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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

Banking on Your Terms: Exploring the World of Self-Service Banking

23rd February 2024

In today’s digital age, banking is no longer just about visiting a branch during business hours. It’s about putting you, the customer, in the driver’s seat of your financial journey. But what exactly is self-service banking, and how do you stand to benefit from it as a customer?

Self-service banking is all about giving you the power to manage your finances on your terms. Whether you want to check your account balance at midnight, transfer money while on vacation, or deposit cash without waiting in line, self-service banking makes it possible. It’s like having a virtual branch at your fingertips, ready to assist you 24/7.

This shift towards self-service banking was catalyzed by various factors but it became easily accessible and accepted during the COVID-19 pandemic. People of all ages found themselves turning to digital channels out of necessity, and they discovered the freedom and flexibility it offers.

Anyone with a bank account and access to the internet or a smartphone can now bank anywhere and anytime. Whether you’re a tech-savvy millennial or someone who’s less comfortable with technology, you as the customer have the opportunity to manage your finances independently through online banking portal or downloading your bank’s mobile app. These platforms are designed to be user-friendly, with features like biometric authentication to ensure your transactions are secure.

Speaking of security, you might wonder how safe self-service banking really is. Banks invest heavily in encryption and other security measures to protect your information. In addition to that, features like real-time fraud detection and AI-powered risk management add an extra layer of protection.

Now, you might be thinking, “What’s the catch? Does self-service banking come with a cost?” The good news is that for the most part, it’s free. Banks offer these digital services as part of their commitment to customer satisfaction. However, some transactions, like wire transfers or expedited bill payments, may incur a small service fee.

At Bank Gaborone, our electronic channels offer a plethora of services around the clock to cater to your banking requirements. This includes our Mobile App, which doesn’t require data access for Orange and Mascom users. We also have e-Pula Internet Banking portal, available at https://www.bankgaborone.co.bw as well as Tobetsa Mobile Banking which is accessible via *187*247#. Our ATMs also offer the flexibility of allowing you to deposit, withdraw cash, and more.

With self-service banking, you have the reins of your financial affairs, accessible from the comfort of your home, workplace, or while you’re on the move. So why wait? Take control of your finances today with self-service banking.

Duduetsang Chappelle-Molloy is Head: Marketing and Corporate Communication Services

 

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Business

Botswana records over P6 billion trade deficit

7th February 2024

Botswana has recently recorded a significant trade deficit of over P6 billion. This trade deficit, which occurred in November 2023, follows another deficit of P4.7 billion recorded in October of the same year. These figures, released by Statistics Botswana, highlight a decline in export revenues as the main cause of the trade deficit.

In November 2023, Botswana’s total export revenues amounted to P2.9 billion, a decrease of 24.3 percent from the previous month. Diamonds, a major contributor to Botswana’s exports, experienced a significant decline of 44.1 percent during this period. This decline in diamond exports played a significant role in the overall decrease in export revenues. However, diamonds still remained the leading export commodity group, contributing 44.2 percent to export revenues. Copper and Machinery & Electrical Equipment followed, contributing 25.8 percent and 10.1 percent, respectively.

Asia emerged as the leading export market for Botswana, receiving exports worth P1.18 billion in November 2023. The United Arab Emirates, China, and Hong Kong were the top destinations within Asia, receiving 18.6 percent, 14.2 percent, and 3.8 percent of total exports, respectively. Diamonds and Copper were the major commodity groups exported to Asia.

The Southern African Customs Union (SACU) received Botswana’s exports worth P685.7 million, with South Africa being the main recipient within SACU. The European Union (EU) received exports worth P463.2 million, primarily through Belgium. Australia received exports worth P290 million, while the United States received exports valued at P69.6 million, mostly composed of diamonds.

On the import side, Botswana imported goods worth P9.5 billion in November 2023, representing an increase of 11.2 percent from the previous month. The increase in imports was mainly driven by a rise in Diamonds and Chemicals & Rubber Products imports. Diamonds contributed 23.3 percent to total imports, followed by Fuel and Food, Beverages & Tobacco at 19.4 percent and 15.0 percent, respectively.

The SACU region was the top supplier of imports to Botswana, accounting for 77.7 percent of total imports. South Africa contributed the largest share at 57.2 percent, followed by Namibia at 20.0 percent. Imports from Asia accounted for 9.8 percent of total imports, with Diamonds, Machinery & Electrical Equipment, and Chemicals & Rubber Products being the major commodity groups imported. The EU supplied Botswana with imports worth 3.2 percent of total imports, primarily in the form of Machinery & Electrical Equipment, Diamonds, and Chemicals & Rubber Products.

