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BoB not rocking monetary policy boat

BoB

Bank of Botswana (BoB) Governor Moses Pelaelo said there is still a scope for shedding of the Bank Rate or tightening of it. He said this on Thursday after the central bank decided to maintain the Bank Rate from last month’s 4.25 percent, elaborating a continuance with “an accommodative monetary policy stance.”

This is against the expectations of many monetary economists and commercial banks who are of the view that the previous Monetary Policy Committee (MPC) cut was marginal. According to its Botswana MPC review, First National Bank or Rand Merchant Bank researchers anticipate accumulative 75bp cut in the Bank Rate in 2H20, which would take the rate to a historical low of 3.5 percent.

The recent decision of the MPC made on Thursday kick started 2H20. The remaining MPC meetings for 2020 are scheduled as follows: August 20, 2020, October 8, 2020 and December 3, 2020, meaning for the last half of this year there are only three decisions left for the BoB Committee.

Before BoB cut the Bank Rate by 50 basis points (bps), from 4.75 percent to 4.25 percent in April, First National Bank chief economist Moatlhodi Sebabole, who is part of the Rand Merchant Bank team that had made an accurate prediction in an interview with BusinessPost that for April, and the cut would be 50 bps. He further told this publication that he expects the next cut after April to be by at least 25 bps.

As indicated in a previous interview with this publication, Sebabole expected the Bank Rate to be at 4.00 percent in this second half of 2020. But the MPC on Thursday through virtual communication announced that they will maintain the Rate at 4.25 percent.

“While we anticipated rates to go down by between 25bp and 50bp at today’s meeting, the Bank of Botswana’s (BoB) MPC decided to leave rates unchanged at 4.25 percent today (Thursday). BoB reiterated that with the advent of Covid-19, domestic inflation will be restrained due to slow growth in personal incomes as well as low foreign inflation which provides scope for rates to remain accommodative.

The economy will also undergo significant growth pressures due to the anticipated recession and the impact of the pandemic on economic activity,” said Rand Merchant Bank on Thursday afternoon just after the MPC decision.

When doing research, just after the April MPC 50 bps cut, the commercial bank researchers went deep and even expected a 100 bps. They envisaged that a cut to 3.75 percent was much needed going deeper from their initial projected 4.00 percent before April.

However, the Bank this week held a different view, further saying: “The MPC, however, recognized that the short-term adverse developments in the domestic economy occur against a potentially supportive environment including accommodative monetary conditions; improvements in the provision of utilities; reforms to further improve the business environment; concerted efforts by government to mitigate the impact of COVID-19; and a prospective economic recovery programme. These would generally be positive for economic activity in the medium term.”

But this did not satisfy Rand Merchant Bank experts who explained that unlike in the 2009 economic recession when the economy underwent a current and capital account crisis, the effects of Covid-19 are expected to be broad-based. Covid-19 is expected to impact both the supply-push and demand-pull pressures.

According to the researchers, the limited economic activity posits significant downward pressures to headline inflation, which the commercial bank now estimate at an annual average of 2.20% (2.80% in 2019).

“The significant downward pressures to headline inflation will emanate from lower oil prices expected for the rest of the year as there has already been two reductions to fuel prices in the past three months,” said the researchers.

The commercial bank’s researchers also anticipate limited imported inflation from South Africa (which accounts for over 60 percent of imports) due to moderation of inflation in SA as well as a weaker Rand — which will benefit Pula imports.

“Risks to the upside, though minimal, will be due to increases in administered prices, including the recent tariff hikes on electricity. We reiterate that even with low headline inflation, consumers’ purchasing power remains low due to broad-based unemployment challenges and negative medium term real wage adjustments,” said the researchers.

Pelaelo on the other hand read that inflation eased from 2.5 percent in April to 2.4 percent in May 2020, remaining below the lower bound of the Bank’s objective range of 3 – 6 percent. He further said inflation is forecast to revert within the objective range in the third quarter of 2021, which is a significant downward revision from the April 2020 forecast.

The BoB Governor explained to the media that the downward revision from the April forecast should be credited to the decrease in fuel prices. He said this also saw a decrease in food prices, hence the downward revision.

