Botswana still stuck with credit-risky paint even towards 2021
Business
Renowned credit ratings and analytics institution; Moody’s Investors Service in its 2021 outlook released midweek, maintains the red alert colour it placed on Botswana (A2 negative) five months ago, suggesting that Botswana together with 65 sovereigns in the world have plunged into credit risky status even towards next year.
Moody’s assigns ratings on the basis of assessed risk and the borrower’s ability to make interest payments and its ratings are closely watched by many investors. In simple terms credit agencies asses willingness of debt issuers, like corporations or governments, to meet their financial obligations on time and in full.
In the case of Botswana, this means a lower of negative rating or gloomy outlook puts Botswana at a disadvantage when it comes to securing loans or any credit facility from the international market. This also determines the sentiment of foreign investors. Moody’s is placed with Standard & Poor’s (S&P) and Fitch as The Big Three credit rating agencies.
In September this year Botswana got a negative outlook on its credit ratings as S&P revised its outlook on Botswana to negative from stable and affirming its ‘BBB+/A-2’ ratings. S& P said that at the time that it expect Botswana’s GDP to contract by 9 percent in 2020 because of the adverse impact of the COVID-19 pandemic, compounded by weaker diamond exports.
Botswana which maintained the Moodys A2 grade since 2001, which is regarded as Upper medium grade, got into the red in May this year amid Covid-19 wave- barely two months after the pandemic broke in this country-and got a negative outlook up to now. Moodys 2021 outlook projects Botswana to remain with the A2 negative outlook tag until next year.
Our outlook for sovereign creditworthiness in 2021 is negative, reflecting our expectations for the fundamental conditions that will drive sovereign credit over the next 12-18 months. The widespread fallout from the pandemic and the measures adopted by sovereigns to contain it have created an economic, fiscal and social shock that will last into 2021 and beyond, said Moodys research released on Wednesday.
The only time Botswanas credit outlook was A2 positive was in 2007, it has always had a stable status which is regarded as good for creditworthiness. The last time Botswana got a negative outlook was in 2010 following the aftermath of global recession. Botswana has maintained the stable status until May this year.
When getting a bearish outlook despite an affirmation of A2 rating in May, Bank of Botswana explained that the affirmation of the rating, at A2, is underpinned by the Governments still strong, albeit deteriorating, fiscal and debt metrics, in particular the relatively low public debt level, high debt affordability and fiscal and external liquidity buffers that help in mitigating the impact of the coronavirus shock.
In the same communication the central bank said Botswanas track record of fiscal prudence, adherence to the rule of law, robust institutions and effective policy making, as well as the current level of the Pula Fund, which continue to provide key fiscal and external buffers.
However this week, Moodys warned that in the near term sovereigns like Botswana with low credit ratings will be the most adversely affected given their lower economic and institutional strength as well as their more limited access to funding compared to sovereigns with stronger credit profiles.
However, over the medium term, sovereigns across the rating spectrum will face increasingly challenging policy trade-offs triggered or exacerbated by the crisis. These include developing exit strategies from the current supportive policy framework without jeopardizing the economic recovery, as well as structural economic and social reforms that support long-term growth and social cohesion, Moodys continued.
Moodys projects a negative 2021 outlook as pandemic fallout weighs on economic activity, government finances, complicates policy choices. In July, Moodys reduced its growth forecasts for Botswana and put it on -10.9, saying the rate was in response to the coronavirus crisis.
“Many African governments have limited financial and institutional capacity to absorb the current coronavirus shock,” said Kelvin Dalrymple, a Moody’s Vice President Senior Credit Officer in July. “The longer-term negative effects on the region’s sovereign credit profiles will leave them with diminished capacity to absorb future shocks.
Expected sharpest declines in real GDP growth is said by Moodys to be because of the impact of domestic restrictions on economic activity and the impact of a fall in global demand in key sectors such as tourism and mining. Botswanas GDP for the second quarter of 2020, the time when Covid-19 faced off with this countrys population, frowned by 27 percent.
In May, Botswana got its fair share of the shock of Covid-19 effects, when Moodys affirmed this countrys rating of A2 for long-term bonds denominated in both domestic and foreign currency, but changed the outlook from stable to negative.
Bank of Botswana said the downgrading by Moodys is mostly prompted by the risks associated with coronavirus shocks, given Botswanas strong dependency on the diamond industry for growth, exports and budget revenues.
The revision of the outlook from stable to negative reflects the increasing risks of lower growth, higher budget deficits and likely resultant increase in government borrowing. In their assessment, Moodys observed that these adverse effects of COVID-19 pandemic, combined with the current challenges the government faces on fiscal consolidation, could mean further deterioration of fiscal metrics to a level not consistent with the A2 sovereign credit rating, explained the central bank then.
