Prior to the climax of America’s globally anticipated polls, foreign exchange markets looked like the local currency. The Pula was caught in between as a wind of volatility shook two of its most dependent currencies, the US Dollar and the South African Rand.
Botswana might be far from the US or seem not affected by the recent polls which took place about 7936.59 miles from its borders, but the Pula finds itself participating indirectly in the US polls because of the dynamics of the foreign exchange market which places the local currency in a trade synonym with the US dollar and the Rand.
The Pula is pegged against the Rand and the Special Drawing Rights (SDR) which consists of the US dollar, Japanese Yen, Chinese Renminbi, the Euro and the British Pound. Botswana’s current exchange rate arrangement is that the Pula is pegged to a currency basket comprising of the Rand and the SDR, in a forward-looking crawling band mechanism.
Early this year President Mokgweetsi Masisi decided to maintain the Pula basket weights at 45 percent Rand and 55 percent SDR, at the recommendation of the Ministry of Finance and Economic Development and Bank of Botswana. The ministry that time said pegging the Pula against major currencies ensures its stability and protects investments against volatile currency fluctuations.
The ministry further stated that the annual review of the Pula Exchange Rate Policy Framework is undertaken by the government, with a view to maintain a stable and competitive real effective exchange rate of the Pula. Furthermore, a downward rate of crawl of 1.51 per cent per annum has been implemented, since the beginning of this year.
This week, building up to the much anticipated US polls counting, the Pula was in the middle of its brothers, the Rand and US Dollar in the mist of uncertainty. “This elections are driving the foreign exchange market a bit crazy. The results will determine if we end up with a weaker or stronger dollar. If Biden wins then the weaker and stronger if Trump wins. Pula dynamics will still be driven to a large extend by Rand performance though,” said Gomolemo Basele, Quantitative Analyst at RMB Global Markets Research in a short chat with this publication.
The morning of 30 October 2020, just before the much hysterical US polls, the Rand opened at 1.4307 to the Pula. According to RMB Global Markets Research’s Botswana Daily Update, this was after the South African finance minister delivered the Medium-Term Budget Speech, noting that the country needs to take action to avoid a sovereign debt crisis. According to RMB Global Markets Research, the Rand came under pressure, touching low levels yesterday.
However on Tuesday morning, the Rand edged higher slightly against the Pula, opening the day stronger at 1.4190/1.4220 as the US elections drew nearer to counting. On the same Tuesday, Joe Biden was leading his nemesis Donald Trump in the highly contest elections clouded by a cloud of uncertainty.
RMB economist, Siobhan Redford, when taking the Pula into this context and delving into American politics said, while some states have seemingly been won over by Biden from Trump, “…a Biden trade versus Trump trade will result in choppy markets as a lot depends on the outcome, with the fiscal stimulus plan also weighing heavily.
A Biden win would probably result in a larger stimulus package being put forth as opposed to a Republican win. This morning, the Dollar opens little changed at 0.0875/77 to the Pula,” he said midweek. When doing another research update on the Pula’s performance against the Dollar or Rand, Redford on Wednesday morning said the Rand opened little changed at 1.4140 to the Pula as election results from the US come under much scrutiny with counting far from over.
“A very well contested race has caused volatility in the market, with the Rand weakening overnight but later reverting to stronger levels. This morning, the Dollar opens little changed from yesterday’s (Tuesday) close at 0.0880 to the Pula. Ahead of the Fed’s rate decision later today, the general sentiment is that it will be a non-event, with the Fed expected to leave rates unchanged. We expect volatility around the election results to continue as announcements of state winners trickle in,” said Redford during the counting of votes.
In reaching the apex where a Biden upset was much more likely than Trump consolidation of power, the Democrat elect led his Republican counterpart on votes, but seats in the House of Representatives and the Senate were a bit tied on Thursday. Protests, and riots erupted as Trump was crying foul, lodging a legal appeal against the State on irregularities in counting. That time the Dollar opened at a rate of 0.0886/88 to the Pula, a record low as markets find comfort in a Biden win.
Head of RMB Global Markets Research, Nema Ramkhelawan-Bhana, said risk assets are impervious to US election noise but the risk rally is devoid of virus concerns, even though momentum will probably slow. In the South African economy or the Rand, she said the country is awaiting presidential guidance amid concerns of a second wave.
In a research released on Friday, Ramkhelawan-Bhana wrote that the dollar lost further ground against the pula on Thursday ahead of the Fed decision and amid heightened market caution as US election counting continued. She further observed that volatility increased as either candidate could win. This came with the dollar dropping from opening levels of 0.0884 to the day’s low of 0.0890.
But the Rand edged up against the Pula, according to Ramkhelawan-Bhana, taking its cue from the USD/ZAR performance, which firmed below the 16.00 level. RMB research team expect the Pula/USD to open this morning(Thursday) little changed from closing levels at 0.0888/90,while Pula/Rand should open at 1.4062/93 compared with 1.4048/83 at close. In her analysis, Ramkhelawan-Bhana said there is a strong air of fatigue permeating through global stocks and bonds. She believes a Democratic flip of the Senate could refresh stimulus hopes and enthuse exhausted investors.
The RMB lead researcher observed that Chinese assets are being priced for a more conservative approach to US-Sino relations in the event of a Biden win. “A dicey play. While the former VP advocates a more multilateral approach, lightening trade restrictions might not be entirely in America’s best interests. The relationship will remain tenuous regardless of the presidential outcome, limiting downside on US Dollar /Chinese Yen,” she said.
The risks and Covid-19 watching US elections furore
According to Ramkhelawan-Bhana the rand market is baffled by recent spot movements. The local unit’s breach of USD/ZAR16.00 is bizarre considering SA’s fundamental weakness, though the trade surplus might be a point of differentiation, said Ramkhelawan-Bhana. She said the currency’s carry trade appeal, though the extent of the rally is more than anticipated given the overarching global risk.
“Virus concerns will outlive the furore over US elections, creating intermittent bouts of risk aversion to which markets are well accustomed. Whether that drives the Rand weaker is questionable, given its recent resilience to EUR/USD’s dip in the wake of the European lockdowns. Although risk assets have rallied strongly, the momentum will probably fade as the US elections play out, which should allow the Rand to consolidate at current levels against the major crosses,” said Ramkhelawan-Bhana.
There is a gloomy expectation in the South African economy for President Cyril Ramaphosa to announce Covid-19 restrictions, fears by economists like Ramkhelawan-Bhana is that this could unsettle Rand investors. The good thing is that this is unlikely to dislodge the Rand from its 50c trading range.
A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.
With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.
After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.
Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”
Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.
However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.
The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.
In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.
“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.
This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.
On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.
However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.
Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.
Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.
According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.
The two entities are South African retailers whose services stretched to Botswana shores. Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.
South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will 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.
However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.
When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.
“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.
The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.
This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.
What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.
“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.
Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.
CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.
Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.
“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.
CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.
Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.
“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.
According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of: i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.