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African Debt Capital Markets Resilient in Face of Growth Challenges

Debt capital markets in Africa remain resilient, displaying innovation in response to challenging regional and global environments. A review of the continent’s activity in debt capital markets reveals continued growth in issuance, including the evolution of new asset classes. These positive trends speak well to both the resilience and future growth prospects of Africa’s debt capital markets.


Debt capital markets across Africa’s sub-regions have remained robust despite the macroeconomic and political challenges presented, “indicating their growing maturity and depth – along with their ability to develop solutions in the face of volatility and change,” says Zoya Sisulu, Head, Debt Capital Markets South Africa, at Standard Bank – parent of Stanbic Bank Botswana. 


In Kenya, for example, structural challenges, including two banks placed under statutory management in 2016, saw investors move out of corporate bonds to the perceived safety of government paper and tier one banks. Similarly, in response to local growth concerns and increased political uncertainty in South Africa, issuance in the country’s debt capital markets was largely focused on high quality deals on well-known credit, given the increased risk aversion.


As sentiment improved in the course of the year, liquidity increased significantly and even saw some compression in spreads. The depth of the South African market also attracted a number of non-South African domiciled issuers seeking to access the local bond market through inward listings. These included institutions such as the International Finance Corporation raising ZAR bonds for local project funding and the Republic of Namibia raising a sovereign ZAR-denominated bond for ongoing deployment in the country’s infrastructure development programme.


In West Africa, Nigeria’s debt capital markets were characterised by volatility driven by increased inflation, high interest rates and low liquidity arising from a drop in global oil prices and depreciation of the Naira. In response, the value of bonds issued in Nigeria in 2016 dropped by 20% – to US$2.9 billion, compared with US$3.7 billion in 2015.


A significant corporate issuance, in one of Africa’s largest economies on the other hand, saw Stanbic IBTC Capital Limited assist Lafarge Africa PLC to raise NGN 60 billion (US$190 million) in the Nigerian debt capital markets. This was a landmark issue in Nigeria as it represents, “the largest bond issuance by a corporate in the country – successfully raised in a particularly challenging liquidity and interest rate environment,” says Kobby Bentsi-Enchill, Standard Bank’s Head of Debt Capital Markets for West Africa.


Despite pervasive macro challenges, “Africa’s smaller more diversified economies continued to show an increase in corporate issuance,” says Ms Sisulu. For example, Tanzania’s National Microfinance Bank Plc issued a US$19 million three-year senior and unsecured fixed rate retail bond taking advantage of the substantial liquidity with retail investors. In Namibia and Zambia, issuance continued to be driven by the financial sector.

 

A highlight in the Namibian market was the International Finance Corporation’s debut bond, pricing at par to the government curve. Also, despite a volatile interest rate environment in Mozambique the US$ 4.4 million Bayport transaction marked the first corporate issuance in the country.
Changing regulation was also a common theme across the African debt capital markets landscape this year, and will continue to define responses going forward.


Opportunities around interest rate capping, for example, could see innovation in Kenya’s debt capital markets as corporates seek to hold loans in bond format. This is especially so in Kenya’s financial services sector where, “banks will need to get smarter about increasing returns on their loan books and repackaging structures will likely get them rate flexibility that is required to properly assign risk to counterparties,” says Wegoki Mugeni, Head, Debt Capital Markets East Africa for Standard Bank.  Regulatory changes around capital requirements in Uganda and Tanzania are also expected to drive opportunity in these two markets.


Similarly, in South Africa, banks have been key drivers of issuance volumes in response to the implementation of Basel III regulations, much of this historically focused on Senior and Tier ll funding. Further developments in this sector include Alternative Tier 1 Capital. Alternative Tier 1 notes are a key instrument in regulators' post-crisis bail-out regime. They seek to impose principal losses on creditors during firm-level financial distress. “The idea is that this should happen outside the normal bankruptcy process, and, in theory, without recourse to the public purse,” explains Ms Sisulu.


In Nigeria, regulation has driven the growth of the country’s debt capital markets over the last decade. “Regulatory changes, including pension fund reforms, have seen significant growth in assets under management as pension funds benefit from increased participation from pension fund contributors,” says Mr Bentsi-Enchill.


Specifically, in 2012, the Federal Government of Nigeria exempted bonds from withholding tax on interest income, making investments in bonds more attractive. In addition, assets under management of pension funds increased from US$9.5 billion in 2012 to US$19 billion in September 2016. That said, corporate bond issuances in Nigeria still only accounted for just over 7% of total issuances in 2015 and 2016 with the Federal Government of Nigeria remaining the primary issuer of bonds.


Nigeria’s commercial paper market has grown significantly since the first commercial paper issuance by Stanbic IBTC Bank PLC in 2012. Cumulative commercial paper issuance from 2012 to September 2016 amounted to over US$20 billion, with a number of corporates accessing the commercial paper market for short term funding this year.


