Once a giant retailer in the non-food retailer industry, 91 year old Edcon lies helplessly on the auction block akin a half-dead dinosaur as its long standing arch-rivals happily divide and devour it amongst themselves for an easy feast. A worker in an Edcon store in Botswana remains in limbo as the big guns shred the gigantic beast into pieces.
Edcon filed for business rescue plan in April after it failed to pay suppliers. It was reported that during lockdown Edcon stores lost R2 billion in sales. This week Monday The Foschini Group (TFG) released a statement confirming its latest intentions to acquire Edcon assets for a cash purchase consideration of R480 million.
While TFG is going for the lion’s share of Edcon, Jet is waiting to add it to its comprehensive portfolio of 29 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.
TFG will also get Jet’s distribution centre located in Durban and certain stores in Botswana, Lesotho, Namibia and Eswatini. Also part of this fat deal is that the company is looking to also acquire JET Club and all existing JET stock of no less than R800 million.
Many observers never expected Jet to be sold for a “good deal” or “for a song.” In an interview with CNBC Africa, TFG CEO Anthony Thunstrom said they took a very good look at Jet for 5 and a half to 6 months and made in-depth due diligence before arriving at its decision of taking over Jet.
Thunstrom said they had an offer to buy Edcon for R10 billion and they found the price was not worth it and pulled out, only for TFG to be recently offered by the business rescue practitioners to buy Jet “as a standalone” for less than quarter of a billion.
Before the Jet bid last week, it was announced by Edcon Business Rescue Practitioners Retailability will buy Edgars. Retailability also owns brands such as Legit, Beaver Canoe and Style.
According to a document seen by BusinessPost, “the Edcon Business Rescue Practitioners today announced the signing of a “Heads of Agreement” to sell parts of Edgars to Retailability (Pty) Ltd.”
Retailability left its footprints in Botswana after launching Style in Botswana with 17 stores. The company operates in over 460 stores across South Africa, Namibia, Botswana, Lesotho, and Eswatini.
The crumbs after the big guys have eaten
A lot of workers in Botswana working for any Edcon, Retailability or TFG related store did not seem to be far from the development in South Africa. The picture in simple logic is that Edcon which was formed just during the beginning of The Great Depression is seeing its demise with the dawn of the novel COVID-19 and its competitors are dividing it amongst themselves.
It is a classic case of ‘when two elephants fight, it is the grass that gets trampled’. When Edcon succumbs to the financial hit that comes from the invisible giant Covid-19, workers face losing their livelihoods.
The much publicized Edcon Business Rescue Plan in South Africa had the workers representative in mind, the South African Commercial, Catering and Allied Workers Union (SACCAWU).
“Both the Employee and SACCAWU representatives expressed support for the Business Rescue Plan, indicating that they choose to back the Business Rescue Plan as it will ensure the preservation of jobs…” said Edcon recently.
It was confirmed that most Edcon employees are affiliate to SACCAWU. However, Botswana Edcon workers are not unionized nor are they members of any known union.
Botswana workers may be facing a huge task of putting their livelihoods in the hands of a multination which does not include the local employees on its high level decision making, this has left some observers worried.
UNI Global Union, a global union federation for skills and services, gathering national and regional trade unions’ regional affiliate UNI Africa, is involved in making sure Edcon as a giant employer or multinational preserves job security. UNI Global Union represents more than 20 million workers from over 150 different countries in the fastest growing sectors in the world – skills and service.
UNI Africa Sector and Project Coordinator, Lebogang Keabetswe said they are not turning a blind eye to the lack of consultation between an employer and an employee with regards to decisions taken in multinationals. She told BusinessPost in an interview that their part in un-unionized member like those of Edcon Botswana, the offer solidarity especially through their affiliates or federations who are mostly stakeholders.
She is aware that Edcon Botswana may be faced by a powerful multinational, but workers’ strength is always in numbers, she said. Keabetswe also wishes Edcon Botswana could have been unionized and hopes Edcon Business Rescue Plan does everything in good faith when Edgars and Jet are sold.
“I think from our end we would like to see workers being involved or engaged in taking decisions that affects their lives, so they can share ideas. They should also take economic factors; value chains will be hurt if Edcon dies and youth who work there will lose jobs adding to the currently high levels of youth unemployment,” said Keabetswe in an interview.
Botswana Federation of Trade Union (BFTU) Secretary General, Thusang Butale told this publication that he does not believe Edcon will retrench Botswana employees due to the emergency powers put to avoid businesses laying off workers. He said that can only happen after October after the end of the State of Emergency.
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.