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The future of Africa is trade

Sub-Saharan Africa is, today, the second fastest growing region in the world– and home to some of the most exciting emerging markets on the planet.

These emerging markets, combined with frontier markets of equally great potential, “present a future cross-border trade and economic environment that could, one day, emulate Asia in diversity, opportunity and growth,” says Vinod Madhavan, Group Head of Trade for Standard Bank. Efficient, effective and sustainable trade structures and technologies are central to achieving this vision for growth – and also for alleviating the poverty that still grips many parts of the continent.

Economically excluded populations can be rapidly included in meaningful economic participation by growing sustainable and inclusive domestic, regional and global trade value chains. “Trade has the potential to drive inclusive growth in Africa by leveraging new technologies – especially in information – able to link sustainable African industries with a new generation of global consumers,” says Mr Madhavan.  

“Now has never been a better time for Africa to sustain growth by taking charge of its own growth momentum, by rapidly expanding the continent’s internal and cross-border cash, trade and securities capabilities,” says Mr Madhavan. This will, deepen local capital markets, enabling the development of sustainable, diversified and inclusive domestic economies through cross-border trade.

To achieve this vision, however, the information that Standard Bank has access to, across its 20 markets shows how important it is that legislators get the cross border and policy basics right. At the same time Africa’s financial institutions should look to developing the digital and sustainability solutions necessary to leverage the continent’s potential.

Cross border

Cross-border integration (of production, supply and markets) through trade, drives the rationalisation of standards, the efficiency and growth of markets, and the diversification of economies – naturally. Creating the financial markets that allow this evolution to happen, “is critical for Africa to successfully claim a greater share of global productivity – and the trade networks that support these,” adds Mr Madhavan.

Progressive policy

Africa will not, however, realise the benefits of regional and global trade without, at minimum; liquidity, access to capital, progressive foreign exchange regimes, and clear tax systems. “Being supported by; rational infrastructure, agile labour policies, relevant education and efficient customs and excise rules coordinated by regional trade bodies, will free Africa to expand growth internally – while continuing to attract foreign investment,” says Mr Madhavan.  

Digitisation

From a cash, trade and investment services perspective, Standard Bank is seeing a lot of evolution in digitisation being driven by our clients and their customer. As the various players in the client ecosystem – i.e., producers, suppliers, service providers – push the bank’s clients to adopt cheaper, more digital, technologies, “the bank’s clients also expect the bank to be able to operate and deliver across these platforms,” says Mr Madhavan.

Our clients continue to search for operational efficiency (especially in a largely paper intensive Trade finance business) and hence we expect to see increased adoption of digitisation and digitalisation in trade (across the physical supply chain, the financial supply chain and the documents chain).  Technologies such as Blockchain naturally lend themselves in realizing benefits from the digitisation of financial supply chain and documents chain (that secures the documents legal transferability while drastically reducing delays in couriering etc.).

Keeping close to clients, especially in Africa where mobile and other such digital solutions are evolving independently – and often ahead of the rest of the world, “places Standard Bank in a positon to observe these evolutions first hand – and then evolve solutions that support these digital needs,” he adds. Getting this right requires a culture without a territorial or parochial view of innovation and technology, “an innovative culture completely at home with the democratic and universal culture of today’s digital consumer, client, customer or business person” says Mr Madhavan.

Sustainability
 


Since the competitive management of trade information, in the modern age, includes end-users being aware of how sustainably products and services are developed and delivered, businesses also need to develop, “clear, transparent and fair procurement and production environments – that are sustainable over the long term,” says Mr Madhavan. While the growing importance of sustainability in business and trade is a challenge in many parts of the world, in Africa the shift to sustainability, “presents the continent with a myriad of opportunities to develop new, clean and efficient industries – from the ground up,” says Mr Madhavan.

Standard Bank as one of the two African banks signatory to the Equator Principles on sustainability in banking and finance is acutely aware of the opportunity that the global sustainability movement offers Africa.  Standard Bank is also the only Africa bank currently involved in the Sustainable Trade Finance working group constituted by ICC (International Chamber of Commerce, Banking Commission).  

Getting sustainability right, is likely to place Africa at the epicentre of a new global trade in sustainable products and services. “This will have profound implications for growth and inclusiveness on the continent,” predicts Mr Madhavan.  
Standard Bank is ideally placed to help Africa achieve this vision by deploying its technological, policy, market and human insights – built up over a 154 years and now present in 20 markets – in the development of a cross-border trade environment that drives inclusive growth and effective global competition in a rapidly changing global environment. Vinod Madhavan, Group Head of Trade for Standard Bank Group.

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P230 million Phikwe revival project kicks off

19th October 2020
industrial hub

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.

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IMF projects deeper recession for 2020, slow recovery for 2021

19th October 2020

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.

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Botswana partly closed economy a further blow of 4.2 fall in revenue

19th October 2020

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.

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