Economy – Mphoeng Mphoeng

June 15, 2021 Mphoeng Articles

From The Factory Floor to the Shop Shelf: My Journey with BITC

Last year, during the Covid19 related lockdowns as borders closed and we had threats of shop shelves running out of food and consumables, our dependence on South Africa and the need for Batswana to start producing and manufacturing our own consumables was brought to the fore of public debate. It suddenly became apparent to most, why it was important for Botswana to as a society stand up and actively work towards being self-sufficient especially for low complexity goods which we have always imported from South Africa. In 2020 alone, the total import bill stood at about BWP70 billion, most of which was low complexity consumables which went onto our shelves in grocery stores and we consumed on a daily basis. Like many Batswana I started to look at this latent market which I could possibly serve, especially considering that a number of policies and government efforts were already in place to try to make it easier for us to enter the market.

I therefore started this journey last year and, in a bid, to put together a business plan, I ended up at the Business Intelligence Unit of Botswana Investment and Trade Centre (BITC) where they assisted me with market statistics for both local and international markets. Whilst I was there, I noticed a campaign they were having in trying to reduce our import bill by assisting local manufacturing companies on their journey. I noticed the campaign had been running for the past few years under the name #PushaBW, which aims to promote local products, so earlier this month I decided to go back to BITC to find out more on how they can assist in my quest to supply the local market with my product.

Any entrepreneur will tell you that their biggest problem is always access to financing but they will tell you an even harder issue to deal with is getting your product in front of customers in the least costly, most efficient and consistent manner. With a market largely dominated by South African retail stores, I had always been told that Batswana products were being refused shelf space in these stores so I went about seeing how BITC can assist me. When I got to the BITC offices in CBD I was directed to the Brand Botswana Department which houses and drives the #PushaBW campaign.

The #PushaBW campaign was launched a few years ago, refreshing the Buy Botswana campaign. Its main objective is to promote local products by Batswana by giving them a platform to increase visibility and hopefully market traction and sales. This is important because it stimulates economic growth and helps with job creation and reduction of unemployment. The campaign aims to give Botswana products awareness by using the different platforms that BITC has including their social media, including the products in their Botswana Pride catalogues, providing opportunities for the producers to showcase their products at exhibitions, both locally and internationally as well as helping with in-store branding and promotions with select partner companies.

To get enrolled with the #PushaBW campaign, one has to register with BITC. The requirements are not onerous, as one simply has to submit company details and profiles to BITC and after vetting, they are registered in their database. In the case where it is necessary, the team will also assist with trainings and workshops that try to upskill the entrepreneur on branding and packaging. They will also give your product a Botswana Pride mark to ensure people can see that the product is a locally produced product.

With regards to market access, the team will assist the producer get access to retail stores, both local and multinationals. In the past, #PushaBW has assisted many entrepreneurs get their products on the shelves of most successfully Squaremart and Trans Africa, though the appetite from stores such as Pick n Pay, Spar and Woolworths is also great. Unfortunately, to get listed in these stores, the specific stores have basic standards which must be followed for them to list you which we must fulfil. The stores want to be assured of consistency of supply and quality (normally implies BOBS, SABS or NAFTEC approval in terms of food related products). They would also expect to see branding and packaging at a particular standard, a barcode and ingredients listed on the packaging. These requirements differ from shop to shop but generally they allow for listing in any shop and also are a great springboard when wanting to enter other markets where these are legal requirements. When ready, the BITC team facilitates meetings for the producer and buyers from the shops and also sits in negotiations to assist in any manner that the producer needs.

All of these preparations give an excellent foundation for when you finally want to take on the world with your product. At that point you would be moved to the Export Development and Promotion Department who would give you similar assistance in the region and internationally. The producer would be enrolled in the Botswana Exporter Development Program where you would be capacitated and assisted to improve product quality, branding and packaging, production and getting up to buyer requirements and standards. Similarly they would also give access to and facilitate relationships and meetings with international companies who can consume your product.

After the visit to the BITC offices, I felt like I had a clear vision and path on what I would need to do to grow and serve my product’s market, firstly at home, then internationally. For the first time, I felt confident that you will see my product in the biggest retail stores alongside local success stories like The Bulb World, Just Ginger and Maungo Craft. Before this journey at the beginning of last year, I didn’t know how integral to my journey BITC would be but it has become clear that they will be a long lasting partner in my story.

