Botswana’s first indigenous chain retail group Choppies, has in the first half of the 2015 financial year made great strides to cement itself as the leading retailer in the country.
After opening its first store in Lobatse in 1986, is now growing rapidly in neighbouring South Africa, Zimbabwe. The group is advancing into Zambia, Tanzania and Namibia soon.
“Choppies is well positioned to achieve its target of over 200 stores across 6 countries by December 2016,” said Choppies chief Executive, Ram Ottapathu, this week at the unveiling of its half yearly financial results.
Ottopathu also said that the group, which claims to hold a leading 34 percent of retail market share in Botswana and is also the fastest growing retail chain in Africa outside of South Africa, is assessing the possibility of a secondary listing on the Johannesburg Stock Exchange (JSE).
“A secondary listing is anticipated to provide the benefits to Choppies by providing access to an additional source of capital to support our continued expansion into existing and new markets,” said the man at the helm of the giant retail group. He said that this would also enhance liquidity and tradability of its shares on the BSE, provide a greater spread of investors, and improve Choppies’ public profile in South Africa, among other benefits.
The Choppies group now has a regional footprint of 72 stores in Botswana, 18 in Zimbabwe and 31 in South Africa.
“We have capacity to have as many as 100 hundred stores in South Africa, without incurring any more infrastructure spending,” said Ottopathu, emphasizing the latent profitability of the southernmost neighbour and the strength of its economies of scale.
However, Botswana currently remains the biggest operation of the group, accounting for 66 percent of revenue, while Zimbabwe and South Africa come in at 21 percent and 1 percent respectively. “We will continue to find ways to generate more revenues,” said Ottopathu in response to questions of whether the group’s growth in revenues could reach plateau stage.
FINANCIAL REVIEW The Group realised a profit after tax of P103 million, up 2 percent from the previous period. Revenue was up 20 percent from the previous period, reaching P3 billion. The company’s asset base has increased by 22 percent to P2.1 billion. Ottopathu revealed that the bulk of borrowing for capital expansion, an amount of P466 million, was sourced from Barclays Bank Botswana and Rand Merchant Bank.
EXPANSION PLANS The Group is eyeing new markets such as Kenya which has a formalized retail sector of 49 percent, and Tanzania which currently stands at a paltry 13 percent of formalized retail. Zambia is also on the radar of the group.
“The group is assessing entry into the Namibian market whose proximity to Botswana and South Africa would allow us to leverage existing infrastructure alongside outsourced distribution,” said Ottopathu.
Botswana’s more formalized retail sector is seen as an advantage for the growth of the group, with its expanded logistics infrastructure, allowing even for rural expansion. Five new stores are planned for the year 2015.
Operations in South Africa started with a single store in Zeerust in 2008. The country houses as Distribution Centre in Rustenburg which can serve up to 100 stores within a 500 kilometre radius. The current utilization capacity stands at 40 percent. The group expects it’s Fruit and Veg Distribution Centre to improve efficiencies with experience.
Though the South African markets were generally hit by mining sector strike in the second quarter of 2014, financial performance and profitability of the group have recovered and major improvements are expected in 2015. The Group plans to open 19 new stores by end of 2015.
Zimbabwe offers the most opportunity for rapid growth with 30 stores being envisaged in the long term across the country. According to Ottopathu, most stores in Zimbabwe can easily be serviced with the existing supply chain. The country’s retail sector is significantly less formalized and the group plans to open 12 new stores by end of 2015.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.