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Food movers bullish in markets amid lockdown high eating costs

A lot of economic dynamics explain that Botswana households during lockdown had less choices and options and found comfort in food despite its costs going up. The cost of food in Botswana increased by 3.60 percent in June of 2020 over the same month in the previous year, mirroring high prices from food import production.

Research shows that Botswana’s economy would bear the cost of being reliant on food imports when demand calls supply out. With the increase of food consumer price index when lockdown started in April to June (1.3) and Food & Non-Alcoholic Beverages group being dominant in contributions of groups to annual inflation rate during the time of stay at homes, investment shifted on consumables goods or foodstuffs.

Investment or risk appetite of owners of food suppliers and retailers remain resilient and confident in the financial markets. This could be because consumers’ sentiment on food prices cannot change the appetite for food amidst the chaotic economic environment of Covid-19.

A higher consumer price index may affect food importing countries like Botswana whose households tend to spend a larger percentage of income on foodstuff. According to Statistics Botswana, food comes third after transport and housing in this country when it comes to weighing inside the Consumer Price Index basket.

Back to investment in consumables or products that are highly in-demand, sold quickly and affordable, the financial markets are currently responding despite the higher cost of food and its marginal increase in inflation rate.

According to a recent market analysis from a fresh stockbroker research activity spanned across a number of sectors in the market and the Fast-Moving Consumer Goods (FMCG) is leading the pack; “Sefalana and CA Sales, stocks claimed over half of the volumes traded and turnovers even higher.”

According to Motswedi Securities, for the week ending 17 July there was, “a welcome improvement from the 1.58mn shares that traded worth P3.83mn in the prior week.”
According to Stockbrokers Botswana, putting the same period and the two FMCG stocks into context, there was a turnover amounting to P27, 4 million as 6, 3 million shares exchanged hands; Sefalana (42 percent) and CA Sales (27 percent) were the biggest contributors to turnover.

Sefalana and CA Sales invest on FMCGs or products that are highly in-demand, sold quickly, and affordable. Value chain for fast-moving consumer goods in Botswana research shows Sefalana takes a bulk of its supplies by trucks or ships as “large supplies from foreign supplies” or imports.

The supplies will then reach a wholesaler and Sefalana acts as a transporter of goods and wholesaler. Before the goods can reach consumers, Sefalana will sell it as a retailer too. CA Sales is a giant independent distribution agent and supplies most grocery chains around the country.

A curious investment appetite movement for a sector whose value chain was almost affected by country to country Covid-19 measures. Truck drivers coming from other countries to Botswana waited at the border for days before they could be tested. If they tested positive for the pandemic, they would be returned home if they are foreigners or quarantined if they are locals. This publication saw trucks which were supposed to deliver FMCGs to the country stuck at boarder gates.

But investors are still in the gamble for the stocks of FMCGs. Some simplistic observation from trade experts is that Botswana is a consumer population and despite the pull of demand to supply being skewed, people will still buy food than any other commodity.

According to the June inflation statistics, food prices went up but there was less action in inflationary consequences in other commodities. Notably, communication recorded low inflation rate, recreation and culture was at a low as well, this was because people stayed at home while transport hit the negatives as cars were packed save for few ones driven for essential services.

When making their investment past decisions, FMCGs investors could be reading the forecast notebook recorded by researchers last year of a strong consumer demand supported by positive economic growth and low inflation which will protect consumer purchasing power over the coming quarters.

That time there was “a recent increase in wages for public servants as well as increases in the minimum wage bodes well for consumer-facing companies.” But that was before Covid-19 when government was forced to withheld public servants salaries and the fiscal and IMF lowered their economic projections.

According to renowned think tank Fitch Solutions, consumer spending growth in Botswana is projected to be weaker in 2020 due to the negative impact of the Covid-19 pandemic. “We have revised our forecast for real household spending growth down to 0.7% y-o-y in 2020 from a pre-Covid-19 forecast growth rate of 4.9% y-o-y,” said the think-tank recently.

Thou shall live by bread and cereal alone

Bread and cereal is the stable food in Botswana and it is shown by Botswana’s continued demand for it at higher volumes and takes the largest weight in the food consumer price index. According to Food and Agriculture Organization (FAO), Botswana is a net importer of cereals, with more than 90 percent of the domestic requirements normally satisfied by imports.