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June 14, 2021 Mphoeng Articles

Economic Recovery and Transformation Plan: A Call to Action

This article was first published in Mmegi Newspaper on 26th June 2020. Due to the announcement of a $250 million loan from World Bank to Botswana to fund the ERTP, it is worth revisiting this article.

Earlier this week we received what is supposedly a draft version of a policy document called The Economic Recovery and Transformation Plan being worked on and lead by the Ministry of Finance and Economic Development (MFED). This document is meant to be the roadmap by Government to stimulate and shock the economy out of the worst economic crisis Botswana has ever had and was prepared by a committee lead jointly by the Governor of the Bank of Botswana and the Permanent Secretary of MFED with inputs from various entities such as BOB, MITI, BIDPA and UB amongst others. This policy document acknowledges the devastation to productive capacity and subsequent loss of income from companies and individuals especially in sectors such as mining, agriculture, trade, hotels and restaurants and the informal sector and tries to provide solutions to jumpstart the recovery of the country.

Before COVID19 hit, Botswana was already on a transformation path with Vision 2036, NDP11 and other Transformation policies such as Citizen Economic Empowerment already being worked on. What this current ERTP aims to do is speed up the implementation of these policies. Its main objectives are to support restoration of economic activities and incomes, facilitate growth and accelerate transformation agendas in bid to take Botswana to high income status by 2036. The ERTP would try to address the challenges as noted in the NDP11 midterm review of declining economic growth, a deteriorating fiscal position, the need to diversify exports and the economy, mitigating uncertainties around the diamond industry’s future and high unemployment.

The basic principles that drove the ERTP are to tackle issues in the short, medium and long term by using a counter cyclical stimulus to replace lost activity whilst staying aligned with existing aspirations to accelerate the transformation agenda. The policy also had to be cognisant of fiscal constraints I.e. ensuring maximum effectiveness, sustainability and to avoid direct government funding where possible. There should also be scope to accelerate privatisation and capacitate private sector whilst ensuring we build economic competitiveness I.e. reduce costs of production, improve efficiency and develop research and innovation capacity in order to develop productive capacity. The prescribed policy responses basically would fall into 4 categories being Regulatory and legal reform, Policy actions, redirection of recurrent spending and Development projects.

Below are a select few sectors and actions envisioned by the ERTP:

Agriculture

Covid19 has heightened need and urgency for food security. Envisioned projects include creating horticulture clusters in Selebi Phikwe and Shashe and possibly Masama and Mogobane. This would entail building nfrastructure such as roads, housing, internet etc to encourage production in those areas. Food grain production in areas such as Barolong farms, Pandamatenga and Tuli Block to be assisted especially with funding via NDB and CEDA. Speeding up of the liberalisation of the beef sector and setting up of a Meat Regulator would be prioritised.

Tourism

Botswana’s dependence on foreign tourists has proved disastrous and the promotion of local tourism is definitely necessary. This includes policies to speed up unexploited sites and reduce pressure on Northern Botswana by developing other tourism destinations. Ease of regulation to promote agro tourism is also prioritised.

ICT

In line with Botswana’s aspirations for digital transformation and spring boarding into the 4th Industrial Revolution, ERTP aims to revolutionise the ICT landscape by creating an enabling environment for development. The ERTP does recognise past failures especially in the execution of eGov and implemention of laying enabling infrastructure. These would hence be prioritised with a view that these would revolutionise service delivery in education, health, retail, cashless society, tax collection etc. Government is also looking at introducing a Digital biometric Omang and digitizing Land management which would have resultant major implications for developing a supporting industry and curbing unemployment.

Other sectors touched on in the document include education, mining, manufacturing, health, the informal sector, the creative sector and also setting up a function to improve Botswana’s implementation, monitoring and evaluation capacity to ensure successful implementation.

