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Botswana still stuck with credit-risky paint even towards 2021

Moody's

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 Moody’s 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. Moody’s 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 Moody’s research released on Wednesday.

The only time Botswana’s 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 Government’s 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 Botswana’s 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, Moody’s 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,” Moody’s continued.

Moody’s projects a negative 2021 outlook as pandemic fallout weighs on economic activity, government finances, complicates policy choices. In July, Moody’s 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 Moody’s 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. Botswana’s GDP for the second quarter of 2020, the time when Covid-19 faced off with this country’s population, frowned by 27 percent.

In May, Botswana got its fair share of the shock of Covid-19 effects, when Moody’s affirmed this country’s 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 Moody’s is mostly prompted by the risks associated with coronavirus shocks, given Botswana’s 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, Moody’s 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, Moody’s said that move will be crucial but challenging. Moody’s 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 Botswana’s 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, Moody’s 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%).

Moody’s 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 Moody’s 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 Moody’s. 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 tender dangles as a jittery lottery quandary

30th November 2020
SEFALANA MD: CHANDRA CHAUHAN

Lucrative and highly anticipated national lottery tender that saw several Batswana businessmen partnering to form a gambling consortium to pit against their South African counterparts, culminates into a big power gamble.

WeekendPost has had a chance to watch lottery showcase even before the anticipated and impending national lottery set-up launches. A lot has been a big gamble from the bidding process which is now set for the courts next year January following a marathon legal brawl involving the interest of the gambling fraternity in Botswana and South Africa.

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Business

The uncertainty of getting the next meal in Botswana

30th November 2020
uncertainty of getting the next meal

Households representing more than half of Botswana’s population-mostly residing in rural areas- do not know where their next meal will come from, but neither do they take into consideration the quality and/or quantity of the food they consume.

This is according to the latest Prevalence of Food Insecurity in Botswana report which was done for the 2018/19 period and represents the state of food insecurity data even to this time.
The Prevalence of Food Insecurity was released by Statistics Botswana and it released results with findings that the results show that at national level 50.8 percent of the population in Botswana was affected by moderate to severe food insecurity in 2018/19, while 22.2 percent of the population was affected by severe food insecurity only.

According to the report, this translates to 27 percent of the population being food secure that is to say having adequate access to food in both quality and quantity. According to Statistician General, Burton Mguni, when explaining how the food data was compiled, Food and Agriculture Organization of the United Nations (FAO), is custodian of the “Prevalence of Undernourishment (PoU)” and “Prevalence of moderate or severe food insecurity in the population based on the Food Insecurity Experience Scale (FIES)” SDG indicators, for leading FIES data analysis and the resultant capacity building.

“The FIES measures the extent of food insecurity at the household or individual level. The indicator provides internationally comparable estimates of the proportion of the population facing moderate to severe difficulties in accessing food. The FIES consists of eight brief questions regarding access to adequate food, and the questions are answered directly with a yes/no response. It (FIES) complements the existing food and nutrition security indicators such as Prevalence of Undernourishment.

According to the FIES, with increasing severity, the quantity of food consumed decreases as portion sizes are reduced and meals are skipped. At its most severe level, people are forced to go without eating for a day or more. The scale further reveals that the household’s experience of food insecurity may be characterized by uncertainty and anxiety regarding food access and compromising the quality of the diet and having a less balanced and more monotonous diet,” says Mguni.

The 50.8 percent of the population in Botswana which was affected by moderate to severe food insecurity are characterized as people experiencing moderate food insecurity and face uncertainties about their ability to obtain food. These people have been forced to compromise on the quality and/or quantity of the food they consume according to the report on food insecurity.

Those who experience severe food insecurity, the 22.2 percent of the population, are people who have typically run out of food and, at worst, gone a day (or days) without eating. According to the statistics, rural area population experienced moderate to severe food insecurity at 65 percent while urban villages were at 46.60 percent and cities/town were at 31.70 percent. Those experiencing the most extreme and severe insecurity were at rural areas making 33.10 percent while urban villages and towns were at 11.90 percent and 17.50 respectively.

According to a paper compiled by Sirak Bahta, Francis Wanyoike, Hikuepi Katjiuongua and Davis Marumo and published in December 2017, titled ‘Characterization of food security and consumption patterns among smallholder livestock farmers in Botswana,’ over 70 percent of Botswana’s population reside in rural areas, and majority (70%) relies on traditional/subsistence agriculture for their livelihoods.

