Sub Saharan Africa in more debt than it was 5 years ago Ė Moodys
Moody’s a US based international finance and economic commentator says Sub Saharan Africa is today in more debts than it was half a decade ago, the New York headquartered agency said in a report this week.
The Moody’s report shows that while most Sub-Saharan African countries plan to consolidate their budgets to stabilize debt, they are now more vulnerable to shocks and negative financing because they are in a weaker fiscal position than five years ago. “Expenditure cuts are often less complex to implement quickly than revenue-raising measures," said David Rogovic, Moody's Vice President – Senior Analyst and the report's co-author. "The credit risks associated with lack of spending flexibility are most pronounced where it coincides with higher debt burdens and for those whose fiscal metrics are more vulnerable to shocks." He said
These debt burdens according to Rogovic are now higher than just five years ago making Sub Saharan African countries more vulnerable and with less capacity to employ countercyclical fiscal policy to absorb future shocks. According to the report, spending flexibility varies across the region. In particular Moody’s says Angola, one of Africa’s largest economies and Gabon, have less expenditure flexibility today, as past fiscal consolidation relied more on discretionary spending than mandatory spending, while higher interest payments also increase the share of mandatory spending in the government's spending mix.
With Zambia, the regions copper mining giant, higher capital expenditures to finance public investment has led to more expenditure flexibility today, though there is a sharp increase in external borrowing. Moody’s says high wage bills constrain spending flexibility in Namibia, and South Africa while high share of spending directed towards transfers and subsidies constrain expenditure flexibility in Mauritius and South Africa, whereas Ghana’s rigid spending structure reflects a high interest bill. Rwanda, Cameroon and Cote d'Ivoire were also noted to have greatest spending flexibility
The continent’s largest and most populated country Nigeria was observed to have relatively less flexibility to cut spending. Moody’s says analysis and observation at the oil rich country are captured in particular on spending at the federal government level, where interest makes up a relatively large share of total spending.
In the event of shocks, spending flexibility – defined as countries' scope to cut government spending rapidly and significantly – allows sovereigns to broadly adhere to their plans and lends resiliency to fiscal strength. Based on Moody's assessment of the proportion of mandatory spending relative to the regional average, Rwanda, Cameroon & Cote d'Ivoire has the most flexible spending structures.
Credit risks associated with lack of spending flexibility are most pronounced where it coincides with higher debt burdens and susceptibility to financing shocks. For Namibia and Ghana, rigid expenditure combines with other fiscal weaknesses to increase downward pressures on fiscal strength and their credit profiles from shocks. Meanwhile, higher-than-average spending flexibility in Rwanda and Cameroon mitigates some of the risks associated with a rising government debt burden, if governments are willing and able to use that flexibility in the face of a shock.
By contrast, mandatory spending accounts for over 80% of total spending in Namibia, Mauritius, South Africa and Ghana. For Namibia and Ghana, rigid expenditure combines with other fiscal weaknesses to increase pressure from shocks on their fiscal strength and credit profiles. In the regional entirety Moody’s says expenditure cuts are often easier to implement quickly than revenue-raising measures. Fiscal strength will likely be more resilient for those with capacity to cut expenditure quickly and significantly in the face of a shock.
As a developing region comprising of mostly low middle income economies, with wide inequality and significant poverty in some parts, Sub Saharan Africa is currently battling with uphill task of transforming their countries. Lack of adequate Infrastructure has been and is still currently one of the leading impeding factors.
Africa has been on attempts to solve this problem embarked on an external borrowing wave to resource their infrastructure development budgets, a move that landed the continents’ leaders in China, the world most populated country and second largest economy.
Last year at China- Africa Forum , the country announced it would reserved $60 billion for Africa .
Chinese President said the funds would be channeled to projects aligned to the Chinese government’s Belt and Road Initiative covering telecommunications, construction of roads, bridges and sea ports, energy, and human capacity development. The money which will be spent in the next 3 years entails $15 billion being categorized as government grants, $15 billion as interest free loans and 20 billion dollars of credit lines and USD 5 billion for financing imports from Africa.
