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Pula Fund on P4 billion depletion amidst crumbling domestic economy

DR Matsheka

Pula Fund, Botswana’s 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 Botswana’s 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 year’s 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.

Botswana’s total foreign assets have depleted by P11.5 billion altogether between March 2019 and March 2020. According to the Bank’s 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.

Botswana’s 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. Botswana’s 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 government’s current account could be a dawn for much coming trouble. Towards the twilight of last year the government’s 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, government’s total debt was P27.8 billion, roughly 28 percent of GDP.

Minister of Finance & Economic Development, Thapelo Matsheka recently announced that Botswana’s 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.

Botswana’s 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-19’s impact on Africa” and in its instalment of ‘Africa Watch’, Botswana announced US$163 million which is a 0.9 percent of GDP.

Botswana’s 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 Botswana’s 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 Moody’s 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 Moody’s, the corona virus has only amplified Botswana‘s already risky and vulnerable economic setup.

Moody’s say Botswana’s 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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Payless to partake in BSE’s Flagship Tshipidi program

28th June 2022
PAYLESS

Newly established wholly indigenous citizen owned retail chain Payless Retail (PTY) Ltd is set to partake in the first session of Botswana Stock Exchange (BSE)’s Tshipidi Mentorship Program (TMP) on Monday June 29th.

The TMP aims to train and capacitate SMEs so they can operate as corporates and eventually list on the local bourse. According to local bourse, BSE, the program aims to provide practical training to potential issuers through a comprehensive and interactive program that covers the key themes necessary to position a company to list on the BSE.

Payless Retail is a newly established supermarket chain whose mission is to become a convenient one-stop shopping destination as it is one of the Botswana oldest retailing brands.  It started off as Corner Supermarket in January 1976, and to date boasts of nine stores in, among others, Gaborone, Mochudi, Molepolole and Tlokweng. Payless was recently acquired by Ellis Retail Group, which is led by businessman Elliot Moshoke.

The takeover catapulted Ellis Retail to the envious position of being the first wholly indigenous owned major retail chain. “We jumped at this opportunity because it gave us a chance to prove to Batswana that the retail business is open and lucrative.”

The objective is to create a proudly Botswana retail chain that fully supports our national Vision, economic development and citizen economic empowerment ambitions,” Moshoke told BusinessPost.

He further emphasized that Batswana are capable and able to run large scale businesses hence they need to accept invite foreign investors who will come in to support us not take the business.
“Our win as Payless in the Fast Moving Consumer goods (FMCG) industry is a win for Batswana. We need their support in this difficult and challenging journey.

As you are aware, Payless is the only retail chain in the hands of Batswana ba Sekei. We need to take advantage of this to generate employment and create small businesses in retail and Agri businesses,” he explained.

The retailer has also partnered with Botswana Investment & Trade Center (BITC) on their #PushaBW campaign with a view to initiating earnest engagement with local producers to iron out bottlenecks and ensure seamless trading.

“Local producers have to be part of the phenomenal growth of the Payless brand. This will in turn facilitate employment creation and economic growth. We did this because we have the utmost respect for local manufacturers and producers,” he mentioned.

Payless is currently restocking all of its stores; a development that Moshoke says is testament to the retailer’s commitment to growing the brand and ensuring continuity of business. He further revealed that renowned retail suppliers like PST and CA Sales have reignited their trust in Payless, opening their doors for Payless as they have faith in the retailer’s new owners.

The takeover has reportedly saved more than 200 jobs and gave a new lease of life to the previously fledging Payless brand. According to a press release from the management team, the Payless work forces are also extremely excited about what the future holds. The TMP is a comprehensive and interactive program that covers the key themes necessary to position a company to list on the BSE.

The program is administered by experts within the listing ecosystem and seeks to bring the potential issuers closer to the listings advisers, investors and leaders of already listed companies.  “As a strategic initiative, the BSE decided to set up this mentorship program in a bid to assist SMEs to strategize, corporatize and acclimatize in order to list to access equity finance and expand operations,” said the BSE.

The TMP will avail to SMEs practical insights, knowledge and feedback from institutional investors, increased awareness of the BSE listing requirements as well as an intimate network of advisors and CEOs of listed companies. After training, Payless will graduate with improve governance structures and better knowledge of articulating its business strategy. The retailer will also gain increased visibility through BSE marketing platforms.

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BITC assisted companies rake in P2.96 billion in export earnings

21st June 2022
BITC-CEO-Keletsositse-Olebile

Despite Covid-19 interrupting trade worldwide, exporting companies in Botswana which benefited from the Botswana Investment and Trade Centre (BITC) services realised P2.96 billion in export earnings during the period from April 2020 to March 2021.

In the preceding financial year, the sale of locally manufactured products in foreign markets had registered export revenue of P2, 427 billion against a target of P3, 211 billion BITC, which celebrates 10 years since establishment, continues to carry out several initiatives targeted towards expanding the Botswana export base in line with Botswana’s desire to be an export led economy, underpinned by a robust export promotion programme in line with the National Export Strategy.

The main products exported were swamp cruiser boats, pvc tanks and pvc pipes, ignition wiring sets, semi-precious stones, veterinary medicines, hair braids, coal, textiles (towels and t-shirts) and automobile batteries. These goods were destined mainly for South Africa, Zimbabwe, Austria, Germany, and Namibia.