Rand Merchant Bank experts’ outlook which supported deeper cut of the Bank Rate further said lower inflation and growth support the case for a big shed of the Rate in 2020.

Our GDP growth forecast for Botswana remains at -10.5% y/y in 2020 (4.5% in 2021), with risks to the downside due to the uncertain economic environment, said the researchers.

According to the Rand Merchant Bank researchers, if the current economic situation persists, then growth could dip to -16.1% y/y (bear scenario).

The commercial bank researcher said the Ministry of Finance and Economic Development estimates growth at -13.0% y/y, which is an indication that the economy is anticipated to perform worse than during the global financial crises of 2008/9 where it contracted 7.7% y/y.

“In our view, it will take about two to three years for the economy to regain its 2019 value (in Pula terms), unless an extraordinary stimulus package is put forth, prioritising jobs and productivity. These factors, we believe, provide the BoB with room to cut rates further without altering real interest rate differentials from their historic averages.

We anticipate a cumulative 75bp cut in the Bank Rate in 2H20, which would take the rate to a historical low of 3.5%,” said the Rand Merchant Bank research released end of this week.

The commercial bank researchers said the recessionary growth pattern that they anticipate in 2020, coupled with stubbornly low inflation dynamics and subdued demand and output prospects, all point to our fundamental view that the Bank Rate will trend lower in the short to medium term.

“We maintain our view that the Bank Rate will trend lower to 3.50% in 2020 – thus the timing for the cut remains a waiting game,” they said.

Business

18th January 2021
10 Best Forex Brokers

10 Best forex brokers that accepts Botswana Traders ( 2021 )

The best handpicked forex brokers for Botswana traders revealed for 2021. Trade with confidence with any of these licenced and regulated brokers.
1.  Exness

Exness is a popular and well-regulated broker based in Cyprus and the UK which offers traders with a variety of account types, powerful trading platforms, competitive trading conditions and more.

 

PROS

CONS

1.      Globally recognized broker1.      US clients not accepted
2.      Negative balance protection offered2.      Limited tradable financial instruments
3.      MetaTrader offered
4.      Demo account and Islamic account option offered
5.      Adequate leverage and reasonable minimum deposit requirements

2.  AvaTrade

AvaTrade is a popular and multi-award-winning Market Maker and STP broker which is regulated to offer comprehensive trading solutions in several jurisdictions.

 

PROS

CONS

1.      Strict regulation1.      US clients not accepted
2.      Negative balance protection2.      Variable spread accounts not offered
3.      Optimum execution speeds
4.      Multiple trading platforms offered
5.      Social trading supported, hedging and scalping allowed

3.  XM

XM is a popular and reputable broker which has been in operation since 2009. XM is strictly regulated by several regulatory entities and offers traders from around the world with access to global financial markets.

 

PROS

CONS

1.      Strict regulation1.      US clients not accepted
2.      Negative balance protection2.      Fixed spread accounts not offered
3.      Competitive trading conditions
4.      Variety of accounts offered
5.      High leverage ratio of 1:888

4.  eToro

eToro is a reputable and popular Market Maker broker in addition to being the leading social trading platform in the industry. eToro caters for various traders and investors from 140 countries, offering comprehensive trading solutions to both beginners and experts.

 

PROS

CONS

1.      Strictly regulated1.      US clients not accepted
2.      Client fund security guaranteed2.      Limited leverage for retail traders
3.      Commission-free trading3.      Fixed spreads not offered
4.      Large online community4.      MetaTrader not offered
5.      Demo account and Islamic account option provided

5.  IC Markets

IC Markets is an ECN broker based in Australia and Seychelles with regulation and authorization through ASIC. Established in 2007, IC Markets is one of the largest true ECN brokers in the world that offers traders access to global financial markets.

 

PROS

CONS

1.      Well-regulated1.      US clients not accepted
2.      True ECN broker2.      Fixed spread accounts not offered
3.      Low trading and non-trading fees
4.      Tight and competitive spreads
5.      Hedging and scalping allowed, social trading supported

6.  FBS

Established in 2009, FBS is a strictly regulated and reputable STP and ECN broker which has around 16 million registered traders from 190 countries worldwide.