According to the latest Consumer Price Index report from Statistics Botswana, the Food & Non-Alcoholic Beverages group index rose by 0.5 percent, from 105.2 to 105.7 over May and June. According to Statistics Botswana, prices of bread and cereals, which have the largest weight in the food price index, increased steadily throughout 2019 and early 2020, and were estimated to be 4 percent higher year on year in June 2020.

FAO said of March 2020, prices of bread and cereals were slightly higher compared to year‑earlier levels. This increase mainly reflects the high prices of maize in South Africa, the country’s main supplier of grains. A disturbance of bread and cereal import value chains is expected to be worse for June/July statistics given the lockdown border disruptions.

Cereal imports in the 2019/20 marketing year (April/March) increased to an estimated 440 000 tonnes, over 20 percent above the previous five‑year average partly reflecting the low domestic cereal harvest in 2019, according to FAO. Maize which accounts for the largest share of cereal imports, is estimated at 265 000 tonnes.

Without imports Botswana is expected to wait for the harvest which is expected to have concluded in June according to FAO. Harvested cereals are mostly sorghum and maize.
About 38 000 people were estimated to be in need of food assistance in the April 2019‑March 2020 period, compared to an estimated 35 000 people in the previous year, according to the Botswana Vulnerability Assessment Committee (BVAC).

In its Global Information and Early Warning System, FAO said the moderate increase is mainly due to the reduced 2019 cereal harvest and the deterioration of livestock body conditions, which particularly affected the livelihoods of subsistence farmers.

FAO in its Global Information and Early Warning System recently also posted that: “Looking further ahead, although an increase in cereal and livestock production in 2020 would improve food availability and ease access constraints to food for subsistence farmers, the risks posed by the COVID‑19 pandemic could cause an increase in the prevalence of malnutrition at the national level.

The effects of the pandemic are expected to be primarily channelled through a reduction in economic activities and associated income losses. A breakdown in supply chains, particularly in relation to trade disruptions with South Africa, which is the primary source of staple foods, would have sizeable impacts on the availability of food supplies in local markets.”

The cost of a healthy diet amid ‘The Great Pandemic’

Cereal and bread are not considered to be healthy food in terms of their nutritional value, as they contain a lot of carbohydrates which are said to be fuelling obesity and its health repercussions in any economy. Fruits and vegetables which are commonly recommended as a panacea to many diseases like immunisations against Covid-19 and makes healthy meals, are trailing the food consumer price index weights at number 6 and 7 respectively.

This paints a picture that Batswana’s diet is predominantly carbohydrates or cereal and bread as opposed to the healthy fruits and vegetables. According to FAO, Assistant Director-General and Regional Representative for Africa, Abebe Haile-Gabriel in a piece sent to BusinessPost, hunger is on the rise in Sub-Saharan Africa, and a healthy diet has become an out-of-reach luxury item for many Africans.

According to Haile-Gabriel, there is a recently launched ‘The State of Food Security and Nutrition in the World (SOFI)’ report which found that Africa has the highest prevalence of undernourishment – more than twice the global average – and the fastest growth in the number of hungry people compared to other regions.

“COVID-19 is compounding the problem. Disruptions to food supply and livelihoods mean that many households are facing increased difficulties in accessing nutritious foods, particularly for the poorest and most vulnerable. Preliminary projections outlined in the report suggest that COVID-19 could add an additional 83 to 132 million people globally to the ranks of the undernourished,” said Haile-Gabriel.

Haile-Gabriel also added that the cost of a healthy diet is above the international poverty line, meaning that people earning less than US$1.90 per day cannot afford to eat adequate calories and nutrients from diverse food groups. The UN representative also said, compared to other regions, this affordability poses the greatest challenge in Africa, where a healthy diet is beyond the means of nearly a billion people.

“In sub-Saharan Africa, a healthy diet costs 3.2 times more than the poverty line, and the situation is even worse in countries with a protracted crisis such as conflict. The poverty line itself needs to be reviewed to include the cost of nutritious food as a basic cost of living,” the FAO chief said.

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MD, Board in BBS battle for supremacy

12th April 2021

Botswana Stock Exchange (BSE) moved swiftly this week to suspend BBS Limited from trading its securities following a brawl between Board of Directors and Managing Director, Pius Molefe, which led to corporate governance crisis at the organisation.

