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BoB in historic benchmark rate cut

BoB Governor: Moses Pelaelo

Businesses, banks and household on Thursday midday received the much anticipated announcement from Bank of Botswana Governor, Moses Pelaelo, who said the central bank has decided to reduce the Bank Rate by 50 basis points from 4.25 percent to 3.75 percent.

This is the second 50 basis points cut this year after the April cut from 4.25 percent to 4.75 percent. This Thursday cut is the record lowest since 2006, two years before global recession. The two cuts this year were seen as intervention to cushion the economic impact of Covid-19.
Covid-19 and its new normal to most business activities shifted most macroeconomic dynamics and dimension; this recent cut according to the central bank is meant to support the domestic economy which is backed against the wall by inflationary pressures.

The headline inflation remained steady at 1 percent in August and well below the lower bound of the Bank’s objective range of 3-6 percent after waking from the lowest level since records began in January of 1997(June and July, 0.9 percent). For August, the upward pressure came from prices of food & non-alcoholic beverages (4.2 percent vs 3.9 percent in July); housing & utilities (6.1 percent vs 5.9 percent); alcoholic beverages & tobacco (6.6 percent, the same pace as in July) as the economy was rising from a gloomy lockdown. But the Bank has decided to improve spending.

Inflation has been at the bottom of BoB’s container of 3 percent to 6 percent for 11 months and it is expected to bounce back to the targeted range in the third quarter of 2021 according to Pelaelo.  “The COVID-19 pandemic and consequent containment measures have severely throttled economic activity globally and domestically as production, supply chains, project implementation and provision of goods and services are constrained. Similarly, consumption and spending are disrupted, hence domestic demand pressures and foreign prices remain subdued.

Consequently, 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,” says Pelaelo on Thursday.

Pelaelo and his Central Bank Monetary Committee was on this recent decision making amid the work-on of the second quarter of 2020 GDP data. In the Thursday press conference, Pelaelo said already Real Gross Domestic Product (GDP) contracted by 4.2 percent in the 12 months to June 2020, compared to a growth of 3.9 percent in the year to June 2019.

“The decline in output is attributable to the contraction in output of both the mining and non-mining sectors, resulting from the associated COVID-19 pandemic containment measures. Mining output contracted by 18.6 percent compared to a growth of 1.5 percent in the corresponding period ending June 2019, mainly due to weaker performance of the diamond, copper, soda ash and other mining subsectors,” said the Governor on Thursday.

Furthermore, Pelaelo said Non-mining GDP contracted by 2.6 percent in the year to June 2020 compared to a growth of 4.2 percent in the corresponding period in 2019. The decline in non-mining GDP was mainly due to contractions in output of the trade, hotels and restaurants, construction, manufacturing and transport and communications sectors.

But the storm was felt recently in the release of the second quarter of 2020 economic data, a depiction of the heavy wave that invisibly came with Covid-19 inside Botswana borders in March. A mammoth decline in real value added of Mining & Quarrying and Trade, Hotels & Restaurants industries by 60.2 and 40.3 percent respectively made sure that the Real Gross Domestic Product for the second quarter of 2020 plunges by 24.0 percent.

“The nominal Gross Domestic Product (GDP) for the second quarter of 2020 was P36, 863.5 million compared to P50, 726.5 million registered during the previous quarter. This represents a quarterly decrease of 27.3 percent between the two periods. During the quarter under review, General Government became the major contributor to GDP for the first time in many years, by 19.7 percent, followed by Finance & Business Services, Trade, Hotels & Restaurants and Mining & Quarrying by 16.7, 16.5 and 8.1 percent respectively. The contribution of other sectors was below 7.0 percent, with Water & Electricity being the lowest at 1.6 percent,” said Statistics Botswana.

A tale of contractions in projections by economists this year, riddled in uncertainty and all spelling deterioration in economic Botswana’s growth this year. Ministry of Finance and Economic Development and the International estimates that the economy will decrease 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. Commercial bank with a locally focused and commissioned research, Rand Merchant Bank, maintains an expectation of 10.5 percent contraction in growth in 2020.

Projections by the International Monetary Fund (IMF) is for the domestic economy to contract by 9.6 percent in 2020 compared to 5.4 percent in the April 2020 World Economic Outlook, before rebounding to a growth of 8.6 percent in 2021 for Botswana in 2020.  According to the BoB Governor, with recovery in 2021, the contraction in 2020 equates, approximately, to a two-year loss of output. He further stated that the disparity in forecasts attests 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 however mentioned that there will be revisions on all the projections made.

Pelaelo explained that, something that was further echoed by his deputy Kealeboga Masalila, BoB’s monetary policy has recognized that the short-term adverse developments in the domestic economy occur against a potentially supportive environment including accommodative monetary conditions. The Governor was referring to, “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.”

