Should credit be panacea for ‘The Great Pandemic’?
Business
There is currently an image of microeconomics heavily eclipsing macroeconomics as economies around the world including Botswana, are going through lockdowns leading to the closure of borders around the world.
This visual should show a system of economics where decisions are mostly human based or business centred taking a bigger shape and replacing plans made by governments in front of a broken vintage mirror reminiscing The Great Depression.
When he rushed to close the country to a complete halt of lockdown on 31 March, in his most sober speech after this country discovered the first face of the invisible enemy; Covid-19, President Mokgweetsi Masisi in paragraph 17 of his speech talked of “Stabilizing businesses.”
With the decision to close down borders, there was obviously no way Masisi was going to speak macroeconomics in his speech given the situation of a pandemic affecting the global village and threatening to wipe out the human race.
The President only bordered his thought on how government can help businesses participate in the domestic economy whereby the Government is to “give businesses some cash-flow relief. Government will guarantee loans by commercial banks to businesses mostly affected by COVID-19.
Give eligible businesses affected by COVID-19 access to credit to support ongoing operations in conditions where credit becomes more difficult to obtain.”
Masisi was talking of credit to businesses but the discussion was more than what was in the black and white document.
However, dynamics shift when microeconomics takes centre stage as compared to macroeconomics especially when there is something which greatly affects humanity and cuts down all the aspects of humanness, like wars, disasters and diseases or a big global economic collapse.
As the global economy is cornered, there comes a time when things seem like déjŕ vu as the history of The Great Depression after the First World War repeats itself in this era of the novel Corona virus. There was a global wave that saw the collapse of the stock market while populations across the world failed to deal with microeconomics which were caused by macroeconomics when nations went for war.
After WWI, the US banks got hit hard due to credits offered to countries at war. Domestically, financial systems collapsed due to people or businesses who could not pay back banks.
There were many global economic downfalls including ‘Great Trade War’ between China and the US which affected global economics. Recently, the ‘Great Price War’ amongst oil producing giants subsequently resulted in ‘Great Oil Crunch’ not to forget the Brexit saga all this during and amid Covid-19, things went from bad to worse for economies in 2020. But in microeconomics there is an echo that ploughing credit in the population will be the best medicine in this year of economic ills.
As coronavirus took its toll on Botswana’s economy, one of the most fiscal and monetary interventions was when the central bank cut the benchmark policy rate by 50 basis points to 4.25 percent aimed at cushioning the economy by easing borrowing costs across board.
The prudential capital adequacy ratio for commercial banks was also dropped from 12.5 percent to 15 percent. The central bank said the reduction of primary reserve requirement will free up P1.6 billion to be used by banks to finance economic activity.
A recent business expectations survey by Bank of Botswana (BoB) for the second quarter, which was carried out in the constrained conditions of Covid-19 lockdown, says firms do not believe there will be easy access to credit. Firms anticipate “tight access to credit in the domestic market in the second quarter of 2020.
Businesses also expect lending rates in the rest of the markets to decline according to the business expectations survey and this is not what the President wished for in his first Covid-19 speech of 31 March.
Business expectations could have been informed by the statistics which were recently released by BoB. The statistics which were made before Masisi encouraged borrowing as one of the economic panacea in the wave of ‘The Great Pandemic’ shows that commercial bank credit growth in March 2020 swayed more to households than businesses.
This contradicted Masisi’s State of Emergency speech as instead of businesses taking credit from commercial banks, households lead the connection to tellers with credit growth of 15 percent by March 2020. Credit growth in businesses was only four percent.
According to the central bank, annual growth in commercial bank credit increased by 10.7 percent in March 2020, from 6.7 percent in March 2019. However, things were different last March unlike this year where household credit dwarfed that to businesses. Last March businesses had a credit growth of 7.5 percent while households was at 6.2 percent.
According to BoB Annual Report of 2019, which was released recently, commercial bank credit decelerated from 7.7 percent in 2018 to 7.6 percent in 2019. “The slight decrease in the rate of credit growth was mostly associated with sluggish lending to businesses, which decreased from 10 percent in 2018 to -1.7 percent in 2019.
This was mostly due to loan repayments by some companies in manufacturing (some in the diamond cutting and polishing sectors,” said the Annual Report.
Borrowing but not paying back During The Great Depression the banking sector suffered the most with companies and households failing to pay back the money they owed. This could be the case with ‘The Great Pandemic’.
As much as credit appetite is growing for households than for businesses, the central bank on Tuesday told reporters that it is a good thing as it stimulates domestic demand. It emerged during a dialogue between the central bank and the media this week that the prevalence of Non-Performing Loans (NPLs) has remained an eyesore for the banking sector for years. Households would line up to take loans but not pay back.
