Sub-Saharan Africa Stock Markets 2010 Review & 2011 ... - Imara
Sub-Saharan Africa Stock Markets 2010 Review & 2011 ... - Imara
Sub-Saharan Africa Stock Markets 2010 Review & 2011 ... - Imara
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Market Outlook for <strong>2011</strong><br />
Botswana’s economic revival continues alongside a slowly<br />
recovering global economy. A 3.7% decrease in total<br />
government spending is budgeted for <strong>2010</strong>/11, including a<br />
substantial 15.7% decline in development expenditure.<br />
With the continuing cash flow constraints, the<br />
government has announced a prioritisation of project<br />
spending, tightening of budget management and<br />
implementation of measures to raise revenue, including<br />
the increase in the rate of VAT (effective April <strong>2010</strong>) and<br />
government levies, as well as drawing dividends from<br />
parastatals. It is anticipated that the BWP 12.1bn budget<br />
deficit for <strong>2010</strong>/11 will be financed by a combination of<br />
domestic borrowing and drawdown of accumulated<br />
savings.<br />
It is anticipated that output will be below trend in the<br />
medium-term. Although the exporting sectors will benefit<br />
from any sustained recovery in world demand, domestic<br />
economic growth will be moderated due to reduced<br />
government spending. Furthermore, it is expected that<br />
demand and its impact on economic activity will be<br />
subdued as a result of the public sector wage freeze,<br />
together with the increase in VAT, administered prices<br />
and other levies. Improving credit developments however<br />
reflect a cautious lending approach by banks and<br />
restrained borrowing due to economic uncertainty and<br />
the limited upward income effect on household credit<br />
demand.<br />
Total revenues and grants for the <strong>2011</strong>/12 financial year<br />
are estimated at BWP 34.10bn, with mineral revenue<br />
contributing 33% of the total. The second largest source is<br />
Customs and Excise at 25%, while Non-Mineral Income<br />
Taxes and Value Added Tax come third and fourth at 18%<br />
and 15%, respectively. The proposed total expenditure<br />
and net lending for <strong>2011</strong>/12 is estimated at BWP 41.03bn,<br />
made up of BWP 10.77bn for the development budget and<br />
BWP 30.35bn for the recurrent budget.<br />
Top Picks for <strong>2011</strong><br />
FNBB – Botswana’s 2 nd largest bank in terms of loan book<br />
and the biggest company in terms of Market Cap. FNBB<br />
has a large branch network and continues to expand. It is<br />
the industry leader in the technology space. FNBB has the<br />
lowest cost-to-income ratio out of all the banks in the<br />
country.<br />
Barclays – Botswana’s largest bank in terms of loan book<br />
and is the 2 nd biggest company by Market Cap. It has the<br />
biggest branch network and enjoys the largest market<br />
share. Barclays has recently introduced new technology<br />
such as cell phone banking.<br />
ABCH – Recently awarded retail banking license in<br />
Botswana. Has the potential to gain market share from<br />
other players in the market who seem stagnant. Regional<br />
presence and the continued recovery of Zimbabwe should<br />
bolster profits. Merchant business continues to be robust.<br />
Letshego – Botswana’s largest micro lender. Letshego<br />
continue to expand its foot print regionally. Has very low<br />
NPL’s resulting from good collection controls. Letshego<br />
enjoys the majority of the micro lending market share.<br />
BIHL – Botswana’s largest life insurance and asset<br />
management company. Both the life insurance and asset<br />
management company enjoy the majority of market share<br />
in their segments. The asset management company is<br />
well positioned to take advantage of the global equity<br />
market recovery. The life insurance company continues to<br />
grow at a steady pace.<br />
The recommended Development Budget for the <strong>2011</strong>/12<br />
financial year is BWP 10.77bn. This budget will be funded<br />
from the Domestic Development Fund at BWP 9.47bn and<br />
loans and grants from development partners at<br />
BWP1.3bn. The Ministry of Minerals, Energy and Water<br />
Resources with a budget of BWP 2.37bn, gets the highest<br />
share of 22% of the proposed overall Development<br />
Budget. The second largest share of 19.8% is allocated to<br />
the Ministry of Transport and Communications at BWP<br />
2.13bn. The Ministry with the third largest share of 13.0%<br />
of the proposed overall development budget is Local<br />
Government at BWP 1.4bn. Total revenues and grants for<br />
the financial year <strong>2011</strong>/12 are forecast at BWP 34.10bn,<br />
whilst proposed total expenditure and net lending are at<br />
BWP 41.03bn. The net result is a budget deficit<br />
amounting to BWP 6.93bn which is 6.3% of forecast GDP.<br />
The DCI has gained 6.26% YTD in USD terms mainly driven<br />
mainly by the banking stocks, ABCH, FNBB and Barclays.<br />
We expect the financial sector to drive the market in<br />
<strong>2011</strong>.<br />
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