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The Pula willy-wally as volatile winds shakes Rand and Dollar amid uncertain US polls

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.

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Business

Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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Business

Global CEOs Back Plan to Unlock $3.4 Trillion Potential of Africa Free Trade Area

23rd January 2023

African heads of state and global CEOs at the World Economic Forum Annual Meeting backed the launch of the first of its kind report on how public-private partnerships can support the implementation of the African Continental Free Trade Area (AfCFTA).

AfCFTA: A New Era for Global Business and Investment in Africa outlines high-potential sectors, initiatives to support business and investment, operational tools to facilitate the AfCFTA, and illustrative examples from successful businesses in Africa to guide businesses in entering and expanding in this area.

The report aims to provide a pathway for global businesses and investors to understand the biggest trends, opportunities and strategies to successfully invest and achieve high returns in Africa, developing local, sub-regional and continental value chains and accelerating industrialization, all of which go hand in hand with the success of the AfCFTA.

The AfCFTA is the largest free trade area in the world, by area and number of participating countries. Once fully implemented, it will be the fifth-largest economy in the world, with the potential to have a combined GDP of more than $3.4 trillion. Conceived in 2018, it now has 54 national economies in Africa, could attract billions in foreign investment, and boost overseas exports by a third, double intra-continental trade, raise incomes by 8% and lift 50 million people out of poverty.

To ease the pain of transition to its new single market, Africa has learned from trade liberalization in North America and Europe. “Our wide range of partners and experience can help anticipate and mitigate potential disruptions in business and production dynamics,” said Børge Brende, President, and World Economic Forum. “The Forum’s initiatives will help to ease physical, capital and digital flows in Africa through stakeholder collaboration, private-public collaboration and information-sharing.”

Given the continent’s historically low foreign direct investment relative to other regions, the report highlights the sense of excitement as the AfCFTA lowers or removes barriers to trade and competitiveness. “The promising gains from an integrated African market should be a signal to investors around the world that the continent is ripe for business creation, integration and expansion,” said Chido Munyati, Head of Regional Agenda, Africa, World Economic Forum.

The report focuses on four key sectors that have a combined worth of $130 billion and represent high-potential opportunities for companies looking to invest in Africa: automotive; agriculture and agroprocessing; pharmaceuticals; and transport and logistics.

“Macro trends in the four key sectors and across Africa’s growth potential reveal tremendous opportunities for business expansion as population, income and connectivity are on the rise,” said Wamkele Mene, Secretary-General, AfCFTA Secretariat.

“These projections reveal an unprecedented opportunity for local and global businesses to invest in African countries and play a vital role in the development of crucial local and regional value chains on the continent,” said Landry Signé, Executive Director and Professor, Thunderbird School of Global Management and Co-Chair, World Economic Forum Regional Action Group for Africa.

The Forum is actively working towards implementing trade and investment tools through initiatives, such as Friends of the Africa Continental Free Trade Area, to align with the negotiation process of the AfCFTA. It identifies areas where public-private collaboration can help reduce barriers and facilitate investment from international firms.

About the World Economic Forum Annual Meeting 2023

The World Economic Forum Annual Meeting 2023 convenes the world’s foremost leaders under the theme, Cooperation in a Fragmented World. It calls on world leaders to address immediate economic, energy and food crises while laying the groundwork for a more sustainable, resilient world. For further information,

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Business

Electricity generation down 15.8%

9th January 2023

Electricity generation in Botswana during the third quarter of 2022 declined by 15.8%, following operational challenges at Botswana Power Corporation’ Morupule B power plant, according to Statistics Botswana Index of Electricity Generation (IEG) released last week.

The index shows that local electricity generation decreased by 148,243 MWH from 937,597 MWH during the second quarter of 2022 to 789,354 MWH during the third of quarter of 2022.

This decrease, according to the index, was mainly attributed to a decline in power supply realized at Morupule B power station. The index shows that as a result of low power supply from the plant, imported electricity during the third quarter of 2022 increased by 76.3 percent (123,831 MWH), from 162,340 MWH during the second quarter of 2022 to 286,171 MWH during the current quarter and Statistics Botswana added that the increase was necessitated by the need to augment the shortfall in generated electricity.

In the index Statistics Botswana stated that Eskom was the main source of imported electricity at 42.0 percent of total electricity imports. “The Southern African Power Pool (SAPP) accounted for 38.4 percent, while the remaining 10.1, 9.1 and 0.5 percent were sourced from Electricidade de Mozambique (EDM), Cross-border electricity markets and the Zambia Electricity Supply Corporation Limited (ZESCO), respectively. Cross-border electricity markets are arrangements whereby towns and villages along the border are supplied with electricity from neighbouring countries such as Namibia and Zambia.”

The government owned statistics entity stated that distributed electricity decreased by 2.2 percent (24,412 MWH), from 1,099,937 MWH during the second quarter of 2022 to 1,075,525 MWH during the third quarter of 2022. The entity noted that electricity generated locally contributed 73.4 percent to electricity distributed during the third quarter of 2022, compared to a contribution of 85.2 percent during the third quarter in 2022 and added that this gives a decline of 11.8 percentage points. “The quarter-on-quarter comparison shows that the contribution of electricity generated to electricity distributed decreased by 11.8 percentage points compared to the 85.2 percent contribution during the second quarter of 2022.”

Statistics Botswana meanwhile stated that the year-on-year analysis shows some improvement in local electricity generation. Recent figures from entity show that the physical volume of electricity generated increased by 36.3 percent (210,319 MWH), from 579, 036 MWH during the third quarter of 2021 to 789,354 MWH during the current quarter. According to Statistics Botswana electricity generated locally contributed 73.4 percent to electricity distributed during the third quarter of 2022, compared to a contribution of 57.7 percent during the same quarter in 2021. This gives an increase of 15.7 percentage points.

 

The entity noted that trends also show an increase in physical volume of electricity distributed from 2013 to the third quarter of 2022, thereby indicating that there are ongoing efforts to meet the domestic demand for power. “There has been a gradual increase of distributed electricity from the first quarter of 2013 to the third quarter of 2022, even though there are fluctuations. The year-on-year perspective shows that the amount of distributed electricity increased by 7.2 percent (71,787 MHW), from 1,003,738 MWH during the third quarter of 2021 to 1,075,525 MWH during the current quarter.”

The statistics entity noted that year-on-year analysis show that during the third quarter of 2022, the physical volume of imported electricity decreased by 32.6 percent (138,532 MWH), from 424,703 MWH during the third quarter of 2021 to 286,171 MWH during the third quarter of 2022. “There is a downward trend in the physical volume of imported electricity from the first quarter of 2013 to the third quarter of 2022. The downward trend indicates the country’s continued effort to generate adequate electricity to meet domestic demand, hence the decreased reliance on electricity imports.”

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