Last month when assessing sovereign ability to recovering revenue post coronavirus crisis, Moodys said that move will be crucial but challenging. Moodys last month also said resource-rich, like Botswana which is dependent on diamond exports, will also face a large drop in fiscal revenue. In May when Botswanas outlook became negative, the central bank explained its strong dependency on the diamonds industry for growth, exports and budget revenues, said Bank of Botswana.
In the midweek report, Moodys said there will be far more negative rating actions in 2020 than in 2019. The rating agency highlighted that as of 9 November 2020, 65 (60 %) of our 108 sovereign rating actions have been negative a higher proportion than in 2019 (20%) and 2018 (30%).
Moodys further said almost a third (33) of all rating actions in 2020 were downgrades, the highest tally since the actions taken in 2016 in response to the previous oil price shock. According to Moodys the pandemic drove almost half of all sovereign rating actions in 2020. Out of the 65 negative rating actions, 43 taken on 33 sovereigns (or 23% of all Moody’s-rated sovereigns) were principally driven by the pandemic.
Constrained access to financing drove most of these actions, said Moodys. The rating agency further said the other drivers were lower growth, particularly in tourism-reliant or otherwise concentrated economies, invariably accompanied by a sharp rise in debt; and the associated steep fall in oil and other commodities prices.
Business
Gambling Authority expects bumper attendance at IAGR conference
With just four weeks to go, the Gambling Authority of Botswana has revealed that it is expecting a record attendance at the much anticipated International Association of Gambling Regulators (IAGR) Conference, which will be held in Botswana from 16 – 19 October 2023.
According to a communique from the IAGR, the Gambling Authority will most probably break the record in the number of accredited countries that will attend the conference in Botswana.
“We are on track to match and potentially exceed the incredible delegate turnout we saw in Melbourne last year,” read a statement from IAGR’s.
In its global reach alert, IAGR revealed a glimpse of jurisdictions that will be represented at the conference, among them Australia, Canada, Denmark, Japan, Jersey, Mauritius, United Kingdom, United States and Netherlands. African countries that have so far confirmed attendance include Zimbabwe, South Africa, Nigeria, Tanzania, Kenya and Burundi.
Commenting on the expected bumper attendance, IAGR said the amazing diversity elevates the conference to a whole new level, which will enrich discussions with a tapestry of regulatory perspectives and insights.
Botswana won the bid to host this year’s conference last year in Melbourne, Australia. The IAGR consists of representatives from gaming and gambling regulatory organizations from around the world; with a common mission to advance the effectiveness and efficiency of gaming regulation.
According to Gambling Authority Chief Executive Officer (CEO) Peter Kesitilwe, the Authority is a member of the IAGR by dictates of the Gambling Act; which compels it to align with international organizations whose objectives are to regulate gambling, and build collaboration among regulators.
“The IAGR conference is held annually and hosted by different member jurisdictions. It provides opportunities for gambling and gaming regulators from around the world to engage, learn and network with industry peers through events, workshops, research, information sharing, and the development of best practices,” explained Kesitilwe.
Funding requirements for the conference are shared between IAGR, the host country and conference participants. The government of Botswana has reaffirmed its commitment to supporting the Gambling Authority to host IAGR; as it is in line with its objectives of promoting the country as a Meetings, Incentives, Conferences, and Exhibitions (MICE) tourism destination.
According to Kesitilwe, the conference is coordinated by a Technical Committee of IAGR; together with a Local Organizing Committee (LOC) that comprises of representatives from the Ministries of Trade, Tourism, Foreign Affairs, Botswana Police Service and other stakeholders.
“We promise to deliver this hugely important event and showcase the best that Botswana has to offer. In addition to the exchange of ideas and culture capital, the Organizing Committee will also ensure maximum benefits for the tourism, hotel and hospitality industry, entertainment, transport, telecommunications, vendors, hawkers of cultural artifacts,” said Kesitilwe.
As part of preparations to host IAGR2023, the Gambling Authority recently went on a benchmarking mission to Great Britain.
“What we learnt there can assist the Gambling Authority as we enter a new era of growth and expansion. The meeting also provided a timely opportunity to catch up on preparations for IAGR2023. We are ready to host the conference and we look forward to meeting other regulators from across the world to share best practice, discuss common challenges and tackle illegal gambling,” concluded Kesitilwe.
Business
BDC on Diversity and Inclusion in the Corporate Sector and Workplace
In recent years, diversity and inclusion have emerged as crucial aspects of the corporate sector. Recognising the importance of inclusivity, the Botswana Development Corporation (BDC) has taken significant steps to signal its commitment to the inclusion of all regardless of age, gender, background. By implementing a comprehensive Diversity and Inclusion policy, BDC aims to create an environment that fosters equality, attracts top talent, and promotes creativity and innovation.