Botswana’s recent trade deficit of over P6 billion highlights a decline in export revenues, particularly in the diamond sector. While Asia remains the leading export market for Botswana, the country heavily relies on imports from the SACU region, particularly South Africa. Addressing the trade deficit will require diversification of export markets and sectors, as well as efforts to promote domestic industries and reduce reliance on imports.

 

 

 

 

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Business

Business sector optimistic about 2024

7th February 2024

The business sector in Botswana is optimistic about the year 2024, according to a recent survey conducted by the Bank of Botswana (BoB). The survey collected information from businesses in various sectors, including agriculture, mining, manufacturing, construction, and finance, among others. The results of the survey indicate that businesses expect trading conditions to improve in the first quarter of 2024 and remain favorable throughout the year.

The researchers found that firms anticipate improvements in investment, profitability, and goods and services exported in the fourth quarter of 2023 compared to the previous quarter. These expectations, combined with anticipated growth in all sectors except construction and real estate, contribute to the overall confidence in business conditions. Furthermore, businesses expect further improvements in the first quarter of 2024 and throughout the entire year.

Confidence among domestic market-oriented firms may decline slightly in the first quarter of 2024, but overall optimism is expected to improve throughout the year, consistent with the anticipated domestic economic recovery. Firms in sectors such as mining, retail, accommodation, transport, manufacturing, agriculture, and finance are driving this confidence. Export-oriented firms also show increased optimism in the first quarter of 2024 and for the entire year.

All sectors, except agriculture, which remains neutral, are optimistic about the first quarter of 2024 and the year ending in December 2024. This optimism is likely supported by government interventions to support economic activity, including the two-year Transitional National Development Plan (TNDP) and reforms aimed at improving the business environment. The anticipated improvement in profitability, goods and services exported, and business investment further contributes to the positive outlook.

Firms expect lending rates and borrowing volumes to increase in the 12-month period ending in December 2024. This increase in borrowing is consistent with the expected rise in investment, inventories, and goods and services exported. Firms anticipate that domestic economic performance will improve during this period. Domestic-oriented firms perceive access to credit from commercial banks in Botswana to be relaxed, while export-oriented firms prefer to borrow from South Africa.

During the fourth quarter of 2023, firms faced high cost pressures due to increased input costs, such as materials, utilities, and transport, resulting from supply constraints related to conflicts in Ukraine-Russia and Israel-Hamas. According to the survey report, the firms noted that cost pressures during the fourth quarter of 2023 were high, mainly attributable to increase in some input costs, such as materials, utilities, and transport arising from supply constraints related to the Ukraine-Russia and Israel-Hamas wars. “However, firms’ expectations about domestic inflation decreased, compared to the previous survey, and have remained within the Bank’s 3 – 6 percent objective range, averaging 5.4 percent for 2023 and 5.4 percent for 2024. This suggests that inflation expectations are well anchored, which is good for maintenance of price stability,” reads the survey report in part.

However, firms’ expectations about domestic inflation decreased compared to the previous survey, and inflation expectations remained within the Bank’s objective range of 3-6 percent. This suggests that inflation expectations are well anchored, which is beneficial for maintaining price stability.

In terms of challenges, most firms in the retail, accommodation, transport, manufacturing, construction, and finance sectors considered the exchange rate of the Pula to be unfavorable to their business operations. This is mainly because these firms import raw materials from South Africa and would prefer a stronger Pula against the South African rand. Additionally, firms in the retail, accommodation, transport, and mining sectors cited other challenges, including supply constraints from conflicts in Russia-Ukraine and Israel-Hamas, as well as new citizen economic empowerment policies that some firms considered unfavorable to foreign direct investment.

On the positive side, firms highlighted factors such as adequate water and electricity supply, a favorable political climate, an effective regulatory framework, the availability of skilled labor, and domestic and international demand as supportive to doing business in Botswana during the fourth quarter of 2023.

Overall, the business sector in Botswana is optimistic about the year 2024. The anticipated improvements in trading conditions, supported by government interventions and reforms, are expected to drive growth and profitability in various sectors. While challenges exist, businesses remain confident in the potential for economic recovery and expansion.

 

 

 

 

 

 

 

 

 

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