One of the biggest challenges that will face the implementation of the policy is how to fund it. COVID19 responses and loss of revenue have already created a P20 billion deficit with the ERTP expected to need another P20 billion to fund it sufficiently. Domestic borrowing is currently at 7.5% of GDP with legal limit of 20% allowing government to have the ability to borrow P15 billion from domestic market with another 15 billion that could be sourced from insurance companies, pension funds and banks. The government is also considering a possible draw down of P5billion from Foreign reserves with a potential also to seek funding from development funding institutions. Speeding up of getting our ducks in a row could also create potential to fund some projects via PPPs. Similar to what was mentioned in the 2020 Budget Speech, consideration must also be given to adjusting taxes and levies.

So what are my initial reactions to the ERTP?

Firstly I’m impressed by the speed and urgency this issue has been treated with. This does show that the Government is trying to stay ahead of the curve of the possible destruction looming in our economy. That said, the ERTP is effectively nothing new (which is not a bad thing as its clear its a consolidation of existing plans) meaning it does inherit some of the blind spots from original documents used to put it together. I do however welcome the approach of consolidation because that makes it simpler for stakeholders to implement even if does bring questions of how existing transformation committees will feed into it.I do however hope that since the document is supposedly a draft, there will be ample opportunity to do proper consultation and feedback. The document is very high level and lacks in detail, broadness and fresh thinking so I do hope individual industries will be able to design more detailed documents to avoid a top down and ensure buy in of different stakeholders. Some of the industries and interventions were very thin e.g. sections on the creative industry, improving Research & Development, SME development and improving procurement. Another big blind spot was it wasn’t clear how Citizen Economic Empowerment will be encouraged by the policy though it is mentioned as one of the major objectives. Lastly and most worryingly, the question of implementation remains. No one ever doubts the brilliance our government has in policy development. Unfortunately we do not have a great track record in implementation and change management though I choose to take a positive outlook this time as COVID19 has forced us to check our complacency. Overall, the policy is a good starting skeleton that will benefit from individual stakeholders adding meat to its bones in the coming months.

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May 31, 2021 Mphoeng Articles

Funding the Budget Deficit using Govt Bonds: A Conundrum

On 1^st February 2021, the then Minister of Finance, Honourable Dr Thapelo Matsheka read out the 2021/22 Budget Speech for the Republic of Botswana. One of the biggest, most critical issues from the budget, was a never-before-seen budget deficit of P6 billion (about 3% of GDP). Combined with a revised deficit of P21 billion for year 2020/21, this meant that government was short of money to be able to run its programs and commitments this year. Minister Matsheka also announced his plans on how he would cover that shortfall using the following avenues: borrowing from local investors by issuing bonds, borrowing money from external lenders, tapping into foreign reserves and increasing taxes and improving collection of levies etc.

Consistent with the strategy, since January 2021 Government has attempted to raise P4.5 billion by asking local investors to buy government bonds at auctions held on a monthly basis. Govt has only successfully raised P1,549 billion (30%) of what it has intended. In the 14^th May 2021 edition of Mmegi, the Governor of the Bank of Botswana, Mr Moses Pelaelo decried the low uptake or interest in government bonds (essentially lending money to Government). The Governor expressed that they will undertake an exercise to find out why investors seem to not be interested in the bonds though they have asked for them in the past. This article therefore will try to explain this phenomenon and what Govt might need to do in future to make its effort to raise funds for the deficit more successful.

Firstly, let us examine how Government attempts to borrow money from investors. Government via the MoF gives an instruction to BoB on how much it would like to borrow from investors in a particular quarter. BoB then checks sentiment with local investors via discussions with commercial banks. A large part of this, is that MoF and BoB will also monitor where trading on the BSE is of these bonds. So they will see that a bond of say, 10 year is currently priced at P25 so they will expect to be paid similarly when they go to auction. Unfortunately very little trading happens because the commercial banks who are primary dealers have no real interest in trading or developing the market. BoB then announces how much it would like to borrow, for how long and at what interest rate. This is what is termed issuing bonds. Investors then bid at an auction at the price they see fit to purchase those bonds (these bids will almost always not reflect the information shown by trading on the BSE as discussed above). The person offering BoB the best prices will be awarded those bonds which are then listed on the Botswana Stock Exchange and can be traded until the time on their contracts elapses.

So it is very possible that investors will express interest in bonds but bid at prices that BoB sees as unpalatable and therefore will choose not to honour and take up the bids. This is what has been happening at least for the past year. Why is this the case? The answer lies in how bond market investors make their money.

