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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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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status.  The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.

This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago.  In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.

However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced.  Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.

The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.

On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April.  For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.

Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.

Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).

“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.

Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.

This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.

For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.

Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers.  “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.

‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’

According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.

Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.

“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.

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