Lately there have been signs of trouble brewing that did not go unnoticed at Letshego, the micro-lender has been experiencing abrupt recurring change of faces in top management positions. Market observers saw this as the reason which diminished investor confidence.
Kgori Capital Portfolio Manager, Tshegofatso Tlhong said Letshego was one of the worst performers of 2019 because of leadership chaos. The micro-lender started last year with a share price of P1.62 before losing its grip heavily by 51.2 percent. It has been trading at a lower price since then and has never recovered. This price fall also made Letshego stock in high demand.
According to the recently published Motswedi Securities quarterly brief of Q4 2019, in that period the market at large was distressed. But Letshego was the largest market casualty as it posted a year to date loss of -56.2 percent according to the quarterly report released by Motswedi researchers Garry Juma and Salome Makgatlhe.
“This was a result of the stock feeling some significant selling pressure from the market following a series of top management changes. All beginning with the departure of the Group’s long term CEO in the second half of 2018, the resignation of the Group CFO (at the beginning of the year), and then the abrupt resignation of the replacement Group CEO after only six months in the role in March 2019,” said Motswedi Securities this week.
Motswedi Securities researchers said Letshego has been assuring many that things will change but the sentiment for its stock did not change. The stock closed at a historic low price of P0.71/share, with interest in the stock gradually growing towards the end of 2019, according to Motswedi Securities. But valuation wise, Letshego is very attractive at current levels with a PE of 3.5x and P/Bv of 0.4x.
Meanwhile, Letshego stock was this week trading at P0.88 before press time but with no signs of showing high demand for the stock. Tlhong putting her expertise on the recently published Kgori Capital Insight Q4 2019 report which sought to reflect on the just ended quarter said, Letshego leadership issues questions around strategic direction and executions which had investors jittery. “A well-communicated resolution to these key issues will be positive for the share,” she advised.
Tlhong said Letshego and Standard Charted bank were the worst performers of 2019. Maybe the latest movement by the micro-lender to fill in few high positions should be indirectly address Tlhong’s advice on coming up with resolutions on how to deal with leadership issues. Last month Letshego announced that it has concluded its executive search for a permanent Group CEO and giving the job to Andrew Fening Okai. He was formerly with Standard Chartered as Global Chief Operating Officer and has more than two decades in the finance industry.
After leading his appointment Letshego board Chairman Enos Banda said Okai has “multi-geography financial expertise in diverse disciplines within a retail banking environment, including governance, strategy, risk and strategic transformation.” Seeming to be answering to worries of top leadership exodus at the micro-lender, Banda said Okai will bring the leadership, vision and strategic insight Letshego needs to secure their next phase of focus and impact, all while empowering existing and future leaders across their business and delivering long term value for investors. Letshego has a presence in 11 African counties
Okai took over from interim CEO Dumisani Ndebele who took the helm at Letshego after Smit Crouse dumped the micro-lender forcing the company to dig deep for his replacement. Crouse left Letshego without any explanation, this after his much fan fared takeover of 2018. During his take over on Monday 24th September 2018, Crouse said, “I look forward to engaging all stakeholders of the business across our footprint, including customers, on the positioning of Letshego for the future.” The former CEO did not look forth enough as he left the micro-lender albeit abruptly resigning just after six months.
In December Letshego announced the appointment of two new directors “to add complementary financial services and banking expertise to the Group’s current fiduciary skill sets.” At that time Abiodun Odubola and Philip Odera were confirmed as Letshego’s new Independent non-executive Directors, having recently secured due regulatory approval.
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.