 7.7 percent rebound and growth in 2021 from the 8.9 percent contraction forecast of last year.

This was pinned on expected improved sentiment in the global diamond industry and overall improved economic activity when the domestic economy goes back to normal.

Bank of Botswana’s Monetary Policy Committee in December last year also projected that inflation will go back to within the objective range in the second quarter of 2021.

Initially, in October last year, the central bank projected that inflation will be within 3-6 percent by the third quarter of 2021.

Two months later Bank of Botswana projections changed with the reversion to the objective range now expected to come earlier than the previous forecast as the domestic and the international economies were opening.

“Overall, risks to the inflation outlook are assessed to be balanced. Upside risks relate to the potential increase in international commodity prices beyond current forecasts, aggressive action by governments and major central banks to bolster demand, as well as possible supply constraints due to travel restrictions and lockdowns, though abating,” said Bank of Botswana last month.

When the meeting of Monetary Policy Committee which was held on 3 December 2020 decided to maintain the Bank Rate at 3.75 percent inflation had increased from 1.8 percent in September to 2.2 percent in October 2020 and remained below the lower bound of the Bank’s objective range of 3 – 6percent.

With the curfew which is place this whole month, spending or economic activity is expected to slow down and inflation will remain below the lower bound of the Bank’s objective range.

According to the last Monetary Policy Statement, the real GDP contracted by 4.2 percent in the 12 months to June 2020 compared to a growth of 3.9 percent in the corresponding period in 2019.

Mining and non-mining sectors registered a steep decline in output and this is blamed on Covid-19 containment measures.

The curfew regulation, despite being of a lesser sting than total lockdown, will have a slight or nominal impact on the domestic economy which is also affected by lockdowns in some of Botswana‘s trading partners.

Uncertainty looms on Botswana as reports continue that the 501. V2 seems to be uncontrollable and is spreading quickly in Botswana population.

While the country is on curfew restrictions, a possible lockdown looms if the disease continue to spread with this much prevalence, according to sources at government enclave.

This means the economic recovery, a rebound or leap in 2021, could remain a big pipeline dream.

The International Monetary Fund (IMF) had forecast the domestic economy to contract by 9.6 percent in 2020 compared to 5.4 percent in the April 2020 World Economic Outlook.

While the domestic eyes projected the economic to rebound to a growth of 7.7 percent, IMF had higher lenses of a growth of 8.6 percent in 2021. But the expected growth is set to be offset by the new elephant in the room, South African 501. V2.

The central bank and other international bodies have not ruled any chances of the pandemic remaining resilient or standing stubborn against countries, meaning possibility of future containment measures remains.

Now in Botswana a stubborn variant of the pandemic has caused panic and curfew regulations.

In December 2020, Monetary Policy Committee said: “Even with recovery in 2021, the contraction in 2020 equates, approximately, to a two-year loss of growth in output. The disparity in forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand.”

Q3:2020 GDP decrease eases, but still remains in the negatives

The data for Q4: 2020 is yet to be released. Economic data available is the recent Q3:2020 released last month showing that real GDP for the third quarter of 2020 decreased by 6.0 percent compared to a deep contraction of 24.0 percent registered in the previous quarter.

As mentioned by Bank of Botswana in the last Monetary Policy Committee meeting of 2020 which was held in December just few weeks before the release of the Q3:2020 GDP data, the economy was expected to have performed better in the third quarter of 2020 compared to the second quarter given the gradual easing of COVID-19.

In Q3:2020 the economy tried to jump up out of the dark hole, but could move up 18 times and still remain in the fringes of economic hell. Many saw this movement as the one towards the recovery of 2021.

According to Statistics Botswana, the improvement in the third quarter GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.

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Moody’s already gloomy SSA report not yet infected by 501.V2

20th January 2021
Diamond

The latest report on Sub Sahara Africa (SSA) by rating agency Moody’s was prepared before the global panic of a new coronavirus variant which has already been detected in Botswana following its discovery in South Africa, the country’s major trade partner. 