There could be a problem looming. When the lending rate increased for households, from 7 percent in 2018 to 18.7 percent in 2019, it was because of personal loans facilities which were offered after government hiked public service salaries in the past financial year.
But in this current financial year, the salaries which were supposed to be increased in this season were not hiked. Credit growth to households could shrink further amid Covid-19 economic effects because of such decisions.
Maybe government by withholding salary hikes spared many from borrowing and failing their debt obligation as coronavirus hit. But some economic pragmatics hold a different view, saying people will shy away from borrowing because their salaries were not increased hence an expected decrease in credit growth.
Non-Performing Loans Manufacturing and trade sectors dominated the private business NPLs in 2018, accounting for 29.5 percent of the private business NPLs. The NPL ratio for businesses soared, it reached 7.5 percent in 2019 from 7.3 percent in 2018.
Despite the household in-debt of Botswana even when considered low by international standard, the central bank in its recent report has observed that household credit is concentrated in unsecured lending, being 70.1 percent in December 2019.
BoB said: “The significant share of unsecured loans and advances has the potential to cause financial distress in households, given the inherently expensive nature of such credit.
Nevertheless, concern would arise in the event of high levels of borrowing that are out of line with trends in economic and personal income growth, which would amplify the risk of exposure of households and businesses to economic shocks and could adversely affect their ability to repay debt.”
Tuesday this week during a meeting with journalists, Head of Banking Supervision Department, Dr Lesedi Senatla said that anyone who applies for bank loans goes through a thorough assessment to see their credit worthiness. But a problem can occur when an unforeseen event like loss of jobs happen. Masisi in his State of Emergency bars anyone from firing or retrenching workers.
BoB Governor, Moses Pelaelo talked of financial discipline not forgetting the fact that “banks are traders of risk” and a source of income may be lost or reckless uses of finance would lead to defaulting in loans.
Business
Botswana’s household spending to reach P62.4Bn
The UK based research entity, Fitch Solutions Group recent forecasts indicate that household spending in Botswana could increase, following the recent decline in inflation.
In the recent statement Bank of Botswana Monetary Policy Committee (MPC) noted that headline inflation decreased significantly from 4.6 percent in June to 1.5 percent in July 2023, breaching the lower bound of the Bank’s medium-term objective range of 3 – 6 percent and added that the fall in inflation was mainly due to the dissipating impact of the earlier increase in domestic fuel prices in the corresponding period in 2022. “Furthermore, inflation fell on account of the downward adjustment in domestic fuel prices effected on June 21, 2023. Inflation is forecast at 1.2 percent for August 2023 and the MPC projects that inflation will remain below the lower bound of the objective range temporarily and revert to within the objective range from the first quarter of 2024 into the medium term.”
In the recent forecasts Fitch Solutions Group noted that easing food and transport costs are expected to support strong demand for goods and services over the second half of 2023 and 2024 and boost consumer spending. “Our outlook for consumer spending in Botswana over 2023 is positive, with downward food and transport price pressures supporting easing inflation over H223 and presenting tailwinds to spending. Over 2024, we believe the Bank of Botswana will begin its rate cutting cycle due to inflation returning to a downward trajectory over Q423 and Q124, driving spending over the year.”
According to the entity household spending is expected to grow by 5.1 percent. “We forecast real total household spending (2010 prices) will grow by 5.1% y-o-y over 2023, an acceleration from 4.8% y-o-y growth in 2022. This will take real total spending up to BWP62.4bn. We project the positive growth trajectory to continue over 2024, with consumer spending growing by 4.4% y-o y.”
Researchers from the entity indicated that inflation in Botswana has begun easing due to declining food and non-alcoholic drinks, as well as transport price pressures. “In June 2023 inflation slowed to 4.6% y-o-y in June 2023, down from 12.7% y-o-y in June 2022. We believe the lagged impact of central bank monetary policy will feed through to downward inflationary pressures over the remainder of H223 and into Q124, presenting tailwinds to spending. Our Country Risk team forecasts inflation to average 6.3% y-o-y over 2023, before ending the period at 4.2% y-o-y. Over 2024, inflation will average 4.1% y-o-y, returning to the central bank’s target rate of 3-6%.”