BDC has demonstrated its commitment to inclusion by crafting and implementing a bespoke Diversity and Inclusion policy. This policy recognises and values the differences within its workforce, striving to create a culture of equality. By fostering an environment where all employees feel respected and supported, BDC aims to attract and retain top talent, which in turn contributes to the organisation’s overall success.
The Corporation has implemented policies and strategies that promote diversity and inclusivity in the workplace. The Diversity and Inclusion policy emphasises the value and respect for employees from diverse backgrounds, creating an inclusive environment where everyone can thrive. By having this policy in place, BDC ensures that all employees are treated fairly and have equal opportunities for growth and development within the organisation.
In the realm of inclusivity, leading firms and companies have emerged as trailblazers, championing diversity and equity by implementing progressive policies and initiatives. These organisations have made significant strides in demonstrating their commitment to inclusivity through actions that support individuals with disabilities and foster work-life balance for all employees.
Microsoft actively recruits individuals with disabilities and fosters an inclusive workplace through accommodations and a dedicated resource group. Netflix offers generous paternity leave, Unilever supports surrogate parenthood and gender-neutral caregiver benefits, while IBM provides comprehensive adoption support. Companies like Google, Apple, and Facebook establish employee resource groups to amplify underrepresented voices. Adobe prioritises inclusive workplace design, and Accenture and Deloitte focus on diverse leadership representation. These companies set a powerful example, demonstrating the value of diversity and fostering a more inclusive corporate landscape.
Rising to the challenge, BDC has also taken several measures to respond to the different needs of its work force. These measures include fostering open and respectful communication, encouraging the formation of employee resource groups or affinity networks, and promoting diverse perspectives and contributions. The Corporation has also shown its commitment to inclusivity by recruiting persons with disabilities, providing paternity leave benefits, and recognising and supporting surrogate parenthood, primary caregiver benefits regardless of gender, as well as the adoption of children. These efforts demonstrate BDC’s progressive approach to embracing diversity and supporting employees in all aspects of their lives.
By so doing, The Corporation exemplifies the essence of progressiveness, embracing inclusivity as a core value. By championing diverse talent, providing supportive benefits, and fostering inclusive cultures, BDC is part of a movement that is shaping a future where every individual is valued and empowered.
Inclusion and diversity are not only moral imperatives but also strategic investments for success. BDC’s commitment to fostering diversity and inclusion, sets an example for other organisations in Botswana and beyond. By implementing policies and strategies that create an inclusive environment, celebrating diversity, and supporting employees from all walks of life, BDC paves the way for a more equitable and inclusive corporate sector in Botswana. Embracing diversity is not only the right thing to do; it also drives innovation, boosts employee morale, and contributes to the overall success of organisations.
Business
Sales, Profit up as Choppies new strategy pays off
Choppies Enterprises Limited, a supermarket chain led by Botswana businessman Ramachandran Ottapathu, reported an increase in profit after tax which is up 3.4%, hence improving from P145 million realized in 2022, to P150 million in 2023.
The results demonstrate sustained increases in consumer demand, improved operational flexibility, efficiency, cost-effectiveness and despite stiff competition, the Group managed reduce its debt levels by paying off P263 million debt from the previous fiscal year.
The chain supermarket realized growth in Group retail sales which went up 6.5% to BWP6 433 million compared to P6 042 recorded in 2022. The growth is attributed to a broad presence across Botswana and a growing footprint in three other African countries, being South Africa, Zambia and Zimbabwe, according to a recently financial results statement.
In Pula terms, gross profit grew by 4.0% to BWP 1 359 million (2022: BWP 1 307 million) despite the challenging economic environment. Botswana and Namibia marginally grew gross profit rates while rates in Zambia and Zimbabwe declined.
During the period under review, the group’s Group net cash generated from operating activities rose by 4.5% to P484 million, this is a significant improvement when compared to P463 million recorded in 2022. This segment was boosted by strong showing from Botswana and Namibia, which performed exceptionally despite the challenging trading conditions. Furthermore, it was driven by sixteen new stores coupled with price growth of 6.8%.
As a result of the robust financial performance, the group’s total assets increased from P1 886 million to P2 177 million, while retained losses decreased from P811 million to P664 million.
Meanwhile, the Group faced a demanding economic environment characterised by stubbornly high inflation, higher interest rates and unemployment, all of which continue to constrain consumer spending and the consumer’s ability to digest higher prices. Sales volumes were lower in many categories, exacerbated by competitor discounting, with cost pressures only partly recovered through price increases.
According to the audited results, the gross profit margin accordingly reduced to 21.1% from last year’s 21.6% due to higher supply chain costs, including fuel and managing prices in response to higher cost inflation and competitor discounting.
Furthermore, while expenses increased 5.1% excluding the depreciation restatement, expenses grew 9.8% partly due to new stores and inflation. Foreign exchange losses on lease liabilities of P31 million (against a gain of P28 million last year) were partly offset by foreign exchange gains on Zimbabwean legacy debt receipts of P18 million (2022: BWP15 million).
