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Wednesday, 06 December 2023

SADC revives single currency dream

Business

This week, the Southern African Development Community (SADC) heads of state and governmentís 41st meeting held in Lilongwe, Malawi, has re-ignited the long-held southern blogís single currency dream.

The meeting was held under strict conditions with a limited number to observe COVID-19 protocols. Only eight Presidents attended the summit, while Prime Ministers and Ministers represented others. The meet was preceded by a Council of Ministers meeting held in hybrid format, whereby a limited number of delegates attended physically, while others attended through virtual platforms. Botswana was represented by Minister of Foreign Affairs and International Cooperation, Dr. Lemogang Kwape, accompanied by Kagiso Mmusi of Defence and Mmusi Kgafela of Trade.

Among the key highlights of the 41st SADC Summit, the Executive Secretary of SADC, Dr. Stergomena Lawrence Tax, bid farewell to the SADC Heads of State and Government after serving for eight years, and a new SADC Executive Secretary Elias Magosi was sworn in. He became the first-ever Motswana to hold the position.

Botswana has housed SADC since the then SADCC in 1980 but has never occupied the topmost leadership positions at the SADC Secretariat. Meanwhile, the Southern African countries are still resolute and hell-bent on the single currency objective.

ďThe Summit reaffirmed SADCís position that the creation of the SADC Central Bank and Monetary Union, as a long-term objective to be premised on fulfilling pre-conditions that include the harmonization of the fiscal and monetary policies of SADC countries, and greater convergence of banking systems. In this regard, the African Monetary Institute and the African Central Bank should be long-term objectives,Ē said the communiquť from the meeting.

The single currency in the SADC was to be implemented around 2016. The idea was driven by the desire to prevent that level of conflict between neighbouring countries. But even that noble intention has not ensured harmonious collaboration — some encountered severe problems, including the EURO, and there are constant calls from both the left and the right for it to be discontinued.

Botswanaís Kwape could not shed light on this countryís position on the single currency plan. But it seems Botswana is in full support of the idea. However, it remains to be seen if SADC will ever implement the concept.

The thinking is that a single currency will eliminate exchange-rate fluctuations and transaction costs. SADC leaders support their stance with the reasoning that money would no longer need to be exchanged. Furthermore, they anticipate lower interest rates; equal pricing across borders; increased trade between countries; increased cross-border employment, expanding markets for business, financial market stability as stock exchanges would deal only in a single currency.

Dr. Martyn Davies, the chief executive of Frontier Advisory, a company that provides investment advice on emerging markets, is quoted believing that though regional trade integration is imperative for SADCís economic survival, monetary union in the style of the euro is not Ė and is, in fact, not possible given the inequality in the development of the countries in the region.

University of Cape Town academic Lee-Roy Chetty also agrees that it is an unrealistic goal, depending on variables such as tax integration, political stability, and border security in the blocís 15 member states. ďWithin this context, in my opinion, the SADC region is not an optimal currency region (OCA) for a successful transition to a single currency model,Ē he was also quoted saying.

Chetty adds that at its core, a single currency zone is not only an economic but also a political project: ďIt would require political unity and co-operation as well as consolidating countries into a regional alliance, which would, in theory, increase production efficiency and faster economic growth.Ē

Countries entering monetary unions would necessarily lose control over interest and exchange rate policies. ďCountries that form part of the SADC bloc are at varying development stages of economic growth. For example, South Africa has significant interests in the SADC region and dominates the region economically. It accounts for 41% of SADCís total trade and about 63% of SADCís gross domestic product.Ē

For these reasons, it is said, the ďone-size-fits-allĒ approach of a single currency is unrealistic in the region. The SADC summit was held under the theme ďBolstering Productive Capacities in the Face of COVID-19 Pandemic for Inclusive, Sustainable, Economic and Industrial TransformationĒ. The theme sought to accelerate the implementation of the SADC Regional Indicative Strategic Development Plan (RISDP) 2020Ė2030, particularly the Industrialization and Market Integration pillar.

Still at the summit, Dr. Lazarus Chakwera, President of Malawi, took over the chairpersonship of SADC from Filipe Jacinto Nyusi, President of Mozambique. The latter assumed the chairpersonship of SADC on 17th August 2020 during the 40th SADC Summit.

