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‘African cities are not economically efficient’

World Bank’s Africa’s Cities: Opening Doors to the World report says typical African cities share three features that constrain urban development and create daily challenges for residents:

Crowded, not economically dense- investments in infrastructure, industrial and commercial structures have not kept pace with the concentration of people, nor have investments in affordable formal housing; congestion and its costs overwhelm the benefits of urban concentration.
Disconnected- cities have developed as collections of small and fragmented neighbourhoods, lacking reliable transportation and limiting worker’s job opportunities while preventing firms from reaping scale and agglomeration benefits.

Costly for households and for firms- high nominal wages and transaction costs deter investors and trading partners, especially in regionally and internationally tradable sectors; workers’ high food, housing and transport costs increase labor costs to firms and thus reduce expected returns on investment. The report underlined that 55% of African households face higher costs relative to their per capita GDP than do households in other regions- much of it accounted for by housing, which costs them a full 55 per cent more in this comparison.

In eight representative African cities, the report cited that roads occupy far lower shares of urban land than in other cities around the world.it said 20% of African cities are more fragmented than are Asian and Latin American ones. In Harare, Zimbabwe, and Maputo, Mozambique, more than 30 per cent of land within 5 kilometres of the central business district remains unbuilt.

According to the World Bank report, 472 Million people live in urban areas. That number will double over the next 25 years as more migrants are pushed to cities from the countryside. The largest cities grow as fast as 4 per cent annually. Urbanisation benefits people and businesses by increasing economic density. A worker in an economically dense area can commute more easily and consume a broader range of products. Firms clustered in cities can access a wider market of inputs and buyers. Scale economies reduce firms’ production costs- in turn benefiting consumers.

Population density is indeed strongly correlated with indicators of liveability- in sub-Saharan Africa as elsewhere. Yet Africa’s cities are not economically dense or efficient. They are crowded and unliveable. The report indicated that most urban residents are packed into low-rise, informal settlements without adequate infrastructure or access to basic services. Two of every three people in Lagos, Nigeria dwell in slums. Thus, even though households in densely populated areas of Africa are better supplied with services than rural households, the mere fact of higher population density does not imply a liveable environment.

Why do a majority of people in Africa’s cities live in slums? The immediate explanation is that the urbanization of people has not accompanied by the urbanization of capital. Housing, infrastructure, and other capital investments are lacking, especially outside the city center. Urban building stocks have low replacement values. Across Africa, housing investment lags urbanization by nine years.

It was shared that the population density of African cities is similar to that of many cities elsewhere. What is holding these cities back is their low economic density- the lack of thriving urban markets that depend on adequate infrastructure and conveniently connected clusters of residential and commercial structures. A dearth of capital and capital investment keeps Africa’s cities inefficient and less productive than they should be, limiting firms and workers to the production of goods and services for small and local hinterland markets locking them out of much more lucrative regional and international markets.

Many of Africa’s urban workers live in crowded quarters near the city center. In Dar es Salaam, Tanzania, 28% of residents are living at least three to a room; in Abidjan, Cote d’Ivoire, the figure is 50%. According to the report, the reason for this crowding is that most people must live near the downtown district or industrial zones if they hope to work. They cannot conveniently commute from outlying areas, because little or no affordable transportation is available. Africa’s cities also suffer from a lack of adequate formal housing around the urban core.

Consequently, people settle in relatively central informal settlements that are densely populated, ill served by urban infrastructure, and, by many measures, unliveable. Paradoxically, Africa’s cities are sparsely built and laid out but feel crowded. The report highlighted that the crowdedness of African cities is most apparent in their slums. On average, 60% of Africa’s urban population is packed into slums- a far larger share than the average 34% seen in other developing countries.

It shared that high rates of slum living within urban areas are characteristic of most African countries. Only two countries, Zimbabwe and South Africa, fall below the non-African average. The proportion of Africans living in slums is not high because Africa has higher urban population densities than other countries. The average population density of African cities tracks the global average; it ranks third among seven global regions.

Further, it was underlined in that report that people are clustering downtown locations not because of the amenities or decent jobs they can access in central locations. These patterns reflect broader dysfunctional ties in land markets as well as limited investments in transport infrastructure, limiting the choices that people can make on where to live and how to access jobs.

Capital investment in Africa over the past 40 years has averaged about 20% of GDP. In contrast, urbanizing countries in East Asia- China, Japan, and Korea-stepped up capital investment during their periods of rapid urbanization. The report said between 1980 and 2011, China’s capital investment rose from 35% of GDP to 48%; during roughly the same period, the urban share of its population rose from 18% to 52%. In East Asia as a whole, the report noted, capital investment remained above 40% per cent of GDP at the end of this period, helping the region become very dense economically.