In an interesting series of events that unfolded this week, incumbent board Chairperson, Pelani Siwawa-Ndai moved to expel Molefe together with board Secretary, Sipho Showa, who also doubles up as Head of Marketing and Communications.  It is reported that Siwawa-Ndai in her capacity as the board Chairperson wrote letters of dismissals to Molefe and Showa.

Following receipt of letters, the duo sought and was furnished with legal opinion from Armstrong Attorneys advising them that their dismissals were unlawful hence they were told to continue to report to work and carry out their duties.

Documents seen by BusinessPost articulate that in the meeting which was held on the 1st of April, the five outgoing board members, unlawfully took resolutions to extend their contracts by a further 90 days after April 30 2021 as they face tough competition from five other candidates who had expressed interest to run for the elections.

Moreover, at the said meeting, management explained that neither management nor the board have the authority to decline nominations submitted by shareholders or the interested parties which is in line with Companies Act and also BBS Limited constitution.

Molefe also revealed that as management they cautioned the board that it was conflicted and it would be improper for it to influence the election process as it seems they intended to do so.
“Nonetheless, in a totally unprecedented move in the history of BBSL, the board then collectively passed the unlawful resolutions below. Leading to the illegitimate decisions, the board had brazenly directed that its discussions on the Board elections should not be recorded totally violating sound corporate governance,” reads the statement released by management this week.

When giving their legal advice, Armstrong Attorneys noted that notice for the AGM should state individuals proposed to be elected to the board and directors have no legal authority to prevent the process.

Armstrong Attorneys also noted that, “due process” cited by board members are simply to ensure that the five retiring Directors avoid competition from interested candidates to be appointed to the BBS Limited board.  The law firm further opined that the resolution of the 90 day extension of term of the five directors pending re-election or election was unlawful.

Molefe expressed with regret that BBS has been suspended from trading by BSE until the current matter has been resolved. “I am concerned by this development and other potentially harmful actions on the business. As management, we are engaging with stakeholders to mitigate any negative impact on BBS Limited,” expressed a distressed Molefe.

He assured shareholders and the rest of Management that they are working very hard to ensure that the issues are being dealt with in a mature manner.  BBS which hopes to become the first indigenous commercial bank has seen its shares halted barely four months after BSE lifted the trading suspension of shares for BBS following submission of their published 2019 audited financial statements.

According to Chief Executive Officer (CEO) of the local bourse, Thapelo Tsheole said the halting of shares of BBSL is to maintain fair, efficient and orderly securities trading environment. “The securities have been suspended to allow BBS to provide clarity to the market concerning the recent allegations which have been brought to the attention of the BSE relating to the company’s Board of Directors and senior management,” said Tsheole.

Meanwhile in their audited financial statements for the year ended 31 December 2020, BBS recorded a loss of P14.6 million as at 31 December 2020 compared to the loss of P35.7 million for the comparative year ended 31 December 2019. According to Molefe the year under review was the most challenging for the bank, its shareholders and customers endured the difficult economic environment and the negative impact of the coronavirus.

He revealed that as the bank, they were forced to put in place several measures to ensure that the business withstands the impact of coronavirus and also to cushion mortgage customers from the effects of the pandemic. “Since April 2020 up to the end of December 2020, BBS assisted 555 mortgage customers with a payment holiday,’’ he said.

This is the bank whose total balance sheet declined by 12 percent from P4, 626 billion for the year ended. 31 December 2019 to P4, 088 billion as at 31 December 2020. As if things were not bad enough, total savings and deposits at the bank declined by 14 percent from a balance of P2, 885 billion as at 31 December 2019 to P2, 494 billion as at 31 December 2020.

On a much brighter side, BBSL mortgage loans and advances improved from P3, 401 billion to P3.408 billion with impairment allowance significantly improving to P78, 648 million from P102, 532 million for the year under review, representing a positive variance of 23 percent. BBS maintained a strong capital base with capital adequacy ratios of 26.32% for the year ended 31 December 2020.

Molefe was optimistic and anticipated a positive outcome during the implementation of the new BBS corporate strategy, whose main drive is commercialization of operations, which is in full force.
“It will be spurred on by the positive results we have achieved for the year ended 31 December 2020, and our planned submission of our banking license application to Bank of Botswana which we anticipate to operate as a commercial bank in the third quarter of 2021,” he alluded.

