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.
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.