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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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Matambo calls on financial sector to pick GDP

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Finance Minister, kenneth Matambo

Finance Minister Kenneth Matambo has announced that government is committed to support financial service sector to prop up the country’s Gross Domestic Product (GDP).

Currently contributing over 13 percent to GDP, Matambo said the sector has potential to increase its share. “Hence government’s interest in the sector,” said Matambo addressing delegates at the inaugural Botswana Insurance Holdings Limited (BIHL), Global Financial Summit.

The country has built a strong, resilient and fast growing financial sector underpinned by a robust regulatory framework. The finance minister who is expected to step down next year, noted that government’s commitment to the financial service sector has this year been buttressed by a number of laws passed in July relating to money laundering activities.

In addition, Matambo said the continued investment in the development of information, communication and technologies (ICTs) backbone infrastructure is also to support local banks’ rising appetite for online services.

The Minister said the country remains committed to maintaining micro-economic stability to spur private sector participation in the economy. “Our vision is to become a high income country by 2036,” said Matambo, challenging the private sector to step forward and help government to develop the country, bemoaning the low levels of financial inclusion and shallow domestic capital markets.

He said the private sector should come up with more initiatives to develop further the local capital markets. The Minister’s sentiments were also shared by Martin Davies, Managing Director for Emerging Markets and Africa at Deloitte who has challenged the country to start dealing with its low manufacturing value add.

“How do we start to diversify beyond the single commodity economy,” quizzed Davies, adding that manufacturing increase is vital for low inequality across the country.

“Inequality results in bad public policy, as the state starts to believe and think they have to intervene more,” said Davies, highlighting that the country needs to move away from the absolute concept of state drive growth. Meanwhile, minister Matambo has applauded the private sector for leading economic dialogue in the country through events such as the BIHL Global Finance Summit.

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First Lady advises women entrepreneurs

Keikantse Lesemela

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First lady, Neo Masisi

First Lady, Neo Masisi has urged women entrepreneurs to bring change in the economic development of the country and the rest of Africa.

Speaking during the Lioness Lean in Africa breakfast on Friday, Masisi said women entrepreneurs are remarkable engines of economic growth and job creation. “I believe women entrepreneurs hold incredible potential and credentials on the continent because Africa has the highest percentage of women entrepreneurs in the world.

It is projected that millions of much needed jobs will be created over the next decade and these will be created predominantly through small businesses which are mostly run by women,” said Masisi.She highlighted that women entrepreneurs are also the most powerful engine for equitably distributing growth and they are also solutions for addressing inequality on the continent.

“It is a proven fact that for many generations, women understand the simple concept of barter and commerce. These are the role models of our past and our present and they will continue to inspire new generations to do more for business to grow,” she said.

The Lioness Lean In Breakfast Series brings together inspirational and successful women entrepreneurs to share, inspire and connect with the next generation of great women-led start-ups.

The platform is based on a breakfast networking and speaker presentation format, which has been organized in locations across the African continent for the past year by Lionesses of Africa, empowering over one million women entrepreneurs across the continent.

Stanbic Bank Botswana Head of Personal Markets, Omphemetse Dube said they are pleased to bring the Lionesses of Africa Lean In platform to Botswana once again to bring together women entrepreneurs in the country and help to nurture their growth further.

“Botswana is blessed with a number of thriving female entrepreneurs, and the potential for the next generation of talent is strong. Platforms such as this are therefore paramount in growing the cause and we as a bank are proud to help champion that movement further,” said Dube.

Founder and CEO of Lionesses of Africa,Melanie Hawken noted that Gaborone is a growing and exciting centre for women’s entrepreneurship in Africa. “This is a must-attend event for women entrepreneurs in the country as it gives them the opportunity to hear the inspiring entrepreneurial stories of women who are building great businesses here,” she said.

The annual Lionesses of Africa event allows entrepreneurs to benefit from the insights and advice of women entrepreneurs who have seen and experienced it all and to also provide an excellent opportunity for networking.

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