The report said these contrast underline that Africa is urbanizing when poor- indeed, strikingly poorer than other developing regions with similar urbanization levels. It said supporting rising population densities in African cities will require investments in buildings, and complementary physical infrastructure: roads, drainage, street lighting, electricity, water, and sewerage, together with policing, waste and health care. In the absence of higher levels of capital investment at around Asian levels, the potential benefits of Africa’s cities are being overwhelmed by crime, disease, and squalor.

Furthermore, overcrowding increases exposure to communicable diseases. Inadequate drainage increases the risk of malaria, and lack of sanitation raises the risk of dengue. Lack of access to clean water is a leading cause of diarrhoea, which is responsible for an estimated 21% of deaths among children under five in developing countries- 2.5 million deaths a year, the report said.

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Business

Choppies back to profitability

21st September 2021
Choppies CEO - RamachandaranOttapathu

Choppies Holdings Limited, Botswana’s largest Fast Moving Consumer Goods (FMCG) retail group, is back to its glory days of profitability.

On Wednesday, Choppies signalled its shareholders in a circular published on the Botswana Stock Exchange website that a massive comeback is in the offing. The retail giant, which trades on both Botswana and Johannesburg Stock Exchange, notified its investors that it is currently finalising its financial results for the 12 months ended 30 June 2021 (FY2021).

As per the Listings Requirements of the Botswana Stock Exchange (BSE) and the Johannesburg Stock Exchange Limited (JSE), that requires companies to publish a trading statement as soon as they become reasonably certain that the financial results for the period to be reported on next will differ by more than 10% (in the case of the BSE) or more than 20% (in the case of the JSE) from the financial results reported for the previous corresponding period, Choppies notified the market about the expected financials.

In the circular, Choppies said it expects the consolidated Profit after Tax, including discontinued operations for the period FY2021, to be between 106% to 126% better than the Loss after Tax of BWP 370.6 million reported for the period FY2020, representing a Profit after Tax of between BWP 22.6 million and BWP 96.7 million.

The Profit before Tax for FY2021 is expected to be between 1% and 21% higher (BWP 105.7 million and BWP 126.7million) than the Profit before Tax of BWP 105.0 million reported for the period FY2020. The Choppies come back is against the backdrop of a devastating past three(3) financial years where the company endured some of the worst headwinds ever since its establishment over two decades ago.

Following reports of internal boardroom wars, the crisis exploded to fireworks. The retail giant was suspended on both Botswana and Johannesburg Stock Exchange for failing to publish its audited financials as per the regulatory requirement for all publicly listed companies. Following suspension from trading, Choppies’s value deteriorated to record low levels, triggering massive governance restructuring before reconfiguring its portfolio, divesting and exiting some markets, retreating to regroup in its spiritual home ground of Botswana.

In the process, the retailer stayed on news headlines for all the wrong reasons, boardroom infighting, shareholder tussles and disagreements between founders and back to back conflicts with its external auditors. At some point, Choppies founder, Chief Executive Officer and talisman, Ramachandran Ottapathu, was suspended and later reinstated in a dramatic turn of events. Furthermore, the fallout saw the longest-serving Chairperson, former President Dr Festus Mogae, resign as board chair.

The delayed 2018 year-end financial results, released a year and a half later in December 2019, delivered a shock to shareholders, with many pundits announcing Choppies’s funeral. Choppies registered a whooping BWP 445 million loss for the full year ended June 2018. Another shocking loss of BWP170 million for 2017 was initially reported as a BWP 74. 6 million profit when KPMG was still the auditor.

The Choppies loss-making crusade spilt over to 2019, registering in loss BWO 428 million before drowning again into a loss of BWP 370.6 million for the full financial year ended June 2020. In July this year, Choppies biggest individual shareholders Ramachandran Ottapathu and Farouk Ismail, revealed they would be levelling a lawsuit against former Choppies auditors Price Water Coopers (PWC).

The duo blames the auditors for alleged lapses, incompetence, and deliberate sabotage that led to the company’s regulatory non-compliance and subsequent suspension from the Botswana Stock Exchange in 2018 and a massive deterioration in value. In the Annual Report for the financial year ended June 2020, released in November that year, newly appointed Board Chair Uttun Corea announced that Choppies had appointed new auditors, Mazars, regarding FY19 and FY20.

The new board further announced a massive reconfiguration strategy to return the company to glory. The Board Investment Committee recommended disposal of loss-making operations in South Africa and the closure of operations in Mozambique, Kenya and Tanzania, which according to Mr Corea, helped return the Group to profitability.

