Barclays Africa Group, one of the largest banking groups in Africa, on Thursday released its first annual financial results since the successful conclusion of the reduction by Barclays PLC of its majority shareholding in Barclays Africa Group last year.
The group reported a 4% increase in headline earnings in 2017 as impairments declined substantially from high base in 2016. Return on equity remained strong at 6. 4%. When presenting the results, Barclays Botswana Managing Director Reinette van der Merwe said Barclays Africa Group continues to have solid balance sheet assets of R 1. 2 trillion and strong capital and liquidity levels- these are measures of the strength of buffers banks have in place to protect customer deposits.
He said its headline earnings, a measure analysts use to gauge profitability, grew despite the continued slow economic expansion in some of the Group’s largest markets, including South Africa, where the Group generates approximately 80% of its income. Barclays Africa Group’s separation from Barclays PLC is progressing well and the parties continue to work together to ensure a seamless separation. The group is listed on the Johannesburg Stock Exchange and is one of Africa’s largest diversified financial services groups. As of June 2017, Barclays PLC was a minority shareholder in Barclays Africa Group.
With the process of separating from Barclays PLC well under way, including receipt of the R 12, 1 billion settlement contributions in June 2017, BAGL has reported both IFRS compliant financial results and a normalized view. The latter adjusts for the consequences of the separation and better reflects the Group’s underlying performance. The Group will present normalized results for future periods where the financial impact of separation is considered material.
Normalization will adjust for the following items: endowment income on Barclays PLC’s R 12. 1 billion separation contribution (2017: R 325 m); hedging revenue linked to separation activities (2017: R 80 million); operating expenses (2017: R 1 901 million) and other expenses (2017: R 394 million), plus the tax impact of the aforementioned (2017: R 408 million). In total, these adjustments added R 1 245 million to normalized group headline earnings during the period. Since normalization occurs at a group level, it does not affect divisional disclosures.
Rest of Africa Banking’s non- interest income declined by 7% to R 4 853 million due entirely to the strong Rand, as constant currency growth was 3%. CIB Rest of Africa declined 6% to R 2 297 million, but increased 5% in constant currency. RBB Rest of Africa fell 8% to R 2 550 million, which was 1% higher in constant currency.
WIMI’s non- interest revenue grew 6% to R 5 128 million, reflecting 6% higher Life Insurance net premium income and policyholder and reserving adjustments recognised in 2016 which did not recur. Ernst & Young Inc. (EY) and KPMG Inc (KPMG), Barclays Africa Group Limited's independent auditors, have audited the consolidated annual financial statements of Barclays Africa Group Limited from which management prepared the summary consolidated financial statements. The auditors have expressed an unqualified audit opinion on the consolidated annual financial statements.
The summary consolidated financial statements comprise the summary consolidated statement of financial position as at 31 December 2017, summary consolidated statement of comprehensive income, summary consolidated statement of changes in equity and summary consolidated statement of cash flows for the reporting period then ended and selected explanatory notes, excluding items not indicated as audited.
The audit report of the consolidated annual financial statements is available for inspection at Barclays Africa Group Limited's registered office. These summary annual consolidated financial statements for the year ended 31 December 2017 have been audited by EY and KPMG, who expressed an unmodified opinion thereon.
A copy of the auditors’ report on the summary consolidated financial statements and of the auditors’ report on the annual financial statements are available for inspection at the Group’s registered office, together with the financial statements identified in the respective auditor’s reports.
South Africa Banking headline earnings grew 4% to R 12 200 million. Within this, Retail and Business Banking (RBB) SA headline earnings rose 1% to R 8 874 million due to 16% lower credit impairments and improved second half revenue growth. Retail banking headline earnings were flat R 6 546 million, while Business Banking grew 1% to R 2 328 million. Corporate and Investment Bank (CIB) rose 16%, given 5% higher pre- provision profits and 44% lower credit impairments.
Corporate rose 8% to R 1 143 million and Investment Banking increased 22% to R 2 183 million. Rest of Africa Banking headline earnings grew 7% to R 2 954 million, or 24% in constant currency. RBB Rest of Africa declined 6%, despite rising 19% in constant currency, while CIB Rest of Africa grew 8% and 21% in constant currency. WIMI’s headline earnings decreased 8% to R 1 156 million, reflecting higher catastrophe event claims, unwinding of a Life deferred tax asset raised in 2016 and a single client credit impairment in Wealth.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.