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Sub Saharan Africa in more debt than it was 5 years ago – 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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Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020
Foschini

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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