The Covid-19 outbreak has set off the first recession in the Sub-Saharan Africa region in 25 years, with growth forecast at -5.1% for 2020 from a modest 2.4% in 2019; this is according to the latest Africa’s Pulse, the World Bank’s bi-annual analysis of the state of the region’s economies.
“Due to deteriorating fiscal positions and increased public debt, governments in the region do not have much room for wiggle in deploying fiscal policy to address the COVID-19 crisis,” said Albert Zeufack, Chief Economist for Africa at the World Bank. Zeufack added that Africa alone would not be able to contain the disease and its impacts on its own. “There is urgent need for temporary official bilateral debt relief to help combat the pandemic while preserving macroeconomic stability in the region,” he said.
The Sub-Saharan Africa (SSA) region paid $35.8 billion in total debt service in 2018, 2.1% of regional gross domestic product (GDP), of which $9.4 billion was paid to official bilateral creditors, about 0.7% of the regional GDP, the report says.
The Word Bank says given that the region may need an emergency economic stimulus of $100 billion including an estimated $44 billion waiver for interest payments in 2020, a debt moratorium would immediately inject liquidity and enlarge the fiscal space of African governments.
The World Bank Africa Pulse report estimates the pandemic could cost the region between $37 billion and $79 billion in terms of output losses for 2020. The impact on household welfare is expected to be equally dramatic with welfare losses in the optimistic scenario projected to reach 7% in 2020, compared to a non-pandemic scenario.
Additionally, World Bank says COVID-19 has the potential to create a severe food security crisis in the region, with agricultural production contracting between 2.6% and 7% in the scenario with trade blockages. Food imports would decline substantially as much as 25% or as little as 13% due to a combination of higher transaction costs and reduced domestic demand.
These fallouts result from a combination of influences, including the disruption in trade and value chains affecting commodity exporters and countries with strong value chain participation; the reduced foreign financing flows of foreign direct investments, foreign aid, remittances, tourism revenues, and capital flight. The disruptions also stem from containment measures imposed by governments and the response of citizens.
However, the report highlights health risks due to the region’s unique challenges especially the limited access to safe water and sanitation facilities, urban crowding, weak health systems, and a large informal economy. The Global lender says regional governments also lack sufficient room for maneuver on the policy side as a result of dwindling revenues, compounded by the larger and riskier debt positions and an increase in external borrowing costs, which will further worsen debt sustainability prospects.
“Short-term fiscal policy should aim at redirecting government expenditure to increase the capacity of the health system to protect and equip the already scarce medical personnel, and to provide adequate and affordable medical attention to the people affected by COVID-19 pandemic,” said Cesar Calderon, World Bank Lead Economist and lead author of the report.
He further added: “But at this time it is also important to consider that most workers in the region are engaged in the large informal sector where they lack benefits such as health insurance, unemployment insurance, and paid leave. They usually need to work every day to earn their living and pay for their basic household necessities. A prolonged lockdown would put their basic survival at great risk.”
Calderon further suggested that African countries urgently need to take on a customized short-term policy approach that takes into consideration the structural features of the region: Being the Sub Saharan Africa‘s size of informal employment which accounts for 89% of total employment; the precariousness of most SSA jobs, the predominance of small and medium-sized enterprises which constitute 90% of business units and are the drivers of growth in the region.
Furthermore the ineffectiveness of monetary stimulus due to the reduced labor supply and closed businesses, and in the recovery phase due to weak monetary transmission in countries with underdeveloped financial markets.World Bank recommends that a fiscal-policy approach with two primary objectives, to save lives and protect livelihoods. Immediate actions to consider include, focusing on strengthening health systems.
“The availability and allocation of financing for the health sector is still a major concern in Sub-Saharan Africa. The medical personnel in the region should be protected and properly equipped” recommends World Bank Economists in the report. The Bank has also highlighted the need for implementing robust social protection programs to support workers, especially those in the informal sector.
“This calls for cash transfers, in-kind transfers , food distribution social grants to disabled people and the elderly, wage subsidies to prevent massive layoffs, and fee waivers for basic services e.g. electricity tariffs and mobile money transactions,” reads the Africa’s Pulse
The report further suggested that Sub Saharan Economies need to minimize disruptions within countries and in the critical intra-African food supply chains, and keeping logistics open to avert a looming food crisis in the region.
The report also encourages African policymakers to think about the exit strategy from COVID-19. “Once the containment and mitigating measures are lifted, economic policies should be geared towards building future resilience,” the report says. “Economies still need to design policy pathways to achieve sustainable growth, economic diversification and inclusion.”
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.
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.
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.