The researchers stated that 2023/24 national budget shows that around BWP15.0bn (USD1.15bn) will be allocated towards strengthening human capital and skills development in the country, while BWP10.3bn (USD792.3mn) will be allocated for health. “This decreases the need for consumers to pay for these services out of their wages. The effects that increasing level of investment by the government into skills development and improving the health of citizens on the disposable income outlook is threefold. Firstly, the investment decreases the need for consumers to pay for these services out of their wages, and thus boosts the level of disposable income. Secondly, citizens enter the workforce with a higher level of skills and can thus command a higher wage/salary, and thirdly, with improving levels of health and access to health services, workers are able to return to work quicker and overall this improves their wage prospects and the general productivity of the labour force. These factors will provide a boost to the longer-term employment outlook in Botswana.”
Fitch Solutions Group meanwhile noted that unemployment, high interest rates and income inequality is a key risk to the consumer outlook during the second half of 2023 and 2024. “High unemployment, elevated interest rates and persistent income inequality will, however, present downside risks to demand, limiting spending growth.”
The research entity noted that the level of unemployment in Botswana remains high, at 23.8% of the labour force in 2023 and added that this is slightly below the 24.1% average in 2022. “However, despite decreasing from a peak of 24.9% and 24.7% in 2020 and 2021 respectively, unemployment has not returned to the pre-pandemic level of 22.6% in 2019. Weak investments in agriculture and manufacturing will keep employment limited with low economic diversification and high-income inequality exacerbating the risk of social stability.”
Business
Troubled Minergy terminates mining contractor in turnaround strategy
Minergy Limited, the Botswana Stock Exchange listed mining company operating Masama Coal Mine in Medie near Lentsweletau, has decided to part ways with mining contractor Jarcon, the company announced on Tuesday.
In a circular to the market Minergy revealed that it has issued a notice to terminate its mining contract with Jarcon Opencast Mining Botswana (Pty) Ltd. In the notice, Minergy Coal will terminate the mining contract in 30 days.
The company, financial backed by state owned Mineral Development Corporation (MDC) and Botswana Development Corporation (BDC), said termination of the mining contract is “in line with the strategic intent of the Board of Directors and the financiers of Minergy, to stabilise operations and bring the business to sustainable profitability”.
During this transition period, arrangements have been made to ensure business continuity and minimal disruption in coal supply to clients, by inter alia using stock holdings available.
The market was further informed that the process of appointing a new mining contractor is at an advanced stage and a final decision will be communicated in due course.
Minergy operates a privately developed coal mine in Medie near Lentsweletau, the company has been facing financial challenges recently leading to operational slow down early this year due to unsettled debt to mining contactor. MDCB later came to the rescue, bailing out the company to ensure business continuity.
According to letters to employees dated 25 August 2023, seen by this publication, Jarcon, Masama’ s mining contractor has warned its employees of possible job cuts as Minergy financial challenges persists, citing reduction in demand for coal and fall in prices for the product.
Last week Minergy announced that Chief Technical Officer at Mineral Development Company Botswana Mr Matthews Bagopi has been seconded to Minergy Coal as interim lead following the resignation of Minergy Chief Executive Officer Mr. Morné du Plessis.
Minergy said du Plessis tendered his resignation to pursue other interests. Mr. du Plessis will however remain available and dedicated to Minergy during his notice period ending 30 November 2023.
Bagopi is tasked with ensuring augmented management capacity at the mine and ensure business continuity.
An alumnus of Camborne School of Mines, Mr. Bagopi is described as a seasoned mining professional with over 30 years of experience in the industry in various mining commodities, starting his career at graduate level and ascending to executive management.
Mr Bagopi has been instrumental and at the leading edge of developing coal markets for Botswana coal at Morupule Coal Mine in the region as well as internationally.
He brings forth a well-established network of strategic partnerships and collaborations in the industry, ranging from operations, technical, commercial and business development, projects development, having paved the path for the development of MCM corporate strategy, before joining the MDCB as Chief Technical Officer, overseeing technical aspects of MDCB’s mining investment.
Masama has capacity to produce 1.5 million tonnes of coal per year and is the smaller of two coal mines currently in operation in Botswana, the other being the state-owned Morupule Coal Mine, with 4.2 million tonne capacity.
Minergy’s latest annual report shows that as of June 2022, the company owed the mining contractor 79 million pula after a debt restructuring exercise. It also owed BDC 125 million pula and MDCB some 295 million pula.
Strong demand, mostly from Europe due to the fallout from Russia’s invasion of Ukraine, drove Minergy’s exports up 53% in the half-year to Dec.31, boosting its earnings and helping it to reduce debt.
However, weakening coal prices and logistical challenges it faces when hauling coal from landlocked Botswana to export markets have impacted Minergy’s earnings.
