Usually, companies that sell everyday items — like food and drinks — have an advantage here. These are called fast-moving consumer goods (FMCG) companies. They sell items that are a part of our daily lives. So they sell every day.
In Botswana, examples include
- Sefalana Holdings and
- Choppies Enterprise and
- CA Sales
Because of Botswana’s low base in production, these companies import their stock or raw materials from outside. This comes at a cost to them, and they often have to pass this cost to customers. Otherwise, they would have to either raise their costs of operation and accept smaller profit margins, which would worry you as an investor.
During COVID-19, such companies have managed to preserve shareholders’ profits by passing on the cost to shoppers.
Read: Retail Stocks and the Inflation Divide
Inflation Scare in H2: The Thief That Wants To Outrun Your Pula
Botswana recently changed how much its currency is exchanged for foreign money. It now costs more pulas to exchange for foreign money, and pay for goods from other countries. Since FMCG companies import their stock or raw materials, their costs go up.
We lost P48 million – Choppies
For instance, Choppies CEO Ramachandran Ottapathu publicly said the company lost about P48 million overnight because of these currency changes.
He said the burden will be felt by its customers also.
“There is no other way out, other than passing the burden to the consumer,” Ottapathu told a local radio station recently.
Sefalana Incurs Additional Costs
“When we had to settle our creditors, which were due in the next 30 days, that did have an extra P15 to P20 million cost of settling those creditors,”
Sefalana’s Finance Director, Mohamed Osman
This was a result of changes in the exchange regime.
Osman added that the company made an effort to protect customers from these higher costs.
“We tried not to pass some of this to the customers where possible, for stock we have already paid for. We try to maintain the prices on that, but obviously, where we had to pay a higher premium on it, we could make a loss on it, and we had to edge the price up slightly,”
Osman said.
This will help preserve margins for shareholders.
Uproar Over Price Increases
Unlisted retailers and suppliers were the first to raise prices on shelf products, sparking uproar.
Finance Minister Ndaba Gaolathe told parliament recently that while businesses may change prices for various reasons, the recently announced adjustments to the exchange rate parameters do not by themselves justify the notified rates of immediate price increases by some businesses.
Economist Dr Keith Jefferis explained:
“The reason costs have been quick is that it may be bought on credit. The amount that retailers have to pay is going to be at the new exchange rate.”
As mentioned, Osman said Sefalana also had to pay an extra P15 to P20 million more to settle bills with suppliers.
That means unless retailers had made prior arrangements, called forward contracts, to lock in old prices, they now have to pay more pula to get foreign currency to pay for the same goods.
Competition May Prevent Bigger Increases
Dr. Jefferis expects that prices could go up by as much as 10%, although competition in the retail sector will likely prevent bigger increases.
As a major player in the retail market, Sefalana chose to wait before increasing its prices. Osman explained that the company first observed how competitors were responding to rising costs.
“Eventually, they gave in before us, and they increased the prices. So in this instance, we followed, we didn’t lead,”
he said.
Keith believes that anyone who tries to increase by more than 8% may lose sales. In other words, while inflation may rise, rivalry between shops should help keep prices from jumping too far, too fast.
Other Factors Play a Role
Another economist, Sennye Obuseng, explained that the extent of price increases will not depend on foreign exchange movements alone. He was supported by Jefferis, who added that inflation in South Africa will also feed into Botswana’s prices.
