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What Matambo left out: tax issues, job creation

Minister of Finance and Development Planning Kenneth Matambo

The Minister of Finance and Development Planning Kenneth Matambo pitched an recurrent budget package  this week that focused on economic diversification, promoting economic growth, physical structure development and human capital development, however economic  experts are of the view that the 2015/16 budget had its  ‘hits and misses’.


The budget offered a modest budget surplus of P1.23billion or 0.8 per cent of GDP which will contribute towards rebuilding of the country's net financial assets and provide a cushion to global shocks. The education was the biggest benefactor with a 33% share while the agriculture sector took the smallest share of 3%.


Key issues that the experts anticipated to hear were left out and these included tax issues, employment creation, attracting FDI, issuance of permits to name but just a few.


In an interview with Vijay Kalyanaraman a Partner and Advisory services with Grant Thornton he said the government initiatives as expressed in the budget are excellent the challenge remains as to how to relate the excellent intentions to implementation.


“A roadmap for implementing government’s intentions is critical, what we want to know is what initiatives are there in place to drive implementation” said Kalyanaraman.


He said there is a great deal of challenge on the implementation of the development projects. In his speech Matambo said During NDP 10, the development budget has been underspent by an average of 17.3 percent for the years 2011/2012 through 2013/2014, due to delayed project implementation.


Kalyanaraman added that he would have expected to hear the minister talk about administrative issues regarding approval of licenses. “We expect the one-stop shop in place to work seamlessly and improve on the issuance of permits because it’s really disturbing for an investor to go through a lot of hustles,” he said.


A total of P12.93 billion was proposed for the development budget with the largest share allocated to the Ministry of Minerals, Energy and Water Resources (MMEWR) at P3.32 billion or 25.7 percent of the budget.


Tax Director with Deiloitte & Touche Botswana Terry Brick said the budget allocation was equally good considering the largest allocation went to education. “It does not stop there must be jobs for school leavers to go to,” said Brick. The current unemployment rate of 19.8 percent therefore represents underutilization of one of the country’s important resource, namely our human capital.


Brick said an unemployment rate of 19% is very worrying. “I would have expected the Minister to have addressed job creation in greater detail,” he said. In a bid to spur growth and employment, Matambo said that this year’s development budget would mainly be spent on infrastructure projects such as construction of new schools, new power transmission lines and water pipelines.


Investment analyst with a local brokerage Motswedi Securities Garry Juma said the budget missed key issues like the Value Added Tax (VAT) contribution to the total revenue. “Matambo was silent on this matter of which everybody expected to know how much is the VAT contributing to the total revenue,” said Juma.


He added that it was his expectation that he talk about the modalities in place to implement the clusters as well as the budget allocation. Juma said though not much change has been seen in the budget there is need for government to look into the slow implementation of projects as these constraints the growth process. He said the implementation process requires more focus to ensure that resources allocated are utilized efficiently.


The investment analyst said more focus should be channeled towards the agriculture sector given its importance in the economic diversification.


Research Manager with First National Bank (FNB) Moathlodi Sebabole said the budget puts Botswana in a twin surplus of: current account surplus and fiscal budget surplus. “This is a good as an insurance policy for the country and will ensure we continue to have financial stability,” he said.


However, he said Matambo did not address how government intends to maximize on tax revenues or improving efficiencies on custom collections.


In addition Sebabole highlighted that Matambo failed to reveal the exact role that private sector will play in economic diversification and employment creation be it through private-public-partnership (PPP) or contracting.


Sebabole said though Matambo acknowledged as shortfalls poverty levels, income inequalities and unemployment rates he did not do the expected that is to zoom in terms of how we will reduce these adversities and the rates that we will be comfortable to operate with at country level.


“Minister mentioned the government bond BW003 which is maturing this year, but did not indicate whether, given the surplus, they will be re-issuing or activities they will undertake to stimulate the capital markets further,” said Sebabole.


Furthermore, a local tax expert said he was surprised that the minister did not mention any proposed Tax changes against what the tax practitioners expected.


“We were expecting to hear an update on the proposed exemption on first time home owners which the minister announced in the last year’s budget. The proposal was to provide an exemption to citizens when they purchase their homes for the first time,” he said.


Currently citizens do not enjoy the 100% Transfer duty exemption but only enjoy an exemption on the first 200 000 with the rest being chargeable to transfer duty at 5%.


He added that contrary to expectations the minister never mentioned anything regarding the Income tax bill.  An IMF paper recommended that governments must do away with IFSC preferential tax rates of 15% it doesn’t really attract investment. Put in place thin capitalization rules for all tax payers not just mining entities and take away 15% tax rate from manufacturing.


“These are possible changes we expect to through the Income Tax Bill yet to be published,” he added.


Matambo said the economy will slow down in 2015 as compared to previous years though the domestic outlook remains positive.

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Business

Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020
Foschini

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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