BoB’s restrained sword on lockdown shackles
The Monetary Policy Committee (MPC) was unperturbed by any wave of economic move shaking this country’s monetary boat, it maintained the Bank Rate citing that, “the short-term adverse developments in the domestic economy occur against a potentially supportive environment including accommodative monetary conditions.”
Such objective was taken on to the gauge by economists. With the GDP dwindling by half from 2.6 percent of the first quart of 2020, a year to year review, from the 4.2 percent in 1Q2019, the disruptions caused by Covid-19 related containment measure are likely to put this against the positive growth tide which may lead to a 10.5 percent contraction in 2020. Numbers would not betray the facts; all projections by Ministry of Finance, the IMF and WEF are now zooming into a gloomy 2020.[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3″ ihc_mb_template=”1″ ]
“Unless an extraordinary stimulus package that prioritises job creation and productivity is proposed, it could take up to three years for Botswana to regain its 2019 economic value in pula terms,” a recent banking research on MPC’s recent Bank Rate decision said.
The year 2020 is a year of downfall according to the projections by the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) which suggest a deterioration in economic growth for Botswana in 2020. While the Ministry of Finance estimates that the economy will decline by 8.9 percent in 2020, from an earlier forecast of a 13.1 percent contraction, before rebounding to growth of 7.7 percent in 2021, the IMF forecasts the domestic economy to contract by 9.6 percent in 2020. The April 2020 World Economic Outlook sees a contraction of 5.4 percent before the domestic economy can bounce back to a growth of 8.6 percent in 2021.
The recovery of 2021 will be like the economy falling in an inevitable bottomless black pit because the 2020 contraction is almost equal to a two-year loss of output. This sentiments were suggested by Bank of Botswana Governor, Moses Dinekere Pelaelo, on Thursday, in the central bank virtual meeting with journalists.
“The disparity in forecasts attest to the challenges of making forward projections when there is uncertainty about the duration of constrained economic activity, the resultant adverse impact on productive capacity, as well as the speed of resumption of production and pace of recovery in demand,” Pelaelo told reporters after last week Thursday’s MPC meeting.
A fresh report on Pelaelo’s led MPC by RMB Global Markets Research Team however said despite Botswana registering positive growth in 1Q20 (2.6 percent y/y), the disruptions caused by Covid-19-related containment measures will result in a significant contraction in domestic economic activity.
“We anticipate Botswana’s growth to register -10.5% y/y in 2020 before rebounding to 4.5% in 2021 as economic activity resumes. In 2020, Botswana’s two leading sectors in terms of GDP, mining and trade, are expected to show the largest contractions,” the researchers further stated.
Economists Moatlhodi Sebabole and Gomolemo Basele in their analysis took a shot at the MPC’s decision to put its sword in the pocket in restraint for any further cut since the April shed of the Bank Rate. This, according to them, the global economic deceleration experienced in the first half of 2020(1H20) has already weighed on demand for diamonds, leading to a moderation for both diamond prices and local production – a trend expected to persist until the virus is contained. Other sectors with close ties to tourism will be severely affected as well, with travel bans already limiting anticipated growth within the local hospitality and aviation industry.
“Another key motivation for a cut in the bank rate is this year’s inflation trends – the headline figure continues to trail the BoB’s 3.0%-6.0% objective range due to limited upside pressure. Domestic price growth fell to a historic low of 0.9% y/y in June, 1.5ppt lower than the May print, and remained at this level during July. The cause? A 6.8% m/m contraction in the transport index group due to lower retail pump prices for petrol and diesel grades implemented in June 2020.
This action, coupled with the weight of the transport index in the CPI basket (23.43%), offset the upside pressure experienced from the supply side as a result of higher electricity tariffs effected in April 2020. The supply side, which includes utilities, is unlikely to see the headline figure revert to within the central bank’s objective range despite the possibility of higher water prices this year,” said Sebabole and Basele research for RMB Global Markets Research Team.
When looking into to financial statistics Sebabole said inflation was constant at 0.9 percent between June and July 2020 and remained below the lower bound of the Bank’s objective range of 3 – 6 percent. And inflation is forecast to revert to within the objective range in the third quarter of 2021 according to the central bank, he said. He however said headline inflation has been on the receiving end of significant downward pressure emanating from this year’s lower oil prices, with retail pump prices being reduced twice in the last four months. Some upside pressure is expected across the components of the CPI basket as a result of limited economic activity.
In the research he led, Sebabole said given the current 12-month inflation average of 2.2 percent and the outlook for the rest of the year, we expect inflation to average 1.9 percent in 2020, providing scope for the BoB to cut the bank rate by an estimated 50bp (previously 75bp) through to the end of 2020.
Bank of Botswana last week said consumption and spending are disrupted, hence domestic demand pressures and foreign prices remain subdued. The central bank further admitted that overall risks to the inflation outlook are skewed to the downside. “However, inflation may rise above current forecasts if international commodity prices increase beyond current projections and in the event of upward price pressures occasioned by supply constraints due to travel restrictions and lockdowns,” admitted the central bank’s MPC.
The RMB Global Markets Research Team when narrowing their analysis on the demand side, slightly overlooking increase of government workers salaries, said the workforce is likely to experience low personal income growth this year as businesses struggle to maintain pre-pandemic production levels and retain staff.
The cost of alcohol and tobacco has gone up since May, and the researchers have noted it, saying this led to a slight increase in core inflation. Furthermore, demand-pull pressures are expected to abate as households are faced with negative employment prospects. “With our view of -10.5 percent growth in 2020, we expect unemployment to increase to around 24 percent, increasing the economic pressures faced by households,” said the researchers.
FNBB economist still hopes for BoB to take sword and slash the rate
Just before lockdowns and covid-19 disruptions, First National Bank Botswana (FNBB) researchers expected the Bank rate to be cut albeit deeply than the slight cut made in April. They are still disappointed that the central bank has maintained the Bank Rate, despite “mounting pressure”.
The recessionary growth pattern that we anticipate in 2020 (-10.5% GDP in 2020), coupled with stubbornly low inflation dynamics and subdued demand prospects, all point to our fundamental view that the bank rate should trend lower in the short to medium term. We now expect the bank rate to trend lower to 3.75% in 2020 (currently 4.25%),” they said.
When benchmarking Botswana’s monetary dynamics with “main trading partners” which include South Africa, Namibia and the USA who have all reduced their policy rates “significantly” this year to combat the effects of the pandemic, they believe BoB has the room to cut the bank rate further without significantly altering real rate differentials from their historic levels.
“A reduction of the bank rate to this level will also compliment further fiscal efforts aimed at rescuing and stimulating the economy – the Ministry of Finance and Economic Development is expected to finalise an economic recovery and transformation plan in August 2020 that will address the disruption to economic activity caused by the pandemic,” they explained.
When looking at the global economy is projected to contract by 4.9 percent in 2020 but to rebound to 5.4 percent in 2021, Bank of Botswana says this will be anchored by unprecedented policy and resource support by individual countries and multilateral institutions.
However, Governor Pelaelo said the MPC that the met last week saw the short-term adverse developments in the domestic economy occur against a potentially supportive environment including accommodative monetary conditions; reforms to further improve the business environment; concerted efforts by government to mitigate the impact of COVID-19, as well as the likely impact of the economic recovery and transformation plan.
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Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.