With Covid-19 still a problem, BITC continues to roll out targeted virtual trade promotion missions across the SADC region with a view to seeking long-lasting market opportunities for locally manufactured products.

Recently, the Centre facilitated participation for Botswana companies at the Eastern Cape Development Council (ECDC) Virtual Export Symposium, the Botswana-Zimbabwe Virtual Trade Mission, the Botswana-Zambia Virtual Trade Mission, Botswana-South Africa Virtual Buyer/Seller Mission as well as the Botswana-Namibia Virtual Trade Mission.

BITC has introduced an e-Exporting programme aimed at assisting Botswana exporters to conduct business on several recommended e-commerce platforms. Due to the advent of COVID-19, BITC is currently promoting e-trade among companies through the establishment of e-commerce platforms and is assisting local companies to embrace digitisation by adopting e-commerce platforms to reach export markets as well as assisting local e-commerce platform developers to scale up their online marketplaces.

During the 2019/2020 financial year, BITC embarked on several initiatives targeted at growing exports in the country; facilitation of participation of local companies in international trade platforms in order to enhance export sales of local products and services into external markets.

BITC also helped in capacity development of local companies to compete in global markets and the nurturing of export awareness and culture among local manufacturers in order to enhance their skills and knowledge of export processes; and in development and implementation of trade facilitation tools that look to improve the overall ease of doing business in Botswana.

As part of building export capacity in 2019/20, six (6) companies were selected to initiate a process to be Organic and Fair Trade Certified. These companies are; Blue Pride (Pty) Ltd, Motlopi Beverages, Moringa Technology Industries (Pty) Ltd, Sleek Foods, Maungo Craft and Divine Morula.

In 2019 seven companies which were enrolled in the Botswana Exporter Development Programme were capacitated with attaining BOBS ISO 9001: 2015 certification. Three (3) companies successfully attained BOBS ISO 9001:2015 certification. These were Lithoflex (Pty) Ltd, General Packaging Industries and Power Engineering.

BITC’s annual flagship exhibition, Global Expo Botswana (GEB) to create opportunities for trade and strategic synergies between local and international companies. The Global Expo Botswana) is a premier business to business exposition that attracts FDI, expansion of domestic investment, promotion of exports of locally produced goods and services and promotion of trade between Botswana and other countries.

Another tool used for export development by BITC is the Botswana Trade Portal, which has experienced some growth in terms of user acceptance and utilisation globally. The portal provides among others a catalogue of information on international, regional and bilateral trade agreements to which Botswana is a party, including the applicable Rules, Regulations and Requirements and the Opportunities for Botswana Businesses on a product by product basis.

The portal also provides information on; measures, legal documents, and forms and procedures needed by Botswana companies that intend on doing business abroad. BITC continues to assist both potential and existing local manufacturing and service entities to realise their export ambitions. This assistance is pursued through the ambit of the Botswana Exporter Development Programme (BEDP) and the Trade Promotion Programme.

BEDP was revised in 2020 in partnership with the United Nations Development Programme (UNDP) with a vision to developing a diversified export-based economy. The programme focuses mostly on capacitating companies to reach export readiness status.

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Inflation up 2.3 percent in May

21st June 2022
Inflation

Prices for goods and services in this country continue to increase, with the latest figures from Statistics Botswana showing that in May 2022, inflation rate rose to 11.9 percent from 9.6 percent recorded in April 2022.

According to Statistics Botswana update released this week, the largest upward contributions to the annual inflation rate in May 2022 came from increase in the cost of transport (7.2 percent), housing, water, electricity, gas & other Fuels (1.4 percent), food & non-alcoholic beverages (1.1 percent) and miscellaneous goods & services (0.8 percent).

With regard to regional inflation rates between April and May 2022, the Rural Villages inflation rate went up by 2.5 percentage points, from 9.6 percent in April to 12.1 percent in May 2022, according to the government owned statistics entity.

In the monthly update the entity stated that the Urban Villages inflation rate stood at 11.8 percent in May 2022, a rise of 2.4 percentage points from the April rate of 9.4 percent, whereas the Cities & Towns inflation rate recorded an increase of 1.9 percentage points, from 9.9 percent in April to 11.8 percent in May.

Commenting on the national Consumer Price Index, the entity stated that it went up by 2.6 percent, from 120.1 in April to 123.2 in May 2022. Statisticians from the entity noted that the transport group index registered an increase of 7.3 percent, from 134.5 in April to 144.2 in May, mainly due to the rise in retail pump prices for petrol and diesel by P1.54 and P2.74 per litre respectively, which effected on the 13th of May 2022.

The food & non-alcoholic beverages group index rose by 2.6 percent, from 118.6 in April 2022 to 121.6 in May 2022 and this came as a result of increase in prices of oils & fats, vegetables, bread & cereal, mineral waters, soft drinks, fruits & vegetables juices, fish (Fresh, Chilled & Frozen) and meat (Fresh, Chilled & Frozen), according to the Statisticians.

The Statisticians said the furnishing, household equipment & routine maintenance group index rose by 1.0 percent, from 111.6 in April 2022 to 112.7 in May 2022 and this was attributed to a general increase in prices of household appliances, glassware, tableware & household utensils and goods & services for household maintenance.

The prices for clothing & footwear group index moved from 109.4 to 110.4, registering a rise of 0.9 percent during the period under review. Bank of Botswana has projected higher inflation in the short term, associated with the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices and added that the possible increase in public service salaries could add also upward pressure to inflation in this country.

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