Botswana Insurance Holdings Limited (BIHL) shareholders next month will be smiling all the way to the bank as Board of Directors of the Group decide to pay an extra dividend of 11 thebe per share (net of tax), being a total reflection of P31.1 million(net of tax).
For half year BIHL offered shareholders 44 thebe per share and for the year ending December 2019 the final normal dividend to be paid is 59 thebe per share (net of tax) or P166.6 million(net of tax). Furthermore BIHL board has resolved that an additional 11 thebe per share (net of tax) or P31.1 million (net of tax) be added on shareholders pockets. By April 20 BIHL should have paid a total of P322 million as dividends to shareholders. Group chairperson Batsho Pamela Dambe-Groth told shareholders when announcing the dividends on Wednesday that, “I am sure you will all be very pleased about.”
When making graphical presentation of the Abridged Audited Group results for the year ended 31 December 2019 BIHL Group CEO Kudakwashe Mukushi showed that since 2017. He showed that an interim dividend of 55 thebe was offered in 2017 before a final dividend of 67 thebe was paid. The same year, an additional 35 thebe was paid to shareholders. In 2018 after six months the BIHL offered shareholders 60 thebe before 67 thebe was paid end of the year. An additional 16 thebe was paid to shareholders in 2018 according to Mukushi.
“Overall, the Group remains well positioned in terms of capital management and solvency. This is always taken into consideration when calculating dividends. In determining the dividend, the Board ensures that its capital position remains solid and aligned with future capital requirements whilst sustaining healthy levels of Return on Group Equity Value,” said Dambe-Groth when announcing dividends during the December 2019 financial results presentation.
BIHL Group CEO Catherine Lesetedi was positive when taking the podium on the Wendesday results presentation saying, “the numbers speak for themselves.” She said BIHL has managed to survive the ever growing competitive environment ever since putting up shop 45 years ago. According to the latest financial results, BIHL Profit after tax went up by 19 percent to close the year at over P434 million compared to P366 million registered in the prior year.
This was bolstered by impressive revenue figures registered during the year. The Group raked in about P2.59 billion in revenue during the year ended 31st December 2019, up 8 percent from the P2.34 billion revenue registered in the prior year. Also operating profits for the Group during the year remained flat at P376 million as at December 2019 compared to prior year. Operating profit for the life business increased by 3 percent over the year despite the difficult economic conditions and intensified competition.
“Growth in operating profit is mainly a result of good new business volumes from the group lines and low new business strain for our retail products,” explained Lesetedi on Wednesday. New business grew by 18 percent underpinned by strong performance on group lines. Recurring premium recorded a growth too.The value of new business, which represents the present value of future profits from new business premiums written during the year, increased by 8 percent from the previous year on the back of impressive new business volumes from the group lines.
The asset management business operating profit for the year was however 14 percent down compared to prior year due to pressure on the fees earned. The general insurance business was positively impacted by lower claims leading to a decent growth over last year; however BHIL has since sold this business as it streamlined its activities. Contribution of BIHL associate holdings and joint ventures which includes Pan African Micro lender Letshego and Funeral Services Group has increased by 169 percent due to lower impairment change compared to prior year.
In terms of segmental performance BIHL through Botswana Life , the country ‘s largest life insurance business realized net premium income growth of 11 percent from 2.35 billion in 2018 to 2.60 billion in 2019. Operating expenses increased above inflation as a result of the investment made on the 5-year strategy that was rolled out at the beginning of the year. Selling expenses also increased in line with the increase in income from group lines.
During the year, BIHL management launched the soft elements of the Life and More marketing campaign, a two-year campaign that is intended to support the five-year Se Sarona strategy with the purpose of brand positioning, client delight and elevating the advisory role as the narrative is scripted to demonstrate a problem and its solution which profiles Botswana Life products.
BIHL subsidiary Botswana Life also launched an extended family funeral cover called Masika Otlhe which the BIHL CEO said the product demonstrates their agility and commitment to innovation and predicting customer needs. On the Asset Management business which is mainly under Botswana Insurance Fund Limited (BFIM) operating profit for 2019 was flat when compared to the 2018 performance. Total Assets under Management for the year were P27.3billion, a 5 percent growth from the 2018 assets under management.
Company management says the main driver of the 2019 performance was the continued pressure on investment management fees hence lower margins. The Zambia business on the other hand remained resilient despite the challenging economic conditions particularly in the 2nd half of the year and posted an overall 5 percent year on year growth in operating profit.
Included in this number is Zambia’s P4.2 billion and the remaining P23.1 billion represents asset directly managed by BIFM. During the year Management rolled out a new five year strategy which saw some new funds being introduced to the market. BIHL says the strategy is already bearing fruits with fresh mandates received for some of the new funds. “We are cognisant of the highly competitive environment and will continue to focus on managing expenses and delivering value to clients,” Lesetedi noted.
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.