“Our other markets also proved economically challenging with a struggling and volatile Zimbabwean economy, currency devaluation in Zambia, and a lack of economies of scale in Namibia. However, we believe a focused approach in these regions and the numerous opportunities for growth in Botswana present the Group with solid prospects.

This conditions, together with the favourable conditions following the introduction of funds by the founding shareholders, together with additional security, and given the renegotiation of our banking facilities which will see our monthly payments lower, put the Group on a firm going concern footing,” the board Chair said last year.

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Business

Cresta Marakanelo exits Zambia market 

21st September 2021
Cresta Marakanelo

Cresta Marakanelo Limited (CML), Botswana’s most prominent hotels and hospitality group, has decided to exit the Zambian market, the company announced on Wednesday. 

CML, a Botswana version of the larger Southern African Cresta Hotels Group, revealed in a circular to its shareholders on Wednesday that “it will not be renewing the lease agreement with Golfview Hotels Limited for the rental of Cresta Golfview Hotel in Lusaka, Zambia.” The Botswana Stock Exchange (BSE) listed hotels group explained it would be withdrawing from the Cresta Golfview Hotel operations on 30 September 2021.

CML explained in the circular that for continuity of operations, the landlord, Golfview Hotels Limited, will be taking over the management of the hotel and will endeavour to absorb the majority of the staff.

“The consideration to not renew the lease came after a review of the financial viability of continuing with the lease agreement. The decision to exit the lease is therefore in the best interests of CML shareholders,” Cresta Marakanelo Board explained on Wednesday.

For the year ended 31 December 2020, Cresta Golfview Hotel accounted for 5% of the CML Group’s revenue and 2% of the Group’s loss before tax. The company said it would continue to operate the 11 hotels in Botswana.

The Board of Directors of Cresta Marakanelo went on express gratitude to its dedicated staff at Cresta Golfview Hotel, “The men and women who personified our Cresta brand essence; Where One Smile Starts Another and lived our Cresta mantra of Hospitality with African Heart and Soul consistently over the years.” The Board further thanked its business partners in Zambia: the valued guests, suppliers, stakeholders, and the Zambian community at large during the time CML has operated in Lusaka.

“We look forward to welcoming you to our other properties under the CML portfolio,” the statement said. Early this year, Cresta Marakanelo attempted to expand its Botswana footprint, nearly taking in Phakalane Golf Estate & Hotels Property under its wing. In January 2021, Cresta Marakanelo announced that it had signed a 10-year lease agreement for the hotel and the golf course, located in the Gaborone high-end suburbs, with an option to renew for a further ten year period.

In addition, Cresta had planned to pay Phakalane P10.7 million as a once-off for moveable assets, including furniture, fittings and equipment, with the amount payable over 24 months. Two months later, CML directors told shareholders that the conditions necessary to finalise the deal had not been fulfilled, and as a result, the transaction could not materialise.

Cresta Marakanelo is the operating company for, until this Zambia exit, the 12 Cresta Hotels in Botswana and Zambia. The company was formed in 1987 with an initial portfolio of fewer than 290 rooms, and until this September end exit, Cresta Marakanelo has been managing over 1000 rooms in Botswana and Zambia.

Since its establishment, Cresta Marakanelo Limited (CML) has maintained its position as the largest hotel group in Botswana. The company was established in 1987 when Cresta Hospitality was awarded the Management contract for the Marakanelo Hotels in Botswana by the Botswana Development Corporation.

Cresta Marakanelo was listed on the Botswana Stock Exchange in 2010. Its largest shareholders are the Botswana Government, through the Botswana Development Company, at 30 percent and Cresta Holdings Botswana at around 29 percent, with other shareholders being Motor Vehicles Accident Fund Botswana, Botswana Insurance Company, amongst others.

Established in 1970, the Botswana Development Company is the investment arm of the Botswana Government. BDC’s main aim is to be the country’s principal agency for commercial and industrial development. The Government of Botswana owns 100 percent of the issued share capital of the Corporation. BDC has interests in industry, property development and management, agribusiness and services.

Cresta Holdings Botswana is ultimately owned by Masawara Plc, a Jersey Registered Company listed on the London Stock Exchange’s Alternative Investment Market, with an investment portfolio that extends from Botswana to Zambia, South Africa and Zimbabwe. The Group’s portfolio spans the Hospitality, Insurance, Investment Management and Agrochemical sectors.