Business
How Value-Based Care Can Revitalise HealthCare
 Dr. Malebogo Kebabonye, Bomaid Chief Clinical Services Officer
The healthcare system is a crucial and yet fragile one, in any scenario we look at it within. The reality we face is an overburdened healthcare system, taking an even greater toll since the COVID-19 pandemic. The pressure gaps and issues we face are now clearer than ever before to see, and the time to act is now. At the same time, as we look at this healthcare crisis, we recognise it is not for Botswana alone to experience, not to solve – this is a global phenomenon we are seeing in many markets. But how are we solving for it? And is the onus on healthcare providers alone?
The concept of value-based healthcare is fast becoming a go-to, and with good reason. However, it is not new. Indeed, it has been around for some time and has been a primary focus for work delivered by, for example, the World Economic Forum (WEF) and even the World Health Organisation (WHO). Value-based care ties the amount health care providers earn for their services to the results they deliver for their patients and aims at promoting quality of care over the quantity of services. There is less focus on frequency of healthcare interventions or doctor visits, and rather, priority is placed on the quality of care and the progress experienced for the customer or patient. Ultimately, this approach improves overall health and wellbeing of the population and has proven effective in such markets as Kenya, the US, the UK, and in the public sector of Botswana.
According to the World Economic Forum, “The widely accepted definition of value in healthcare is the health outcomes that matter to patients relative to the resources or costs required to deliver those outcomes. Value-based healthcare is an approach that aligns industry stakeholders (payers, providers, pharma/MedTech and policymakers) around a shared objective of improving patient health outcomes, providing autonomy and accountability to providers to pursue the best way to deliver healthcare for the money spent. The transition from volume-based to value-based healthcare will inevitably lead to more healthy societies while optimising resources
As Bomaid, we have adopted the Value Based Care approach locally, it is in line with one of our key strategic pillars of improving holistic wellness which is patient centred and anchored in Primary Health Care. It helps better manage healthcare costs which are ultimately borne by customers through annual subscription increases and other out of pocket expenses, recognising that medical providers alone are not the only agents of change in this space – medical aid providers are crucial to supporting the wider ecosystem growth and betterment.
Patient centered care or personalised care, on the other hand, focuses on the individual’s particular healthcare needs. The goal of patient-centered healthcare is to empower patients to become active participants in management of their care. Core to the principles of patient centred care is personalisation and individual accountability towards one’s own health. Value-based healthcare focuses on maximising patient healthcare outcomes and harnessing resources to better deliver on this while reducing inequity in health outcomes and promoting high impact interventions. This is, ultimately, what Bomaid strives to do in working towards delivering, first things first, health, happiness and holistic wellbeing.
So how do we deliver on a value-based healthcare sustainably and meaningfully?
It begins with mindset, yes. But this is swiftly followed by many tangible factors too: the right systems; the right infrastructure; the right resources; The right regulatory environment. It means putting holistic patient wellbeing and health first, as well as removing inefficiencies that would otherwise result in cost burdens on patients, as well as unimproved health outcomes – always being ill, never seeing real recovery.
The WEF further notes, “This high-cost burden can, in part, be the consequence of inefficiencies in the healthcare system, such as fragmented and uncoordinated care delivery, poor data governance, workforce shortages and underinvestment in preventive care. The OECD estimates that up to 20% of healthcare spending across its member countries is unnecessary or ineffective. Accordingly, spending more doesn’t always lead to improved patient outcomes. So, addressing these inefficiencies would help reduce costs and make healthcare more equitable and accessible.”
As we strive for healthier, happier people across the nation, how do we help leverage value-based care to ensure better healthcare outcomes are the only acceptable result, and that we help ensure quality and relevant, appropriate healthcare is equitable, accessible, and inclusive?
It is not for us to suggest our approach is by any means a silver bullet, but it is one worth exploring, because the global results speak for themselves. Now, how do we collectively mobilise in recognition of the fact that some discomfort for the industry now means progress for our patients and customers? This, after all, remains our priority.
Aligned to the Botswana Government through the Ministry of Health strategic agenda for Primary Health Care Revitalisation, the time is now to refocus the Private Health Care system towards a value based care to create sustainability and resilience in our health sector as a country.
Dr. Kebabonye ( Bomaid Chief Clinical Services Officer) is a public health specialist who joined Bomaid in 2023 as Chief Clinical Services Officer. In this role, she is mandated to develop and implement clinical strategies and policies which support the business in providing healthcare solutions, finding access to affordable leading-edge healthcare and innovations. This works to help enable healthier, happier lives through proactive and preventative products to attract younger healthier clients, whilst still providing reactive rehabilitation healthcare solutions. Â