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Mphathi promises people centred, environmentally sensitive new BCL

12th April 2021
CEO of Premium Nickel Resources Botswana: Montwedi Mphathi

Chief Executive Officer (CEO) of Premium Nickel Resources Botswana (PNRB), Montwedi Mphathi, has said his company will resuscitate the formerly owned BCL assets and deliver a new, sustainable and cutting edge mining operation.

The new mine which will leverage on modern and next generation technology, will be environmentally sensitive and cognisant of the needs of its people and that of the communities around the area of influence.

In a statement last week, Premium Nickel Resources Botswana and its parent company, the Canadian headquartered Premium Nickel Resources announced that they have now completed the Exclusivity Memorandum of Understanding (MOU) with the Liquidator.

The MOU will govern a six-month exclusivity period to complete its due diligence and related purchase agreements on the Botswana nickel-copper-cobalt (Ni-Cu-Co) assets formerly operated by BCL Limited (BCL), that are currently in liquidation.

On February 10, 2021, Lefoko Moagi, the Minister of Mineral Resources, Green Technology and Energy Security of Botswana, affirmed in Parliament a press release by the Liquidator for the BCL Group of Companies, stating that PNR was selected as the preferred bidder to acquire assets formerly owned by BCL.

“This is encouraging for the company and for Botswana. Our ambition in this new project dubbed “Tsholofelo” is to redevelop the former BCL assets into a modern, environmentally sensitive, efficient NI-Cu-Co-water producer where sustainability and the people are at the forefront of the decisions we make,” said Mphathi in a statement last Thursday.

“We also understand that no matter how successful we are at building the “New BCL” , our success will only be measured at our ability to create local wealth , skills and support the continued transition of local economy to a longer term sustainable base.”

The next step during the exclusivity period will be the completion of the definitive agreement. Simultaneous to this the PNRB will be conducting additional investigative work on site to further its understanding of the potential of these assets.

Specifically the company will complete an environmental assessment, a metallurgical study, a review of legal and social responsibilities, a review of the mine closure and rehabilitation plans and an on-site inspection of the legacy mining infrastructure and equipment that has been under care and maintenance.

Mphathi said they continue to monitor the global Covid-19 developments noting that they are committed to working with health and safety authorities as a priority and in full respect of all government and local Covid-19 protocol requirements. PNRB has developed Covid-19 travel, living and working protocols in anticipation of moving forward to on site due diligence.

“We will integrate these protocols with the currently applicable protocols of Ministry of Health & Wellness as well as District Health Management Team ( DHMT) and surrounding communities,” reads a statement released by the Gaborone based Premium Nickel Resources team.

PNRB is looking to become a catalyst in participating and building a strong economy for Botswana, with a purpose where respect and trust are core to every single step that will be taken. “Our success will mean following international best-in-class practices for the protection of Botswana’s environment and the focus on its people, building partnerships and earning respect, through cooperation and collaboration,” explains PNRB on its website.

“We are committed to Governance through transparent accountability and open communication within our team and with all our stakeholders.” Mphathi, a former BCL Executive, is widely celebrated for achieving unprecedented profitability at the mine during his tenure as General Manager.

The Serowe-born mining guru obtained a Diploma in Mining Technology from Haileybury School of Mines in Canada. He later obtained a B.Eng. Mining degree from the Technical University of Nova Scotia. Mphathi went on to City University in London, UK and obtained a M.Sc. in Industrial and Administrative Sciences.

Before ascending to the top country managerial role of Premium Nickel Resources. Mphathi was General Manager of Botswana Ash (Botash), Southern Africa’s leading salt and soda ash producer.
He was at some point linked to Debswana top post, which is still to date not substantively filled following the death of Managing Director, Albert Milton, in August 2019.

With Mphathi out of the race and now leading the rebuilding of his former employer, the top post at De Beers- Botswana joint venture is likely to be filled by current acting Managing Director Lynette Armstrong, a seasoned finance executive with unparalleled experience in the extractive industry.

“We are happy to hear that former General Manager of BCL, Mr Montwedi Mphathi, has a relationship with the new Company that intends to resuscitate the mine, he is an experienced Mining Executive who knows BCL better, we want the mine to be brought back to life so that our people can be employed ” said Dithapelo Keorapetse Member of Parliament for Selibe Phikwe West recently in Parliament.