Its hospitality arm, Cresta Hospitality Holdings, is one of Southern Africa’s largest hotel management groups, managing or operating hotels in Botswana, Zimbabwe and Zambia.  Cresta Hospitality started hotel operations as far back as 1958. Cresta Holdings is a hotel management company registered in Botswana.

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Business

ABSA posts improved results  

21st September 2021
Keabetswe Pheko-Moshagane

Absa Bank Botswana released their condensed consolidated interim financial statements for the period ended 30 June 2021. Profit before tax grew significantly by 125% against the previous year, a material recovery from the June 2020 position.

According to the company directors, the performance was driven mainly by the positive performance of the impairment line together with the positive momentum on cost lines. Pre-provision profit has also grown year on year by 9%.

Consequently, the bank’s Return on Equity (ROE) went up to 19%. Total revenue declined 1% year-on-year. Net interest income fell 8% due to margin compression driven by interest rate cuts in 2020. However, the sales and transactional banking franchise realised impressive recovery rates with volumes going up to almost pre-COVID-19 levels, and fee revenue grew 20% year on year.

Absa boasted that their operating costs remain well contained, on a reducing trend compared to the prior year. On a statutory basis, operating expenses totalled P460 million, representing a 7% decrease year-on-year. This was achieved by an overall reduction in spending as the bank continues to leverage on a leaner, rotational and digitally-led operating model.

Costs in the current year have benefited from the absence of the Voluntary Staff Separation exercise that happened in the first half of 2020, together with a significant reduction in separation expenses as the rebranding exercise has been completed. Cost-to- income ratio declined 4% and ended at 58% for the period under review. On a year-on-year basis, our credit losses decreased materially by 74%.

This significant drop was driven primarily by the better-than-expected performance of the macroeconomic variables, predominantly GDP, which carries a higher weighting in the bank risk models. With improved and stable portfolio performance, the loan loss rate improved to less than 1% for the period ended 30 June 2021.

Absa balance sheet continued on its growth trajectory with an overall growth of 14%. Customer loans and deposits remained key. components of the balance sheet and the key drivers of balance sheet growth. The balance sheet position remains solid at a total financial position of P21.5 billion. Customer loans grew by 9% year-on-year to P14.8 billion.

“We have seen increased momentum in our loan conversion rates, especially in RBB where growth was driven by scheme loans, mortgage loans and Enterprise Supply-chain Development (ESD) loans,” the bank said in a commentary that accompanied the financials.

Directors explained that growth is in line with their strategy to continue to lend a hand to the bank customers who need support during this period and support the initiatives around citizen economic empowerment and economic diversification. Customer deposits have registered good momentum growing 15% compared to last year, reaching P16 billion as of 30 June 2021.

“Although we have seen tightening liquidity in the market, our client penetration, acquisition and retention strategy has borne much fruit, especially in our CIB segment. We have noted a stable upward trend in our deposit book, a momentum which is expected to last into the rest of the months of 2021,” Directors observed.

Directors further noted that the solid balance sheet position and recovery in profitability had further strengthened the bank’s capital position, which stands at P2.9 billion and represents a capital adequacy ratio of 18% against a regulatory requirement of 12.5%. The liquid assets ratio stood at 14.6%, well above a regulatory limit of 10%.

Zooming deep into segmental performances, corporate and Investment Banking (CIB)closed off the first half of 2021 with a year-on-year decline of 3% on total income; this is on the back of the slow recovery in economic activity felt in crucial economic sectors which have previously contributed positively to revenue.

Business sentiment and confidence remain subdued even in 2021 as uncertainty continues due to the impact of COVID-19. However, the profitability of CIB is on the move, on an upward trajectory with 36% growth year-on-year. This performance was supported by the non-funded income lines’ resilience and the impairment lines’ performance.

For the Retail Banking segment the first half of the year, both loans and advances and deposits due to customers grew by 14% and 16% year-on-year, respectively. Overall revenue has remained flat year-on-year. Growth was realised from non-interest income. This is in line with the bank’s strategy to become the go-to transactional and digitally-led bank.

In the future, Absa directors noted the volatile, unpredictable environment that continues to prevail due to the COVID-19 pandemic, which comes with new waves of infections and variants, restricted movement and trade.

” However, we remain resolute in executing our refreshed strategy and focus on offering our employees and customers support in collaboration with the various stakeholders that we have partnered with.

As part of our strategy to provide customer-centric transactional banking solutions, we will continue to roll out enhancements to our existing digital platforms and develop new solutions that offer our customers convenience and safety.” For the period, Absa Bank Botswana Limited Board approved an interim dividend of 9.74 thebe per share, amounting to a total dividend of P83 million.

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