A lot of anticipation has been on the Economic Recovery and Transformation Plan (ERTP) and its expected take off. With economists curious on whether there will be any monetary policy coordination from the central bank to the ERTP, like an expansionary monetary stance in the form of cutting the benchmark rate, as a way of catalysing the implementation of economic recovery efforts.

According to Rand Merchant Bank Global Markets Research seen by this publication, the government is expected to publish ERTP in 4Q:2020. But the implementation of ERTP is expected to begin in 2021. “With its success relying heavily on prudent project management by government,” says the report.

Business

Inflation spike building further upwards

27th October 2020
Inflation spike

In the coming months prices will go up and inflation will shoot sharply above the target of 3 percent to 6 percent towards the third quarter of 2021, the Bank of Botswana on the other hand will continue to withhold its knife on the Bank Rate. This is according to a forecast made by Kgori Capital in its recent Market Watch Segment.

Statistics from Statistics Botswana show that the recent 1.8 percent increase in the September inflation, from 1 percent in August, was a reflection of the upward adjustment in public transport fares (Transport (from -6.9 to -3.9 percent) in September 2020, which is estimated to have increased inflation by approximately 0.64 percentage points.

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Business

Plans to erase Edgars, Jet trademark from Botswana malls underway

27th October 2020
Edgars Jet trademark

Local anti-trust body, Competition and Consumer Authority (CCA), this month received back to back acquisition proposals from South African clothing retailers to wipe out their former rivals, Edcon, from Botswana malls.

Last week BusinessPost was in possession of Merger Notice No 23 of 2020 whereby a South African clothing retailer owner, Retailability Proprietary Limited, through Oclin Proprietary Limited, proposed to acquire parts of the Edgars business conducted by Edcon in Botswana (through Edcon Botswana), as a going concern, consisting of certain assets and identified liabilities.

South African government’s Business Rescue Practitioners earlier this year announced that Retailability will buy Edgars, after the latter filed for a business rescue plan in April after it failed to pay suppliers. This move will see Retailability add Edgars to its portfolio consisting of brands such as; Legit, Beaver Canoe and Style.

Retailability landed on Botswana shores 18 years ago with its flamboyant urban fashion Style which had 17 stores. Style, having almost the same target market as Edgars as it offers men’s and ladies’ contemporary and formal fashion, gave the 91 year old legendary clothing retailer a run for its money, and has won the battle as its parent company has taken over Edgars.

Retailability brands are synonymous with Botswana shopping centres and there are currently five (5) Beaver Canoe stores, 10 Style stores and seven (7) Legit stores across this country. The Beaver Canoe stores sell clothing apparel for men and boys only. The Legit stores have a fashion store format which focuses on the retailing of clothing, footwear, accessories, colour cosmetics and cellular products.

Retailability operates in over 460 stores across South Africa, Namibia, Botswana, Lesotho, and Eswatini. Many observers suggest that because of the deal with Retailability to swallow Edcon, most Edgars stores in Botswana will change their name and be branded Style. A sad tale for religious consumers of the Edgars trademark who got used to love their favourite brand for years.

According to CCA’s Merger Notice No 23 of 2020, Retailability is controlled by Clifford Raymond Lines (through a company which functions solely as a holding company of his interests in Retailability) and Metier Investment and Advisory Services Proprietary Limited (“Metier”). Metier is a private equity enterprise with investments in a number of industries spanning from healthcare, hospitality, FMCGs and telecommunications.

Retailability directors are mostly South Africans; Clifford Raymond Lines, Mark Richard Friday and Norman Victor Drieselmann. Only Nasreen Essack, who was appointed February this year, is a Motswana. He comes after Brian Thuto Tsima left on the same date. Retailability 100 percent owns Oclin Proprietary Limited, the company it is acquiring Edgars with, by a capacity of 3000 shares.

The target business, Edgars, offer textiles, cosmetics and cellular products. Edcon has a Motswana director, Charles Mzwandile Vikisi, a South African, Shane Van Niekerk and Zimbabwean Jethro Kamutsi.

“The Target Business comprises of two (2) Edgars franchise brands and private label stores across Botswana. These stores target middle to upper income customers and are home to a range of private label brands such as Free2BU, Charter Club and Stone Harbour, and a wide range of market label brands (such as Levi’s and Guess) for clothing, footwear and cosmetics.

In addition, the Target Business operates iconic Edgars Home and Edgars Beauty stores as store-in-store formats rounding out the department store offering in Botswana,” said CCA.
Foshini also lines up to take Jet Botswana from Edcon.