Business

Botswana financial sector safe despite high unsecured household loans – IMF

4th December 2023

Botswana’s financial sector has been deemed safe and resilient by the International Monetary Fund (IMF), despite the presence of high levels of unsecured household loans. The IMF’s 2023 report on the country’s financial sector highlights the robustness of Botswana’s banking system and its ability to withstand various shocks.

According to the report, credit risk is the largest risk in Botswana’s banking system, with a significant portion of total assets comprising loans concentrated in the household sector. Specifically, 70 percent of bank loans to households in Botswana are personal loans, primarily in the form of unsecured consumer credit. However, the IMF notes that a large share of lenders collect repayments through direct salary deduction, resulting in a generally low level of non-performing household loans.

The IMF’s assessment confirms that most banking entities in Botswana have strong capital buffers, which would enable them to survive even in the event of an increase in non-performing loans in the household sector. While a 20 percent transition of performing loans into non-performing loans would result in some banks experiencing a significant capital shortfall, the majority of banks possess robust total capital buffers and would remain unaffected by severe shocks to household loans.

Furthermore, the IMF team conducted Bank Solvency Stress Tests, which demonstrated that Botswana’s banking system remains profitable and resilient to severe macro-financial shocks. The stress tests revealed that the aggregate capital depletion in an adverse scenario is relatively small, amounting to less than 0.02 percent of GDP. Although credit risk increases significantly under the adverse scenario, the impact on the capital ratio from rising non-performing loans is outweighed by the increase in net interest income.

The IMF’s assessment also indicates that Botswana’s financial sector weathered the Covid-19 pandemic well. The authorities have made notable progress in strengthening financial supervisory and regulatory frameworks since 2007. The financial sector is deemed stable, sound, and resilient, with risks primarily related to banks’ high concentration of short-term deposits from retirement funds and insurance companies, volatility in diamond prices, geopolitical developments, and tightening global financial conditions. However, the financial system remains resilient to a wide range of shocks associated with these risks, although some vulnerabilities exist.

The Financial Stability Council (FSC), a statutory body led by the Governor of the Bank of Botswana, also recently affirmed the resilience and safety of the domestic financial system. The FSC’s assessment found that the financial sector in Botswana is robust, safe, and unconstrained in providing a range of financial services to support the economy. This resilience is attributed to strong capital and liquidity buffers, profitability, continuous innovation and adaptability, and a robust regulatory environment. The FSC believes that the macroeconomic environment, characterized by positive economic growth, well-managed government fiscal position, and modest inflation, further supports financial stability. Stress tests conducted on banks validate their strong solvency and resilience.

IMF concludes that Botswana’s financial sector remains safe and resilient, despite the presence of high levels of unsecured household loans. The IMF’s assessment highlights the strong capital buffers of banking entities, their ability to withstand shocks, and the overall stability of the financial system. The country’s financial sector has also demonstrated its resilience during the Covid-19 pandemic. The Financial Stability Council further affirms the safety and effectiveness of the financial system in providing financial services to support the economy.

 

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Business

Botala Energy debuts on the BSE

4th December 2023

Botala Energy, an Australian energy company, recently made its debut on the Botswana Stock Exchange (BSE), joining a growing number of energy development companies trading on the exchange. The company, established in 2018, is focused on exploring and developing natural gas and renewable energy opportunities in Botswana, particularly in the Serowe Gas Project and Solar Opportunities.

The listing of Botala Energy on the BSE was welcomed by Mr Tsamatse Mamola, the Head of Listings & Tradings at the exchange. He recognized the company as a pioneering force in the field of gas exploration and development. Mamola also highlighted the company’s commitment to clean energy production, which aligns with the global movement towards sustainable practices. By harnessing the potential of coal bed methane in the Serowe Project and integrating it with solar power generation, Botala Energy is not only innovating in the energy sector but also contributing to a greener and more sustainable future.

Mamola emphasized the significance of Botala Energy’s decision to list all of its issued shares on the BSE. This move demonstrates the company’s confidence in the exchange as a strategic partner in its corporate journey. The listing provides Botala Energy with access to diverse sources of capital, which will be instrumental in advancing its exploration and development projects, fostering technological innovation, and achieving its clean energy production goals. The BSE, as a facilitator of capital raising, plays a crucial role in supporting ambitious initiatives and fostering growth.

The listing of Botala Energy also brings benefits to the broader Botswana economy. It increases investor interest, contributing to the liquidity and vibrancy of the market. Botswana, traditionally reliant on diamonds, recognizes the importance of diversifying its economic base. The inclusion of a dynamic and forward-looking company like Botala Energy on the exchange reflects the evolving economic landscape of the nation.