The study set out to characterize the food security situation and food consumption patterns among livestock keepers in Botswana. “Despite the policy change, challenges still remain in ensuring that all persons and households have access to food at all times. For example, during an analysis of the impacts of rising international food prices for Botswana, BIDPA reported that food prices tended to be highest in the rural areas already disadvantaged by relatively low levels of income and high rates of unemployment,” said the study.

According to the paper, about 9 percent of households were found to be food insecure and this category of households included 6 percent of households that ranked poorly and 3 percent that were on the borderline according to the World Food Programme’s (WFP) definition of food security.

Media reports state that the World Bank has warned that disruption to production and supply chains could ‘spark a food security crisis’ in Africa, forecasting a fall in farm production of up to 7 percent, if there are restrictions to trade, and a 25 percent decline in food imports.

Food security in Botswana or food production was also attacked by the locust pandemic which swept out this country’s vegetation and plants. The locust is said to have contributed to 25 percent loss in production.

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Business

Solid demand for diamonds towards the ‘gift’ season

30th November 2020
Diamonds

Global lockdown have been a thorn in diamonds having shiny sales, but a lot of optimism shows with the easing of Covid-19 restrictions, the precious stones will be bought with high volumes towards festive season. The diamond market is however warned of the resurgence of Covid-19 in key markets presents ongoing risks amid the presence and optimist about the new Covid-29 vaccines.

The latest findings published as De Beers Group’s latest Diamond Insight ‘Flash’ Report, which looks at the impact of the pandemic on relationships and engagements, has revealed that in the US that more couples than ever are buying diamond engagement rings. Bridal sales is mostly the primary source of diamond jewellery demand in recent months, De Beers said.

According to De Beers, interviews with independent jewellers around the US revealed that the rate of couples getting engaged has increased compared with the period when Covid-19 first had an impact in the US in the spring.

“In addition, despite challenging economic times, consumers were spending more than ever on diamond engagement rings – often upgrading in colour, cut and clarity, rather than size. Several jewellers speculated that with consumers spending less on elaborate weddings and/or honeymoons in the current environment, they had more to spend on choosing the perfect ring,” said De Beers.

According to De Beers, a national survey of 360 US women in serious relationships, undertaken in late October in collaboration with engagement and wedding website, The Knot. This survey is said to have found that the majority of respondents (54%) were thinking more about their engagement ring than the wedding itself (32%) or the honeymoon (15%), supporting jewellers’ hypothesis that engagement ring sales were benefiting from reduced wedding and travel budgets in light of Covid-19 restrictions.

When it came to researching engagement rings, online was by far the predominant channel for gaining ideas/inspiration at 86% of consumers surveyed, with 85% saying they had saved examples of styles they liked, according to De Beers. According to the survey, only a uarter of respondents said they had looked in-store at a physical location for design inspiration.

“For many couples, the pandemic has brought them even closer together, in some instances speeding up the path to engagement after forming a deeper connection while experiencing lockdown and its associated ups and downs as a partnership. Engagement rings are taking on even greater symbolism in this environment, with retailers reporting couples are prepared to invest more than usual, particularly due to budget reductions in other areas,” De Beers CEO Cleaver said.

According to De Beers Group, its Diamond Insight Flash Report series is focused on understanding the US consumer perspective in light of Covid-19 and monitoring how it evolves as the crisis evolves. Also, the company said, it is augmenting its existing research programme with additional consumer, retailer and supply chain touch-basis to understand the pain points and the opportunities for stakeholders across the diamond pipeline.

Demand for diamonds is as hard and resilient as the precious stone itself. De Beers pocketed US$ 450 million in its recently held ninth rough diamond sales cycle, and the company says it is more flexible approach to rough diamond sales during the ninth sales cycle of 2020, with the Sight event extended beyond its normal week-long duration.

“Steady demand for De Beers Group’s rough diamonds continued in the ninth sales cycle of the year, reflecting stable consumer demand for diamond jewellery at the retail level in the US and China, and expectations for reasonable demand to continue throughout the holiday season. However, the resurgence of Covid-19 infections in several consumer markets presents ongoing risks,” said De Beers CEO Bruce Cleaver recently.

High expectations are on diamonds being a sentimental gift for holiday season or as the most fetished gift. However the ninth cycle was lower than the eighth which registered US$ 467 million. For the last year period which corresponds with the current one, De Beers managed to raise US$ 400.

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