The Foschini Group (TFG) released a statement confirming its latest intentions to acquire Edcon assets or Jet for a cash purchase consideration of R480 million. This was after the business rescue practitioners offered TFG to buy Jet by that amount.

CCA is currently mulling on a proposed merger by TFG to take over Jet operations in Botswana. Merger Notice No 21 of 2020 from TFG came a few days before the Retailability proposal. In this merger TFG, acting through Foschini Botswana, want to take over “parts” of the Jet business conducted by Edcon through Jet Supermarkets Botswana.

TFG will be willing to add Jet to its portfolio of 30 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 on five continents. 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.

Johannesburg listed TGF owns Foschini Retail Group which owns the local operations called Foschini Botswana, the acquiring enterprise according to CCA merger notice. “TFG is not controlled by any enterprise/s and for completeness, the three largest shareholders of TFG holding shares greater than 5% as at 27th March 2020 are: Government Employees Pension Fund (16.2%) Public Investment Corporation (13.2%); Old Mutual Limited (6.7%); and Investec Asset Management (6.3%). The remaining issued share capital in TFG is widely held,” said the merger notice.

Only Abdool Rahim Khan is a Motswana in the Foschini Botswana directorship, the rest; Ganeswari Shani Naidoo, Anthony Edward Thunström and Gustav Jansen (alternate director) are South Africans.

According to the CCA merger, the Jet Business is Edcon’s discount department store division, selling clothing, footwear, homeware and some cosmetics as well as cellular products and targets lower-to-middle income consumers throughout Botswana. The Jet Business does not directly or indirectly control any enterprises, says the notice. CCA seeks any stakeholder views for or against the proposed merger, which may be sent within 10 days from date of this publication to the following address.

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Business

BOCRA, associates to provide broadband internet in schools

27th October 2020

Botswana Communications Regulatory Authority BOCRA signed a memorandum of Agreement (MoA) with the Ministries of Transport and Communications (MTC), Basic Education (MoBE) as well as Local Government and Rural Development (MLGRD).

The MoA seeks to continue the collaboration that dates back to 2016 when the three parties first agreed to work together in a project aimed at computerizing and providing broadband Internet to primary schools in remote and underserved areas of Botswana.

The project benefitted 68 primary schools and 9 secondary schools through the construction of Local Area Network (LAN) in each primary school, provision of 5 Mbps dedicated broadband Internet to each Primary School and provision of Wi-Fi enabled tablets, laptops and related peripherals such as printers and copiers.

Further, the project will see the augmentation of computers in 9 Junior Secondary Schools with 30 laptops per identified school and employment of Information Technology (IT) officers at each primary school.

When speaking at the signing ceremony in Gaborone, Chief Executive of BOCRA and Chairperson of Universal Access and Service Fund (UASF) Board of Trustees Martin Mokgware said the project’s ultimate goal is to facilitate pupils in schools and host villages to be able to play a meaningful role in the digital economy.

Mokgware indicated that this necessitates upgrading of existing Telecommunications infrastructure to high capacity broadband that will support delivery of education, accessibility to the quality Internet and usage of ICTs.

The Fund began its inaugural programme by sponsoring the provision of WiFi hotspots in public areas around the country as its first project. Following the successful implementation of public WiFi hotspots, the Fund identified Kgalagadi, Ghanzi and Mabutsane areas for mobile network upgrades, schools computerization and internet provision.

Conscious that the project would not be possible without buy-in and support from MoBE, MTC and MLGRD, the Fund facilitated the signing of the first MoU between the three parties in 2016 for implementation of the project.

BOCRA Chief Executive said the signing of this agreement is aimed at benefitting the Kweneng District, adding that they have already assessed the area and have determined that they will be covering 62 underserved villages and 119 schools, 91 of which are primary schools.

“This is a project for which the partner Ministries need to re-commit for its success. Lessons from the previous schools’ computerization and internet connectivity project require that we increase our involvement and resources dedicated to the project for it to be successful. It is my belief as the project coordinator, that we will not do things the way we did them during the first project, for if we do, then we will not have learnt anything,” he said at the signing ceremony.

The purpose of learning is so that there can be continuous improvement to minimize the length of time and amount of resources utilized, he said expressing confidence that their partners will step up to the plate and ensure they play their part in the implementation of the project and that it will progress smoothly having already tread along a similar path.

UASF’s role lies mainly in funding and project management. According to Mokgware, once the project is completed, the work to integrate ICTs into the classroom begins in earnest. Therefore, he said, the project will not succeed without full cooperation and oversight of partners.

“MoBE will put in place the necessary content and ensure that the curriculum is available to all. MLGRD will provide, among others, the enabling environment by ensuring readiness of the school’s infrastructure and necessary security.”

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