 

FBS offers traders with more than 75 financial instruments which can be traded through powerful trading platforms, competitive trading conditions, a variety of account types, and more.

PROS

CONS

1.      Ultra-low deposit requirement1.      US, UK, Japan, Israel and several other countries not allowed
2.      Social trading supported2.      High spreads and commissions on some accounts
3.      Multiple account types offered3.      Limited trading tools
4.      MetaTrader offered
5.      24/7 dedicated customer support

7.  FxPro

FxPro is a UK-based NDD broker which is regulated by FCA, CySEC, FSCA, and SCB in facilitating the trade of more than 260 financial instruments spread across six asset classes.

PROS

CONS

1.      Multi-regulated1.      US, Canada, Iraq and others not accepted
2.      Multiple trading platforms offered2.      Social trading not supported
3.      Premium trader tools3.      Not the tightest spreads
4.      NDD Execution4.      Not the lowest commissions
5.      Expert analysis and VPS offered5.      Managed accounts not offered

8.  Alpari

Alpari is a well-regulated STP and ECN broker with nearly two decades worth experience in offering comprehensive trading solutions. Alpari boasts with 2 million registered traders from more than 150 countries worldwide.

PROS

CONS

1.      Well-regulated1.      US, Japan, Russia, and several other countries not accepted
2.      MetaTrader offered2.      Limited financial instruments
3.      PAMM accounts offered3.      No fixed spreads
4.      Multilingual customer support

 

9.  FXTM

FXTM is a UK, Cyprus, South Africa, and Mauritius-based broker which offers traders with more than 250 financial instruments to trade.

FXTM caters for both retail and professional clients and has tailormade solutions despite the trading needs and objectives of traders.

PROS

CONS

1.      Strict regulation1.      US clients not allowed
2.      Variety of financial instruments2.      Restricted leverage for EU traders
3.      Multiple account types
4.      Commission-free trading offered
5.      Low minimum deposit

 

10.        Olymp Trade

Olymp Trade is based in St. Vincent and the Grenadines and offers traders with a wide range of tradable financial instruments.

Olymp Trade, as opposed to conventional brokers, offers traders with fixed time trades which can be done through a powerful proprietary trading platform.

PROS

CONS

1.      Low minimum deposit1.      High commission fees
2.      Training resources offered2.      Social trading not offered
3.      Controlled risks and rewards3.      Not regulated
4.      Market news and analysis4.      No support for automated trading
5.      24/7 dedicated customer support5.      MetaTrader not offered
6.

 

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Business

Diamond industry crises not over yet – De Beers Chief

13th January 2021
De Beers Group Chief Executive Officer: Bruce Cleaver

Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry  started gaining  positive momentum towards the end of the year as key markets entered into  thanks giving and holiday season.

However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.

The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.

The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.

This halted movement of buyers and shipment of  the rough goods , resulting  in unprecedented decline of sales, in turn  ballooning stockpiles as the upstream  operations produced with little uptake by the midstream.

The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.

However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.

De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.

Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.

De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.

“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.

The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.

The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.

Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.

“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.

In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”

All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.

After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.

However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.

Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.

These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.

For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.

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Business

Gov’t coffers depleting to record low levels 

13th January 2021
Dr Matsheka

Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.

The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering  the year 2020 – a 12 months stretch of complete setback.

The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.

National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.

As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.

On the other hand the COVID-19 economic mess is  prevailing,  the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.

According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.

However reports indicate that the account could be currently holding just about P3 billion.  The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.

 

When the National Development Plan (NDP) 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at a budget deficits.

This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively, since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances.

Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.

Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.

Meanwhile  should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian  aids and international donors, because  foreign reserves are also on slow down.

During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.

The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020.  This was revealed by President Masisi during State of the Nation Address in November last year.

The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.

However latest statistics(October 2020)  from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with  government’s share of these funds significantly low.

Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.

Furthermore, Value Added Tax has been signaled to go up  from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.

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