Botswana Government has approached the World Bank Group for a debt facility to augment available financing options as the country pulls its economy out of unprecedented traditional revenue decline occasioned by the novel corona virus.
Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka confirmed to international media house, Reuters that Government has set up a team comprising of experts from the Ministry, Bank of Botswana and Attorney General’s Chambers, amongst others to move swiftly in securing the much needed funding.
Botswana was, like many other resource based economies across the world adversely impacted by the COVID-19 pandemic which put life and business to stand still in the first half of 2020.
With particularity to the landlocked 54 year old Republic, COVID-19 froze diamond trade, the country’s economic nucleus, wiping out billions of pulas in projected revenue for the 2020/21 fiscal year and ballooning deficit to levels never seen before.
In June Government released a 65 paged economic recovery and transformation plan, a blueprint crafted to resuscitate Botswana’s economy out of COVID-19 mess – an estimated total of P40 billion will be needed, according to projections.
This is P20 billion first to cover the projected deficit for the next two financial years; and another P20 billion to finance stimulus projects aimed at re-energizing and catapulting the economy back to growth trajectories.
The projected deficit figures were later revised as diamonds markets slowly recovered beginning of 3rd quarter of the year , however Ministry of Finance still projects a whooping P13 billion as budget deficit for the remaining part of National Development Plan 11 which ends in 2023.
“No quantum in place yet but ideally if we can get about 50 % of the expected P13.6 billion deficit for the reminder of the development plan , that should give us a smoother landing into the next development plan,” said Minister Matsheka.
The World Bank Office in Botswana has also confirmed that talks with Government regarding the matter are ongoing.
Country Representative Guido Rurangwa said, “The government and the World Bank are currently discussing details of the support, including the amount.”
Earlier this year in an interview with BusinessPost the World Bank Botswana Country Representative and Special Envoy to SADC said the bank was aware of Botswana‘s recovery plans post COVID-19 economic shocks.
“We understand that the Government of Botswana has been preparing a Recovery and Transformation Plan. If the Plan has a financing gap, a request for World Bank funding could be requested.”
Rurangwa told BusinessPost that should a funding request be made, the World Bank would consider the request favorably. “The World Bank has informed the Government of available financial support which the country can access,” he said.
World Bank Botswana Communications Officer, Oarabile Moilwa said The World Bank Group (WBG) has actively been sharing knowledge and providing technical assistance to the Government, Botswana COVID-19 National Coordinator and his team, and Business Botswana on policy measures to address COVID-19 and reforms to help Botswana achieve resilient, inclusive and sustainable recovery.
“This has included hosting virtual knowledge sharing sessions where the WBG shared experiences from other countries; shared research papers; and commented on several drafted Botswana COVID-19 response plans,” she said.
In addition to external debt Government intends to finance its budget deficit with local borrowing. In September Parliament approved a proposition from Ministry of Finance to increase Government bond program ceiling from P15 Billion to P30 billion.
When advocating for the increase, Minister of Finance & Economic Development Dr Matsheka explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
In terms of this law, total public debt is permissible up to 40 % of GDP where 20 % is from local capital market while the other 20 % is external borrowing.
The Minister explained that additional spending pressures have been put on the fiscus arising from implementation of economic recovery and transformation plan at a time when government revenue has significantly declined due to the slowdown in global and domestic economies.
“As a result larger budget deficits are expected in the short term to medium terms, that is this current financial year , 2020/21 and 2021/22 -23.”
Minister Matsheka noted that unlike in previous economic crisis such as that of 2008/09, the 2020 COVID-19 induced economic challenges comes at time when the country‘s net financial position is not strong.
Dr Matsheka said Government will need to make more use of borrowing to finance deficit in the short to medium term however with the current bond issuing limit it is constrained because the then ceiling of P15 Billion was reached in June 2020.
The COVID-19 crisis and budget deficits also come at a time when Government Investment Account (GIA) has been decreasing over the years.
Still in the last parliament sitting lawmakers were told that prior to financial crisis of 2008/9 Government Investment Account (GIA) amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at 18.3 billion (only 9 % of GDP).
“It is under this background that It would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer” said Dr Matsheka in September Reports indicated that the GIA has as of August 2020 stood at P10 billion.
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.