Pula Fund on P4 billion depletion amidst crumbling domestic economy
Pula Fund, Botswanas diamonds investment flagship, is currently whispering economic disaster as it is dallying down the slide with an erosion of P4 billion for March 2020 from the same period of last year.
This is according to the figures in the Bank of Botswana Statement of Financial Position as at March 31, 2020. Last year March, the Pula Fund was at P51 billion and it went down to P47 billion March this year, a deficit of P4 billion.
Pula Fund is Botswanas long-term investment portfolio established 26 years ago for the perseverance part of the income from diamond exports for future generations. According to Bank of Botswana, foreign exchange reserves that are in excess of what is expected to be needed in the medium term are transferred to Pula Fund and invested according to these investment guidelines. The Pula Fund is a Sovereign Wealth Fund (SWF).
In a review for this years first quarter, since January 2020 the Pula Fund has been showing erosion, a trend continuing even towards March 2020 as Q1:2020 closes. The central bank has just offered its financial positon for Q1:2020 and things are looking gloomy for the much coveted Pula Fund. A deficit of over P600 million in the Fund has been recorded between the months of February and March this year according to the recent Bank financial position.
Deeper statistics shows the Pula Fund went on a downward spiral last year between the months of November and December, by a deficit of almost over P10 billion. The Fund did however find its feet, bouncing up by almost P2 billion in January this year after a huge slump last year December.
But that was short lived as February saw things tumbling down again, reminiscing the negative picture of November 2019, a pictorial illustration will show a graph pointing down as a bad sign for the most reliable Fund ever made by this country. The Pula Fund reached an all-time high of P64.3 billion and a record low of P18.7 billion in April 2003.
According to Bank of Botswana, the Pula Fund has increased substantially in value (when measured in both domestic and foreign currency) in real terms since it was established in 1994. This reflects both a sustained period of substantial balance of payments surpluses as well as the success of the investment strategy, said the central bank.
However, according to the Bank, there have been instances of substantial outflow: notably in the period following the establishment of the Public Officers Pension Fund, which resulted in a substantial transfer of assets from Government; while, from late 2008, the turbulence arising from the worsening global economic slowdown resulted in some erosion of the Pula Fund, due to both the adverse market conditions and outflows needed to maintain the Liquidity Portfolio at required levels.
Botswanas total foreign assets have depleted by P11.5 billion altogether between March 2019 and March 2020. According to the Banks financial position, by March when looking at the Liquidity Portfolio fund; Transactions Balances Tranche went down by P5 billion from March last year and the Liquidity Investment Tranche plummeted by P3 billion. However the domestic assets saw a slight improvement.
Total Foreign Liabilities soared up while foreign exchange reserves expressed in US dollars went down by over P1 billion this was almost the same decreased in foreign exchange reserves expressed in SDR.
Botswanas economy is now grappling with the ripple effects of covid-19 and diamond contribution to the GDP and or the Pula Fund is expected to shrink. Botswanas story cannot be told better in gloom than when Foreign Direct Investment (FDI) flow will in 2020/21 reduce by 30-40 percent while trade will shrink by about 32 percent, this comes hard for a country which has years of nursing trade deficits.
A bad song in a time of a Pula Fund or diamond reliant economy, the depletion of a depleting governments current account could be a dawn for much coming trouble. Towards the twilight of last year the governments current account recorded a mammoth deficit of P6.6 billion compared to a revised deficit of P485 million during the corresponding period in 2018, this cannot be helped by the sting of covid-19 on the local economy. Furthermore, the end of 2019/2020 financial year, governments total debt was P27.8 billion, roughly 28 percent of GDP.
Minister of Finance & Economic Development, Thapelo Matsheka recently announced that Botswanas economy is expected to decline by 13.1 percent going backward against the initial projected growth of 4 percent for the 2020/21 financial year. Matsheka further told the media that due to the effect of covid-19 the global economy will shrink by 3 percent, a reverse mode to the initial expected growth of over 3 percent.
Botswanas economic response to covid-19 amid a rocking boat of domestic economy
According to the US think tank Milken Institute, in its production of a hub for information, analysis, and the global response to COVID-19s impact on Africa and in its instalment of Africa Watch, Botswana announced US$163 million which is a 0.9 percent of GDP.
Botswanas announced healthcare spending to respond to covid-19 is US$ 41 million. The covid-19 healthcare spending as a percentage of general government total expenditure is at 0.8 percent according to Africa Watch.
Botswana not ready to become a beggar
When the economic winds are going against Botswanas economy, which is heavily reliant on diamond exports and reserves that comes from such precious stones, many pragmatic economists point that this country should swallow her pride and queue for aid from monetary donors.
However, Matsheka has suggested that government has so far doubled its domestic borrowing limit from P15 billion to P30 billion. Matsheka hinted that Botswana will first exhaust all the domestic borrowing before going outside.
This bond program will present us with an opportunity to borrow more from our local capital market and finance our deficit and projects without drawing down from our reserves or getting expensive credit facilities externally, Matsheka told journalists in April.
Matsheka also told the media that there will be no rush to approach global funders. But many economists are already discussing the pressure that may come which will inevitably present this country with no option but to seek outside help
We have not reached any decision as to how much we would borrow externally from institutions such as International Monetary Fund (IMF), World Bank and African Development Bank, any other funding institution or foreign country.
But my office is currently in talks with Botswana representatives at these institutions and we will look at a number of factors before coming to a decision of who we going to borrow from and how much we going to borrow, Matsheka said in April.
Botswana has better sovereign credit ratings, this puts it in a better position for international lenders. In Moodys Investor Services-an international rating agency and global think tank based in London-rates that Botswana has maintained the A2 long-term local and foreign currency issuer ratings. A2 rating is the sixth highest rating in Moody’s Long-term sovereign ratings. Countries rated A2 are considered to be of upper-medium grade and are subject to low credit risk.
However Botswana has been going down in renowned credit rating agency charts recently. According to Moodys, the corona virus has only amplified Botswanas already risky and vulnerable economic setup.
Moodys say Botswanas vulnerability comes from the limited economic diversification given its heavy reliance on a single commodity for growth, exports and budget revenues, slow progress towards economic transformation, and an increasingly rigid expenditure structure in the budget.
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (âGritâ) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Companyâs total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Companyâs share price.
The statement explained that Gritâs sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
âGrit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholdersâ LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Gritâs already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
âWe are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,â Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. âWe continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,â Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
âIn accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,â said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices.Â Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
âCommunity empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,â said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Â Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
âAs a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economyâs productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,â said the Minister of Minerals and Energy.
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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