BCL was liquidated in October 2016 following a series of losses and government bailout occasioned by low Copper prices and allegedly poor Investment decisions and maladministration. Recently PNR CEO, Keith Morrison said his team of seasoned experts both from Canada and Botswana are committed to resuscitate the BCL assets and deliver a high performance mining operation.

“The World, Botswana and the mining industry have changed dramatically since mining first started at the former BCL assets in the early 1970s. The nickel-copper-cobalt resources remaining at these mines are now critical metals, required for the continued development of a decarbonized and electrified global economy,” he said.

Morrison added: “As we move forward, it is our goal to demonstrate the potential economics of re-developing a combination of the former BCL assets to produce Ni-Cu-Co and water in a manner that is inclusive of modern environmental, social and corporate governance responsibilities.”

He explained that to attain this, extensive upgrades to infrastructure will be required with an emphasis on safety, sustainability and the application of new technologies to minimize the environmental impact and total carbon footprint for the new operations.

“Our team remains committed to working with the local communities and all of the stakeholders throughout this period and we encourage anyone with questions or feedback to reach out to us directly,” he noted.

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Lucara extends sales deal with Belgian diamond cutter

12th April 2021
Lucara extends HB Antwerp’s contract Signum technologies

Lucara Diamond Corporation, the Canadian 100% owners of iconic Karowe mine, this week announced the extension of its supply deal with Belgian diamond midstream giant HB Antwerp.

The definitive supply agreement is in respect of all diamonds produced in excess. of 10.8 carats in size from its rare gem producing Karowe diamond mine located in the Boteti district of Botswana.
Large, high value diamonds in excess of 10.8 carats in size account for approximately 70% of Lucara’s annual revenue.

Though the Karowe mine has remained fully operational throughout the COVID-19 pandemic, Lucara made a deliberate decision not to tender any of its +10.8 carat inventory after early March 2020 amidst the uncertainty caused by the global crisis.

Under the terms of this novel supply agreement with HB, extended to December 2022, the purchase price paid for each +10.8 carat rough diamond is based on the estimated polished outcome, determined through state of the art scanning and planning technology, with a true up paid on actual achieved polished sales thereafter, less a fee and the cost of manufacturing.

“Lucara is beginning to see the benefits of this strategy in accessing a broader marketplace and delivering regular cash flow based on final polished sales,” said Lucara CEO, Eira Thomas on Wednesday.

“We believe these early results warrant an extension of the arrangement for at least 24 months to determine if superior pricing and market stability for our large, high-value diamonds can be sustained longer term.”

The Canadian junior miner initiated a supply agreement with HB for large stones from its Botswana Karowe mine in July 2020, after pausing its tenders shortly after the Covid-19 pandemic began.
The deal enables Lucara to sell the rough diamonds to HB at a price based on an estimate of the polished outcome, which the companies determine using diamond scanning and planning technology.
Once HB sells the goods, it adjusts the price that Lucara receives based on the actual selling price of the polished, minus a fee and manufacturing costs.

The extended supply deal will follow the same payment terms as the initial agreement, and will be in effect through to December 2022. Lucara said in a statement this week that the agreement also provides increased tax revenue and beneficiation opportunities for the government of Botswana, and creates a streamlined supply chain for Karowe’s rough.

“More than a supply agreement, this collaboration structurally embeds a new transparent and sustainable way of working in the diamond-value chain,” said HB CEO, Oded Mansori.
“For the first time, different partners of the value chain are fully aligned, sharing data and information throughout the process from mine to consumer.”

Mansori added: “We are truly proud with this innovative and straightforward collaboration that has proven itself through the volatile and uncertain reality of 2020. We are confident to achieve even better results during the term of this new contract and demonstrate the power of a true partnership.”

Lucara, which early this year secured extension of Karowe mining license to 2040, announced over P2.4 billion funding for Karowe underground mining expansion project a fortnight ago. The Vancouver headquartered top large diamond producer says this supply agreement deal extension with HB will bring about regular cash flow for Lucara using polished pricing mechanism. Furthermore, the company says the deal has potential revenue upside, particularly suited for Lucara’s large, exceptional diamonds.

In the main, Botswana will benefit increased tax revenue and additional beneficiation opportunities for the Government and communities around Karowe mine. A streamlined supply chain that achieves alignment between Lucara and HB to maximize the value of each +10.8 carat diamond produced at Karowe.

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