Latest reports are that the new variant, now christened South African 501.V2 or E484K, was detected from the local tourism hub of Maun, and the Covid-19 task team have borrowed credence from the high rate of infections prior to the festive season as vindication of the new virus mutation being in Botswana.

The local task team is not the only one missing on full scientific data of how this new corona virus variant is in Botswana and its carriers or patients — renowned rating agency released a report on Wednesday with absence of any mention of South African 501.V2.

Moody’s made a study on “2021 outlook negative as debt costs intensify amid limited institutional capacity to adjust post pandemic.”

However, the current affairs suggest that “post pandemic” there are mutations or new variants of the virus which should be dealt with, now forcing countries like Botswana, South Africa and some in Southern Africa into coming up with curfew regulations to curb the new form of Covid-19.

The Great Pandemic seems to be here to stay in the midst of humankind if reports coming from next door South Africa about Covid-19 taking new forms to survive vaccine hence spreading uncontrollably is anything to go by.

Optimism has been brought the vaccine which is currently being rolled out, but scientific theories being conducted suggest that the new variant of Covid-19 might prove to be more resistant to vaccination.

Moody’s released a report this week on the outlook of SSA creditworthiness in 2021 which is deemed to be negative. With the new variant sweeping across Botswana and its influential trade partner South Africa, curfew regulations that are currently in place in the two countries could lead to further economic injury.

That Moody’s expectation for the fundamental conditions that will drive sovereign credit over the next 12-18 months to be severe, could be less far-reaching and short sighted given the lack of the new variant factor on the latest report.

“We expect SSA sovereigns to face severe challenges in grappling with the fallout from the coronavirus shock as lower overall economic growth and revenue coupled with higher government expenditure will lead to wider fiscal deficits and higher debt,” said Moody’s on Wednesday.

Higher debt levels, weaker debt affordability (amid both lower revenue and higher interest payments) and low buffers will challenge SSA sovereigns’ institutional capacity to manage economies, public health, budget positions, financing strategies, reserves and social discontent, thus elevating event risk.”

According to Moody’s latest report on SSA, commodity producers and tourism-dependent countries like Botswana were hit particularly hard.

Currently no tourist can come to Botswana lest they want to brave the ‘new Covid-19’, incidentally borders have been closed save for goods transportation.

The change in outlook on Botswana (A2 negative) was driven by a fall in demand for diamonds, its principal export commodity, said Moody’s. This has affected Botswana’s GDP which on the third quarter of 2020 was -6 percent, moving from -24 percent in the second quarter which mirrored all the hallmarks of an economy down spiraled by Covid-19 negative ripple effects.

Moody’s furthered its report by picking on overall growth in the SSA region to be associated with lasting impact of the economic contraction, which the rating agency said it will be greater in 2021.

“The region’s long-term recovery is more precarious given that SSA sovereigns have little fiscal space to counter the pandemic’s negative impact on economic activity and preserve productive capacity, and given that structural factors are generally less conducive to fostering a rebound in SSA than in other Emerging Markets,” said Moody’s.

Moody’s said although favourable base effects will help the recovery, real GDP growth will remain lower than historical averages in most countries. Botswana was at last given a glimmer of hope by the Moody’s report, optimism was that non-energy exporters like this country will remain the most dynamic economies, with growth driven by domestic demand and high public investment rates, and a rebound in demand for non-energy commodities.

“Public investment that addresses infrastructure gaps can raise growth both over the near and longer term. However, the impact of public investment on boosting long-term growth potential is determined in part by investment efficiency, which is generally weak in the region. Public investment efficiency is constrained by weak institutional quality, which affects project selection, appraisal and monitoring, as well as high rates of corruption, which can lead to rent-seeking and cost overruns,” said the rating agency.

Moody’s projected that Botswana will average economic growth of 6.5 percent in 2021 as a global growth recovery drives greater demand for coffee and diamonds. This is despite much uncertainty wearing on this country’s prospect of a big leap, the discovery of the new coronavirus variant believed to be at large in Botswana’s shores.

