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Low fuel prices lead to another inflation target breach

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November’s year-on-year headline consumer price inflation (CPI) recorded yet another drop to 2.9 percent – 0.2 percentage points lower than October’s rate of 3.1 percent.

This is also lower than our expectations of an unchanged inflation rate m/m. On a year-on-year basis, CPI is significantly lower than the 4.3 percent printed in November 2014. This larger than expected drop is due to low local fuel prices, combined with lacklustre domestic demand, which exerted greater downward pressures on prices than we had anticipated.

This is, however, in line with recent global trends. Inflation has now printed below the 3 percent bottom band of the inflation target range for four times this year.

Transport, the second biggest category in the inflation basket accounting for approximately 19 percent, fell by 7.0 percent y/y, decelerating further from the 6.5 percent-drop recorded in October. Local fuel prices continue to decline in line with the international oil price and were to a large extent cushioned by the National Petroleum levy, which aims to protect local consumers from the volatility of international oil prices.

In September, retail pump prices of petrol, diesel and paraffin were all reduced by 15 thebe, 40 thebe and 40 thebe respectively. The increase in the Transport deflation was as a result of this reduction as it filtered into the inflation numbers. More recently in December, there was another decrease in local fuel prices and we expect this to exert further downward pressure on Transport inflation, as well as overall CPI.

Since this reduction, international Brent Crude Oil prices have come under renewed pressure and fell a further 16.0 percent, giving yet more room for another reduction in local fuel if prices stabilise around these levels for some time.

International oil supply continues to remain stubbornly strong with both OPEC and non-OPEC producers maximising production. Furthermore, with Iran coming into the picture, things are likely to get worse before they can get better as far as the oil price is concerned. Other components of the CPI basket were generally stable over the past month, recording positive changes of less than 1 percent.

The biggest item in the basket – Food, with a weighting of approximately 22% – has been surprisingly absent among the main contributors to inflation over the year. It recorded a 0.9 percent increase in prices over the 12 months to November. The Housing, Water, Electricity Gas & Other fuels category recorded the biggest rate of price increase over the 12 months at 9.5 percent, mostly driven by increase in the Water supply category which was up 26 percent over the year.

Given the reduction in fuel costs earlier in the month and the delayed effect of the local and regional drought experienced in trickling down into the numbers, we believe the annual inflation rate in December will remain below the 3 percent bottom band.

The favourable exchange rate between the pula and the rand, which limits the extent to which we can import the increasing food inflation from South Africa, will also have a cooling effect on CPI. Inflation for the year to date has averaged 3.0 percent and we believe this level will be maintained for the full 12 months of 2015.

There are a number of risks to this outlook. On the upside, we believe it will be driven by food inflation and a possible increase in the alcohol levy this December. On the downside, the main driver will be the likelihood of another decline in fuel prices given the continued plunging of international oil prices.

Waning local demand, as indicated by the reduction in core inflation which registered a 0.3 percentage decrease to 4.7 percent from the previous month, is also expected to keep pressures on prices within check. Against this background, we believe that propelling economic growth remains the primary objective of the central bank.

We are therefore convinced that the monetary policy will remain accommodative for the foreseeable future. We do not believe that the central bank will reduce rates any further, as the recent reductions have not really propelled credit growth due to other structural hindrances.

TSHEPANG LOETO is an analyst at Investec Asset Management

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SMEs benefit from Consumer Fair growth

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The Botswana Investment and Trade Centre (BITC) has applauded Botswana Consumer Fair’s continued efforts to improve small to medium enterprises’ linkages.

BITC Chief Executive Officer, Keletsositse Olebile, when opening the fair, said the event has provided interactive forum for both local and foreign exhibitors. He said the shopping show has enabled manufacturers, wholesalers and traders to market their products directly to consumers, an alignment to government’s endeavors.

“As part of government intention, we continually encourage local sourcing by retailers and distributors,” said Olebile who is just few months into his new post. He further celebrated the growth of Botswana Consumer Fair over the years, attributing the expansion to quality of goods displayed at the previous shows.“Improved quality and increased variety of wares increases the interest of the visitors and makes them look forward to returning the following year,” said Olebile.

This year’s exhibitors at the 13th event still running under the banner: ‘It is more than just shopping’ have been drawn from Lesotho, Zambia, Swaziland, South Africa, Nigeria, Ghana, Kenya, Egypt, Japan, India, Tanzania and Zimbabwe.

Consumer Fair is a flagship event for Fairgrounds Holdings and provides a platform for small medium enterprises (SMEs) from the different sectors of the economy to showcase and promote their products and services. In addition, the SMEs are expected to establish long term business linkages and promote local manufactured goods.Fairgrounds Holdings is already optimistic that the Fair immensely contribute to the socio-economic development of the country through supporting SMEs.

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‘Involve SMMEs in standards development’-Minister

Keikantse Lesemela

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Minister of Investment, Trade and Industry, Bogolo Kenewendo appealed to Botswana Bureau of Standards (BOBS) to include the Small, Medium and Micro Enterprises (SMMEs) when developing the standards to improve the sector.

She said the Ministry of Investment, Trade and Industry has identified three areas of focus going forward which are modeled on SMME development, investment promotion and export development apexes. “I would like to implore you to include this sector in standards development processes and assist in improving SMMEs conformity to standards and compliance to technical regulations,” said Kenewendo.

Speaking during the BOBS Technical Committee Members appreciation ceremony on Thursday, Kenewendo explained that the important roles of standards are underpinned by the aspirations and intentions espoused in both diversified export led economic growth and job creation as priority areas. “It goes without saying that the diversification of the economy requires a National Quality Infrastructure and Technical Regulatory Framework that promote competitiveness of Botswana goods and services.”

She also emphasized that an effective National Quality Infrastructure and Technical Regulatory Framework are essential as they provide crucial links to global trade, market access and export competitiveness through their contribution to consumer confidence in product safety, quality and the environment.Since inception in 1997 BOBS has published more than 1700 standards through 48 technical committees across several sectors of the economy; 109 certification licences have been issued against some of these standards. Currently 46 Botswana Standards are being implemented through the standards regulations with a view to protecting the health and safety of consumers as well as protection of the environment.

On her note, BOBS Vice Chairperson of the Standards Council, Professor Edward Dintwa said standards are powerful tools for helping organisations that implement them to realize their potential, have access and compete in the global marketplace. “In this highly competitive and complex world, issues of sustainability and productivity, viewed from economic, environmental and societal perspectives require that businesses must be more efficient in their operations, which can be achieved through the implementation of standards”.

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