The biggest issue a bond investor has to worry about is how they believe market interest rates will behave over the life of the bond. Say BoB issues a 6-year bond like they did on May 2021. Bond investors have to forecast what they think will happen to interest rates between now and 2027. Botswana is now currently at the lowest interest rates it has had in its cycle so it is easy to forecast that interest rates will go up in the next few years. Unfortunately due to how bonds work (the explanation is too complex for this article), it means when interest rates go up, bonds will reduce in value and an investor would lose money. To avoid this problem, an investor has to price their bid at an auction lower in order to compensate for the losses they forecast to experience in the future. This isn’t necessarily an issue in other countries that have a more developed bond market that have mechanisms to ensure investors can make money when interest rates go up or when they go down. In Botswana, you can only make money in one direction, which is down (another complex issue beyond the scope of this article).

This issue is further exacerbated by the fact that Botswana recently got downgraded by Moody’s (see previous article in Mmegi or on my website about credit ratings) which means investors now view Botswana as having increased risk of not being able to pay back its commitments to investors. The increased risk would have made investors want to be compensated for the additional risk they are taking so this would have lowered the price they bid even more.

The implication of this is that investors would be happy to invest in Government bonds but only at prices that they are comfortable that they wouldn’t lose money in the long run as interest rates rise. Unfortunately for government this would mean if they were trying to raise P4.5 billion, they may only get paid P4.2 billion at those prices but be expected in the long run to pay the full P4.5 billion back. So essentially this is the conundrum we are facing as a country and in the bond markets. Due to the undeveloped nature of our market, we are now faced by 2 competing forces: Government wants to borrow money from local investors but is in somewhat denial of what investors want because this would mean they take on more expensive debt. On the other hand, investors want to invest in government bonds but at these level of interest rates, they’re afraid that the only way for interest rates to go is up, which would make them lose money; so they choose to bid as low as possible to compensate them for “guaranteed” future losses. This leads to a stand-off.

Unfortunately for the average Motswana, this standoff means either the Government won’t be able to get funded by local investors and therefore the government could struggle to pay for commitments meaning Batswana would suffer. On the other hand, if investors pay at the price level that the Government wants, this means that years from now the investors would lose value and money which would affect the average Motswana because this would affect the values of their pensions and pay-outs.

This conundrum wouldn’t exist if the country had a fully functioning developed capital market and whilst the easy blame would be to look at the Government or the BSE, the reality is that the under development is created by a lack of interest in its development by the commercial banks and the investment industry. The reality is that the market participants have been able to be profitable without being innovative (as has been the criticism levelled at commercial banks for many years). They’ve never had an incentive to want to put in the work to develop our markets.

Until the market participants are forced to stand up and play their true role, we will continue to be saddled by the current conundrum. In the meantime, Government will have to continue scratching their heads on how to access the investment funds sitting in our capital markets.

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May 7, 2021 Mphoeng Articles

Moody’s Downgrades Botswana’s Credit Rating: Should The Average Motswana Worry?

On April 23^rd 2021, Moody’s announced that it was downgrading Botswana’s long term debt credit rating from A2 with a negative outlook to A3 with a stable outlook. It should be noted that that the rating had been adjusted in May 2020 from A2 with a stable outlook to A2 with a negative outlook, essentially forecasting the current downgrade. Previously Botswana had been rated as A2 and stable since November 2011 but has been on A2 since 2001. The question therefore is what does this all mean, is it significant, how will it affect us as Botswana and should we be worried?

Botswana’s Economic Evolution and Covid-19: The Case of BITC

12 months into the Covid-19 pandemic, which has proved to be the worst health and economic crisis of the last 100 years, we look on and try and find the lessons and silver linings from the past 12 months. As Botswana, we have had to grapple with a lot of issues about the state of our country and economy. Covid-19 brought some critical issues to the fore such Citizen Economic Empowerment and participation in the economy, our over-reliance on South African imports when it comes to self-sustenance. Couple these issues with the disruption being caused by technology as we enter the Fourth Industrial Revolution (4IR) and the increasingly challenged fiscal position in the country and 2020 proved to be a perfect storm that created the biggest explosion of uncertainty we have ever witnessed but also provided for excellent opportunities to re-think ourselves and emerge stronger like the phoenix.

Tag: Economy