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Sefalana H2:2020 rocket high at P150 million

20th January 2021
Finance Director Mohamed Osman

FMCG sector top player Sefalana Finance Director Mohamed Osman started a year with bringing a smile on investors or shareholder’s face when he announced that Group’s profit before tax for the six month period ended 31 October 2020 will be between 21 percent to 23 percent (approximately P25 million to P28 million) higher than that reported for the comparative period ended 31 October 2019 which amounted to P121.1 million.

In the FMCG entity’s 2020 Annual Report Group managing director Chandra Chauhan said they managed to be resilient despite the winds of Covi-19 which affected most business operations across the continent. Sefalana Group operates in South Africa, Botswana, Zambia, Lesotho, Namibia and recently Australia. Sefalana will be publishing its consolidated financial results of the Group for the six month period ended 31 October 2020 by the end of January 2021.  The share price of Sefalana is at 9.34 thebe before closed period.

“Notwithstanding the difficult times, we have managed to close the year with a sterling performance. Last year we reported our best ever results and this year we have done it again, and are pleased to generate almost exactly the same profit despite the adverse impact of Covid-19,” said Chauhan in the Group’s 2020 Annual Report.

According to Chauhan what could have impacted the group’s impressive financial trail of more than three years would be Covid-19. He said the Group had made considerable progress in the first half of 2020, but then were negatively impacted by the pandemic when their stores were restricted in terms of permitted customer numbers, and when liquor sales were prohibited during lockdown.

For the yet to released second half of 2020 results which are slated for end of this month, Sefalana Group might have not been surprised by almost P150 million to be published because most of Covid-19 regulations were relaxed at the Group’s markets. Restrictions and lockdowns were relaxed toward the middle of the second quarter of 2020.

However Chauhan has a gloomy picture of H2:2020, he said the second half of the year was then impacted by the onset of the Covid-19 Pandemic and many businesses suffered as a consequence.

He said the uncertainty this caused resulted in a more cautious customer, initially forward buying in anticipation of the lock-down, and then reduced buying until after the lockdown had ended.  Chauhan the product mix also moved towards essentials and away from luxury high margin products and net margin mix therefore reduced as a result.

Mostly, Sefalana forfeited profits, approximately P10 million, as a result of the ban on liquor sales during the State of Emergency and lockdown and foreign exchange losses on forward contracts due to the weakening of the South African Rand over a short period of time straddling the year end.

Heavy Covid-19 impacts with regards to Sefalana trading operations disruptions were offset by the Group being used by donors when buying food hampers. Chauhan said they were a “preferred supplier” due to the “competitive prices.”

“We deliberately reduced margins on these orders to maximize the food being made available to those in need. As a consequence, our turnover increased but at very slim margins. Our advance planning enabled us to stock up on key lines and this enabled us to be in a position of having adequate stock of these lines when our competitors had run out,” said Chauhan in the last Annual Report.

For the year ended for the year ended 30 April 2020 the  Group achieved a turnover of P5.8 billion and generated a profit before tax of P259 million, this was despite the coronavirus scourge on businesses.

Move out of SACU to Australia

In its quest to move out of SACU, in April 2020 the Group entered into an agreement to purchase 40 percent of the share capital of an Australian business that operates in the Fast Moving Consumer Goods division at a tune of P70 million (AUD 9.9 million). Seasons Group, the name of the Australian entity, consists of a chain of 7 supermarkets in the Brisbane area.

The effective date of investment was 8 May 2020. This investment will be treated as an investment in an associate, in which Sefalana exerts significant influence, and therefore will be equity accounted. Sefalana entered into this agreement in order to pursue its Group strategy to diversify its income stream and foreign exchange exposure,” said the Sefalana board.

Morevere the Australian investment is expected to yield an additional EBITA of around P15 million for Sefalana for the year ending 30 April 2021. Sefalana intends on expanding its manufacturing business to include wheat milling and to establish our fruit juice and bottled water plant in early 2021.

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