In Botswana President Masisi boasts that China has extended a grant amounting to P340 million to the government of Botswana, adding into 136 million pula grant already extended to Government of Botswana announced for the construction of Kazungula Primary School in the Chobe district. The grants come with an overly criticized loan to Botswana amounting to over P10 billion to used for amongst other Mosetse –Kazungula Railways. The Africa- China bromance has not landed well with the Western power, US lenders in particular say Africa is entrapping itself in miscalculated external borrowing that just increases its debt burden.
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Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
‚ÄúIn accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,‚ÄĚ said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices.¬† Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
‚ÄúCommunity empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,‚ÄĚ said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, ¬†Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
‚ÄúAs a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy‚Äôs productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,‚ÄĚ said the Minister of Minerals and Energy.
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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Moody‚Äôs Reaffirms African Trade Insurance‚Äôs A3 Rating & Revises Outlook to Positive
Moody‚Äôs Investors Service (‚ÄúMoody‚Äôs‚ÄĚ) has affirmed the A3 insurance financial strength rating (IFSR) of the African Trade Insurance Agency (ATI) for the fifth consecutive year and changed the outlook from stable to positive.
Moody‚Äôs noted that the change in outlook to positive reflects the strong growth in ATI‚Äôs membership base – that has resulted in improved portfolio diversification, strengthened capital adequacy, and the good profitability despite the challenging operating environment. In addition, ATI benefits from its preferred creditor status (PCS) amongst sovereign member states which protects it from the risk of default by member sovereigns through securing recoveries against claims paid on guarantees.
The strong membership and equity growth are some of the key considerations for the consistent reinstatement of ATI‚Äôs A/Stable rating by Standard & Poor‚Äôs and Moody‚Äôs rating, over the years. Also supporting the rating affirmation are; consistent improvement in financial performance, commitment of its shareholders who continue to uphold the preferred creditor status, its high quality and conservative investment portfolio as well as strong relationships with a number of global reinsurers that provide significant risk-bearing capacity.
With the change in outlook to ‚Äúpositive‚ÄĚ, ATI is now better placed to provide enhanced support to its member countries, attract additional shareholding and grow its portfolio. The positive outlook is an indication that if ATI continues to demonstrate its strong underwriting performance and ability to recover claims under the preferred creditor arrangements, among other factors, an upward pressure towards an upgrade may be generated. The Moody’s press release can be accessed from¬†here
Commenting on the rating, Africa Trade Insurance Chief Executive Officer Manuel Moses said: ‚ÄúThis positive revision is in line with our 2023 – 2027 strategic objectives in which we set to improve our rating outlook to positive in the first year, and achieve an upgrade of at least ‚ÄúAA‚ÄĚ/Stable rating by both Moody‚Äôs and S&P within this Strategic Plan period. We aim to achieve this by doubling our exposures and increasing our capital to more than USD1 billion.‚ÄĚ
ATI‚Äôs mandate is to provide trade-credit and political risk insurance, as well as other risk mitigation products to its member countries and related¬†public and private sector actors. These insurance products not only directly encourage and facilitate foreign direct investment as well as local private sector investment in our member countries, but also contribute to intra- and extra-African trade.
About The African Trade Insurance Agency¬†
ATI was founded in 2001 by African States to cover trade and investment risks of companies doing business in Africa. ATI predominantly provides Political Risk, Credit Insurance and, Surety Insurance. Since inception, ATI has supported US$78 billion worth of investments and trade into Africa. For over a decade, ATI has maintained an ‚ÄėA/Stable‚Äô rating for Financial Strength and Counterparty Credit by Standard & Poor‚Äôs, and in 2019, ATI obtained an A3/Stable rating from Moody‚Äôs, which has now been revised to A3/Positive.