In the pursuit of economic diversification, the Botswana Stock Exchange serves as a bridge connecting visionary companies with investors who share their commitment to progress. By providing a marketplace for a diverse range of industries, from traditional sectors to emerging technologies, the exchange becomes a catalyst for economic resilience and sustainability.

Peter Grant, the Non-Executive Director of Botala Energy, shared some insights into the company’s operations. Since commencing exploration in Botswana, Botala has made significant progress, drilling exploration wells and pilot production wells. The company expects to become a modest producer of commercial gas within 12 months and increase production rapidly. Botala Energy has independently certified gas reserves and prospective resources within its project area, which have the potential to supply significant amounts of gas for power generation.

Grant also mentioned Botala Energy’s focus on delivering Liquefied Natural Gas (LNG) to off-grid communities, providing them with reliable and affordable electricity and gas. The company is exploring the commercial option of establishing an Energy Hub and Industrial Park near Palapye, where it aims to produce energy for Botswana and export it to neighboring South Africa. Additionally, Botala Energy plans to establish a solar/gas hybrid plant in Serowe to feed into the local grid, in collaboration with the Ngwato Development Trust.

Market analysts say the listing of Botala Energy on the Botswana Stock Exchange marks an important milestone for the company and the energy sector in Botswana. It provides the company with access to capital, fosters economic growth and diversification, and contributes to the global movement towards sustainable energy practices. Botala Energy’s innovative approach to gas exploration and development, combined with its commitment to clean energy production, positions it as a key player in shaping a greener and more sustainable future for Botswana.

 

 

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Business

Beverages dominate Botswana’s food imports

4th December 2023

Beverages dominate Botswana’s food imports for August 2023, according to the latest figures released by Statistics Botswana. The country imported beverages, spirits, and vinegar worth approximately P332 million during this month. This is a significant increase from the previous month, where the food import bill slightly rose from P1,063,990,477.2 in July 2023 to P1,233,702,300.4 in August 2023.

The total imports for Botswana in August 2023 were valued at P6,995,115,623.2, compared to P6,897,364,155.2 recorded in July 2023. Food imports accounted for 15.9 percent of this amount, contributing P1,233,702,300.4. Among the food items imported, beverages, spirits, and vinegar accounted for the majority at 26.9 percent. Cereals and sugars followed with 13.4 percent and 8.8 percent, respectively.

Within the category of beverages, spirits, and vinegar, the most imported commodities were mineral waters and aerated waters containing sugar or other sweetening matter or flavored, contributing 47.0 percent. Beer made from malt accounted for 16.7 percent, while fermented beverages and non-alcoholic beverages accounted for 15.9 percent. The import bill for beverages, spirits, and vinegar shows that the country imported mineral waters and aerated waters containing added sugar or other sweetening matter or flavored worth approximately P156 million. Beer made from malt accounted for around P55 million, while fermented beverages and non-alcoholic beverages were valued at around P79.1 million. Wine and liqueurs and cordials were also imported, with values of P12.6 million and P6.4 million, respectively.

In terms of cereals, dried maize excluding seed and other wheat and muslin accounted for 42.3 percent and 27.4 percent, respectively. Rice imports contributed 21.2 percent. The country spent approximately P165 million on cereal imports, with dried maize accounting for around P70 million, wheat around P45 million, and rice around P44.7 million.

Other food imports included preparations of cereals, flour, starch, or milk; pastry cooks’ products, which amounted to around P89 million. Preparations of vegetables, fruit, nuts, or other parts of plants accounted for around P88 million, while sugars and sugar confectionery were valued at around P108 million. Miscellaneous edible preparations, animal or vegetable fats and oils, dairy produce, prepared animal fodder, coffee, tea, and spices, fruits and nuts, meat, vegetables and certain roots and tubers, and products of the milling industry such as malt, starches, and wheat gluten were also imported, with values ranging from P13 million to P74.6 million.

In conclusion, beverages, particularly mineral waters and aerated waters containing sugar or other sweetening matter or flavored, dominate Botswana’s food imports for August 2023. The country also imports a significant amount of cereals, sugars, and other food products. These figures highlight the country’s reliance on imported food items and the need for strategies to promote domestic production and reduce dependence on imports.

 

 

 

 

 

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