The Choppies Group, Botswana’s home grown retail giant, will use its planned Johannesburg Stock Exchange listing on May 27 to grow in South Africa and also as a springboard into Africa’s faster-growing economies.
Choppies is reportedly planning to raise R574m through the issue of 117-million new shares, which will be used to fast-track the continued roll-out of new stores, unlock opportunities in new markets and fund acquisitions.
Choppies Chief Executive Officer Ram Ottapathu is quoted by South African financial news Business Day as saying the Botswana Stock Exchange is not liquid enough. The liquidity crisis has hit local banks and other sectors such as property are feeling the domino effect.
“It is important for us to have greater liquidity and sources of capital to pursue these opportunities now,” Ottapathu said on Monday. "Most of our business — 75 percent — is outside SA. We believe we have competitive fundamentals that will see us through bumps in the economy.”
With 125 stores, Choppies is listed on the Botswana Stock Exchange with a market capitalisation of about P4.5-billion ($0.4bn). The price of the shares was to be determined after a road show to selected investors, this week.
Ottapathu however, is bullish about Choppies SA adventure, “We’re getting very positive feedback and it’s exciting for the company as well as for me as CEO. It’s exciting feedback from the investment communities.”
However a South African analyst pours cold water on Choppies’ excitement, saying the retailer will struggle in South Africa, because of the competition coupled with the country’s lower standard of living measure as compared to Botswana.
While measures such as its operating margin and return on equity were much in line with Shoprite and South Africa’s other food players, Choppies’ price-earnings ratio was said to be too “rich”, Sasfin Securities senior retail analyst, Alec Abraham said.
“I’m basing it purely on what’s going on in Botswana at the moment: they are on 28 and that is not a bargain at all. Within that LSM (living standards measure) 3-6 space, they have a lot of competition. Shoprite is strong there, Massmart through Cambridge and Pick n Pay with Boxer are trying to get in there. Standard of living is generally measured by standards such as inflation adjusted income per person and poverty rate.
“No macro-economic factors — gross domestic product growth or real wages — suggest to me that those consumers are going to be any better off than they were in the last two years. It’s just a very tough space,” Abraham said.
"They have the two DCs (distribution centres) in SA, but it’s going to take them a long time to grow into capacity, also to leverage their margin they say they want to get to 25 percent private label here. I don’t think they can because the supplier base is limited, maybe in Botswana but it’s doubtful here," he said.
On the reasons for the JSE listing, Ottaphatu said , “There’s the issue of liquidity prevailing in BSE, and this is the best and the most liquid stock exchange on the continent,: before adding that a listing on the largest bourse on the continent is merely natural progression in the growth pace of the company.
The company plans to open five more stores in Botswana, before the end of the calendar year and 14 in SA and 12 in Zimbabwe and will roll out into new markets like Zambia, Tanzania and Kenya and eventually to Namibia. Choppies is aiming for 200 stores by the end of next year.
Ottapathu is confident that Choppies will prevail among its competitors, based on its track record and its successful roll out of stores in South Africa in the North West, Limpopo and Free State. Currently Choppies claims 36 percent of the Botswana retail market share.
“That is where our key strong points are for growing the company to the 200 store mark, especially in Botswana where we can operate well above 100 stores with the current infrastructure, we don’t need to add on anything on top of it. In SA the infrastructure that we put in can take up to 100 stores without any more capital expenditure and in Zimbabwe we can operate up to 50 stores with the current infrastructure in place,” said Ottaphatu confidently.
Choppies’ compound annual growth in total revenues up 27 percent over the past four years with Ebitda (earnings before interest, taxes, depreciation, and amortization) for the past four years up 19 percent over the same period.
“We’re reasonably confident that we’ll be able to replicate the same growth levels going forward as well,” said Ottaphatu.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”