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Water Utilities losses up 232% to P166 Million 

Water Utilities

Water Utilities Corporation (WUC) has released their financial results for the full year ended 31st March 2021. Figures reveal ballooned losses for the state-owned corporation. Losses went up by 232% from P49.9 million in the previous year ended March 2020 to P166 million in the period under review.

The 31st March 2021 year-end was underpinned by devastating effects of the COVID-19 pandemic, in particular: eroded household income resulting in inability to pay water bills by customers on top of high consumption of water due to COVID-19 prevention measure of regular washing of hands.  In April 2020 President Mokgweetsi Masisi declared State of Public Emergency to curb the spread of the COVID-19 pandemic in Botswana. A directive was further issued to Water Utilities Corporation to suspend disconnection of defaulting customers and keep the taps running in order to enable regular washing of hands.

However, this landed a massive blow on the corporation’s financials. Revenue from contracts with customers dropped to P1.811 billion from P1.825 billion.  The corporation’s total expenses rose from P1.988 billion to P2.307 billion resulting in operating loss before tariff subsidies and grants of P465.9 million up significantly from P138.8 million recorded in the previous year ended 31st March 2020. Grant received from government was just a little over P167 million, a significant rise from P147 million received in the previous year.

After taking into account revenue from grant and tarrif subsidy Water Utilities Corporation operating loss stood at P298.6 million, still significantly higher than the March 2020 loss of P8.5 million.  Loss for the year ended 31st March 2021 after Finance Income, Cost and Income tax stood at P166,043, 000 up 232% from P49,923,00 in the previous year ended 31st March 2020.  Water Utilities Corporation’s biggest thorn on its flesh is defaulting customers who owe the corporation chunks of money.

In July, this year, Water Utilities Corporation (WUC) announced that it will step up its debt collection efforts in a bid to recover over P1.1 billion owed by its customers. The corporation, which is a parastatal under Ministry of Land Management, Water & Sanitation Services had been crying out loud appealing to members of the public and companies to pay their respective water bills.

Over the years WUC’s technique has been to cut individuals water supply in a bid to force the customers to pay outstanding bills, however the strategy doesn’t seem to work forcing the corporation to come up with other avenues to press water consumers into paying for the service which is the crust of everyday basic need.  Water Utilities said unpaid bills that continue to pile up year in year out have now reached unbearable heights, levels so high that it can no longer absorb the heat.

The corporation announced on national television that it has now decided to engage debt collectors to go after people and companies that owe them a total of over P1.1 billion in unpaid bills.  According to information revealed by the Corporation management, over P700 million is owed by the public or domestic users, while the remaining P400 million is owed by companies and organisations. Lebone Sedingwe a Revenue Executive at Water Utilities revealed in July that it was long overdue for the corporation to go after those reluctant to pay up for their bills.

Sedingwe said some customers would come to their revenue offices to negotiate and agree on payment plans, but thereafter never stick to it. “It is under this backdrop that we have seen it is only best we engage those with skills to collect this debt on our behalf because it is too much,” Sedingwe said in July.  Permanent Secretary in the Ministry of Land Management, Water and Sanitation Services, Bonolo Khumotaka mid last year at the height of COVID-19 outbreak appealed to Water Utilities Corporation customers urging them to pay their outstanding water bills.

She said this would help the Corporation to recover costs and ensure it continues to deliver water to the nation. During COVID-19 lockdown WUC was only able to collect around P50 million per month from utility fees instead of the usual P150 million, a trend that spilled over to the rest of the year and the following year 2021 as economic hardship prevailed, curtailing people’s ability to pay their bills.

When COVID-19 intensified last year President Dr Mokgweetsi Eric Masisi instructed WUC to suspend its process of disconnecting water supply for defaulting customers.  President Masisi indicated that the decision was imperative and necessary to enable Batswana to comply with COVID-19 protocols and requirements of hygiene and washing hands regularly.  On the other hand, the Ministry’s Permanent Secretary cried foul that Water Utilities was suffocating due to overwhelming operating costs that are not recovered.

“We encourage all those who can pay their water bills to do so, this will enable us to continue servicing the country with the much-needed water during this period of COVID-19 pandemic,” she said over a year ago. The Permanent Secretary further noted that it is crucial for WUC customers to pay their bills so that the Corporation recovers costs and keeps its workforce. “Distributing water is expensive because we have to maintain our pipes and pumps to keep the water supply afloat. We appeal to Batswana to meet us half-way, even if it means paying half of the bill, it is very much welcome,” she pleaded.

Khumotaka further added: “The Corporation is employing Batswana, so for us to avoid cutting costs and coming to drastic decisions such as laying off some employees, it is important that we recover costs from Batswana who can afford to pay their bills. We have come up with new payment platforms, including digital and cell phone payments methods to make it easy for our customers to pay,” she advised. In October, following the lifting of State of Emergency Water Utilities Corporation announced that the grace period given to customers with unpaid water bills would cease end of October issuing a serious warning that 1st of November penalty actions would be in full momentum.

Business

New study reveals why youth entrepreneurs are failing

21st July 2022
Youth

The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.

The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.

University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.

According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.

The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”

The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”

According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”

The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.

Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”

According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”

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Business

BHC yearend financial results impressive

18th July 2022
BHC

Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.

The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.

Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.”
He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.

It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.

He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.

The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.

On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.

BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”

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Business

Commercial banks to cash big on high interest rates on loans

18th July 2022
Commercial-banks

Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.

In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.

Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.

Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.

The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.

The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.

“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.

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