Operating profit (EBIT) reduced by 1.8% from BWP 279 million to BWP 274 million whilst Adjusted EBIT, which excludes foreign exchange gains and losses on lease liabilities, movements in credit loss allowances, Zimbabwean legacy debt receipts and the reassessment of depreciation, reduced by 7.5% as costs grew faster than gross profit.
CASH MANAGEMENT
According to the Choppies Enterprises financial statement commentary, the Group continues to manage its cash resources and liquidity prudently with a reduction of P132 million in debt with P87 million paid out of internally generated funds and the balance of P45 million paid out of the proceeds of the rights issue.
In addition, capital expenditure increased to P185 million when compared to 2022 fiscal year which had recorded P122 million. This was a result of the Group strategy to invest in new stores and maintaining the distribution fleet.
Choppies Enterprises raised BWP50 million from leases to fund the fleet, an improvement because in 2022 only P36 million was raised.
Despite the growth in sales, inflation and new stores, Choppies Enterprises inventory reduced by P20 million helped by more stable global supply and the benefits of implementing an inventory optimisation system.
Finally, commentary from the Choppies Enterprises Group observes that as the economies in which the Group operates recover and the new stores reach full potential, an improvement in margins is expected. “With a value proposition that resonates with customers and with the cost of everyday items still stubbornly high in too many categories, more customers are choosing Choppies for the value and assortment we are known for. While we have strong and resilient brands, affordability is a growing constraint for consumers, limiting their ability to digest higher prices,” reads a commentary on the Group’s Financial statement.
Choppies Enterprises Limited (“the Company”) is a Botswana-based investment holding company operating in the retail sector in Southern Africa. Dual-listed on the Botswana Stock Exchange (“BSE”) and Johannesburg Stock Exchange (“JSE”), its are food and general merchandise retailing as well as financial service transactions supported by centralised distribution channels through distribution and logistical support centres. Each week, approximately 2.0 million customers visit 177 stores under five formats in four countries. With annual revenue of more than BWP6 billion, Choppies employs 10 000 people and is the largest grocery retailer in Southern Africa, outside of South Africa.
EVENTS AFTER REPORTING DATE
On 19 July 2023, Choppies acquired 76% (seventy-six percent) of the Kamoso Group for BWP2.00 (two Pula) and took cession of shareholders’ loans to the value of BWP22 million. The Botswana Development Corporation (BDC) will retain its 24% stake.
This acquisition will take Choppies to become a P8 billion business in revenue with 11 000 employees and 274 retail stores.
SNEAK VIEW: COUNTRY PERFORMANCES
According to the financial results, Botswana experienced sales growth to BWP4 459 million an improvement from P4 209 million recorded in 2022. This was supported by volume growth from new stores and double-digit price inflation. Sales from Botswana increased by 5.9% and like-for-like sales growth was 2.2%, as the business continued to show strong resilience in an increasingly challenging economic environment. The Botswana economy continues to experience elevated inflation, high unemployment, and low economic growth.
EBITDA grew 5.8% and adjusted EBITDA was flat on last year. The performance for the second half was much stronger than in the first half as our strategies, leadership and inventory optimisation system have started to come to fruition.
As for the Rest of Africa being Namibia, Zambia and Zimbabwe sales increased by 7.7% to P 1 974 million, yet another improvement from 2022, which had realized P1 833 million sales. The increase was driven by the addition of nine new stores, inflationary increases in Zimbabwe and Zambia and volume growth in Namibia and Zambia. “However, this was offset by a very weak Zimbabwean Dollar resulting in Zimbabwe’s Pula sales declining by 48.3%.”
Meanwhile Namibia has successfully turned around with sales growth of 60.0% and like-for-like sales growth of 14.4%. Five new stores were opened during the year. EBITDA grew 140% with EBIT loss reducing from BWP9 million to BWP2 million. Adjusted EBIT, excluding the depreciation reassessment, reduced from BWP9 million to BWP6 million.
Connectedly, Zambia continues to grow with sales up 44.7% and like-for-like sales growth of 33.3%. Three new stores were opened during the year. While EBITDA declined by 26.4% due to the foreign exchange loss on the lease liability, adjusted EBITDA grew 27.1%. Adjusted EBIT declined marginally at 2.6%. Choppies Enterprises Directors are confident that Zambia will generate taxable profits in the foreseeable future.
Lastly in Zimbabwe, the Zimbabwean Dollar (ZWL) has significantly weakened especially in the last two months of the financial year. As a result of the above mentioned factors, Pula sales declined by 48.3%. EBIT and EBITDA declined by 151.6% and 125.5% respectively as cost inflation reduced margins. Adjusted EBIT and adjusted EBITDA declined 133.3% and 108.1% respectively.