Barclays Africa Group (BAGL) has announced that it will receive £765 million (P9.9 billion) for costs associated with separating from Barclays Plc, paving way for the parent company to cut its stake in Barclays Africa to below 50%.
“Shareholders are advised that Barclays PLC has submitted an application to the South African Reserve Bank for approval to reduce its shareholding in the Group to below 50%. The application, which also requires the approval of the Minister of Finance, based on the advice from the Registrar of Banks, includes the terms of the separation payments and transitional services arrangements, which have been agreed between Barclays PLC and BAGL,” Barclays Africa Group said on the statement released on Thursday.
“It is a good outcome that enables us to complete the separation, and to provide continuity and improved service for our customers,” said Maria Ramos, Chief Executive, Barclays Africa.
The statement revealed that the agreed terms provide for contributions by Barclays PLC to BAGL totalling £765 million is primarily in recognition of the investments required for the Group to separate from Barclays PLC. These contributions, comprise: £515 million (P6.7 billion) in recognition of the investments required in technology, rebranding and other separation projects;
£55 million (P715 million) to cover separation related expenses, of which £27.5 million was received in December 2016; and £195 million (P2.5 billion) to terminate the existing service level agreement between Barclays and BAGL, relating to the Rest of Africa operations acquired in 2013. In addition, Barclays PLC has agreed to contribute an amount equivalent to 1.5% of BAGL’s market capitalization (P1.7 billion) towards the establishment of a larger broad-based black economic empowerment scheme.
“Separation has a number of implications for our business,” said Ramos. “It gives us the opportunity to unlock the potential to do things differently and build energy and momentum for our future as a pan-African organisation.”
The separation of the London based Barclays PLC from BAGL was first announced in March last year as the British lender said it would reduce its ownership of its African business (called Barclays Africa) from 62.3% to a minority shareholding over time. Global bank regulations tightened after the 2008 world financial crisis, making it less profitable for international banks like Barclays to own substantial businesses abroad.
After the global financial crisis in 2008, regulators introduced new rules which have had far-reaching effects on banks. One of the consequences was that it became less profitable for global banks such as Barclays to own large businesses abroad. Barclays PLC carries 100% of the financial responsibility for Barclays Africa, but received only 62% of the benefits.
In May Barclays PLC sold 12.2% for R13.1 billion (P10.5 billion) to a number of well-known South African and international fund managers. As of June 2016, Barclays PLC owned 50.1% of BAGL. The Public Investment Corporation was the second largest shareholder, followed by Allan Gray, Old Mutual and Investec Asset Management. The new shareholders will be known when Barclays PLC completes its sell down.
Now that Barclays PLC has applied to reduce its shareholding in BAGL to below 50%, BAGL will be allowed to continue to use the Barclays brand in the rest of Africa for three years and BAGL will receive certain services from Barclays on an arms’ length basis for a transitional period, typically up to three years.
“The expectation is that the financial contributions will neutralize the capital and cash flow impact of separation investments on the Group over time. However, the separation process will have an impact on BAGL’s financial statements for the next few years, most notably by increasing the capital base in the near-term and generating endowment revenue thereon, with increased costs likely over time as the separation investments are concluded. Consequently, BAGL will start to report normalized results that better reflect the underlying performance of the Group once the contributions have been received,” read part of the statement by BAGL.
Barclays Africa owns businesses in 10 markets in Africa and we are not selling any of those as a result of the ownership change between Barclays PLC and Barclays Africa. Barclays PLC owns part of Barclays Africa. Barclays Africa, in turn, owns businesses in 10 countries, including Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, Tanzania, Uganda, Zambia and South Africa, where we are known as Absa.
We also have representative offices in Namibia and Nigeria. Barclays Africa has reiterated that it is not reliant on the global Barclays group for funding, capital or liquidity. Barclays Africa is independently listed on the Johannesburg Stock Exchange and has a strong balance sheet of over R1 trillion and well capitalised. Barclays Bank Kenya and Barclays Bank Botswana continue to be listed on their respective stock exchanges.
The update regarding Barclays PLC’s plans to sell-down and separate itself from the African operations comes shortly after Barclays Africa announced full year financial results which showed revenue to have increased by 8% and headline earnings by a marginal 5% against the prior year’s comparative.
Headline earnings growth in the Rest of Africa was good increasing by 17% (now accounting for nearly 20% of group earnings), although in South Africa earnings growth was relatively flat having added only 2% over the year. Net interest income and non-interest income added 9% and 6% respectively over the period, however credit impairments increased sharply (+26%), to negatively impact the Groups Return on Equity which has now fallen to 16.6% from 17%.
Meanwhile, Barclays Bank Botswana which is 67.8% owned by Barclays Africa, has confirmed that the consolidated profits for the year ended 31 December 2016 will be significantly higher than those reported for the year ended 31 December 2015. Shareholders of Barclays Bank Botswana have shown faith in the bank’s stock on the Botswana Stock Exchange (BSE) as it continues to gain in value. In 2016, Barclays Bank Botswana was the only bank on the BSE that appreciated in share price, up by 12.22%. The good rally seems to have extended to this year as the stock price jumped by 3.57% in the past two months to trade at P5.22, making it the only banking stock so far to gain inn value on the BSE.
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.