Looking forward to 2017, government and banks are expected to be the biggest drivers of new debt capital market activity in Africa going forward. “In Kenya, for example, Standard Bank expects requirements for longer term, local currency denominated financing structures for power, infrastructure and utilities projects to drive growth in the capital markets,” says Ms Mugeni.  “Additionally, market changes such as introduction of over the counter trading for fixed income securities should increase secondary market liquidity something which has been conspicuously absent for corporate paper.”


Similarly, in Uganda, Standard Bank expects increased debt capital market activity as private sector investors look to raise longer term funding to service government infrastructure investment. Over the longer term, Standard Bank also expects infrastructure build programmes, as well as major capital projects in water and energy, to drive innovation and activity in South Africa’s capital markets. “There has been much discussion in the market around facilitating the development of the project bond market given the massive infrastructure requirement in the country – particularly in the water and renewable energy sectors,” says Ms Sisulu.


In summary, Africa’s rapidly growing and deepening debt capital markets have met the challenges of 2016 with both resilience and innovation. “Standard Bank remains optimistic that Africa’s debt capital markets will continue to deliver the capital that drives Africa’s growth,” says Ms Sisulu.

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Food prices continue to rise, but at a slower rate

28th November 2022

Prices for cereals or staple foods in Botswana and other Southern African countries continue to rise at a slower pace, following trends in the global markets, according to the latest November 2022 Food Price Monitoring and Analysis by Food Agricultural Organization (FAO) of the United Nations.

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Still doing business the old way?

18th November 2022

It’s time to get business done better with MTN Business Botswana’s ICT Solutions.

Running a digital businessMTN Business Solutions Botswana, popularly known as MTN Business is an Internet Service Provider. We are a subsidiary of MTN Group Limited, a multinational telecommunications Group headquartered in South Africa, which operates in 19 markets across Africa and the Middle East.

More and more, clients are looking for ways to keep their staff productive in a dynamically changing business environment. Whether your people are working from home, the office or abroad, there is a growing recognition that digitising your operations can offer unprecedented commercial value in flexibility, productivity and growth. This new, digital reality means that it is more important than ever to stay agile – if there is anything that can slow a business down, it is being burdened by othatld technology.

Having made substantial investments in fibre technology, high-speed terrestrial and undersea networks and new frequency spectrum across the markets wherein it operates, MTN is perfectly positioned to respond to this shift in the market.

A few years ago, MTN also made the decision to build an IP capable radio network for its mobile services, giving its core network the ability to seamlessly integrate with enterprise IP networks. The mobile towers deliver services to enterprise clients absolutely anywhere it has a network, shortening the last mile and removing complexity and cost.

Now there is increasing demand from clients to connect their remote sites in all areas, including rural and semi- rural. MTN has assisted clients with overcoming this connectivity hurdle, enabling their staff to get the job done wherever they are.
MTN’s evolution

For MTN, the focus has shifted from just being a core telecommunications services provider, towards also becoming a technology solutions provider. The service offering now also includes Unified Communications, Data Hosting and Cloud Solutions, Security-As-A-Service and Managed Network Services. The scope has changed to being client and industry specific, so the requirements and service portfolio vary from one client to the next. The expectation is that a company like MTN must respond to these challenges, helping clients to get business done better as they shift from old to new technologies.

As many businesses continue to grapple with a digitally dynamic world, they face new challenges that have to be solved. This environment will benefit those that are more digitally enabled and agile. It is a brave new world that will favour online over on-site, wireless over wired and fluid over formulaic. Businesses will seek out partners and suppliers that are every bit as flexible and forward-looking as they are.
Ultimately, clients need partners like MTN Business that will invest in infrastructure, deliver the services they require, have market credibility, are financially sound and have a long-term commitment to their market presence.

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BIE to vitalize the Dignity of Engineers

9th November 2022

Botswana Institution Of Engineers (BIE), has last week hosted a gala dinner in  which they appreciated engineers who worked tirelessly and with dedication for 10 years from 1983 to steer the BIE to its current status.

The event that was held at the Phakalane Golf Estate had brought together young, experienced and veteran engineers and was held under the theme “Vitalize the dignity and eminence of all professional engineers”.

Explaining the theme, the institution’s treasurer, Thanabalasingam Raveendran said that engineers were looked upon reverentially with respect as the educated but with time it seems to have deteriorated. He indicated that there is a need to change the narrative by all means.

“The BIE exists for the welfare and the betterment of us Botswana engineers, we need to recognize specialised units within our Institution. We Engineers strongly believe in Engineers make it happen” Raveendran said.

He indicated that under the theme they appeal to all engineers to energize, to attain quality of being worthy of honour and respect and to achieve recognized superiority amongst the Society.

Raveendran stated that engineers need to ensure their end product is of good quality satisfying the end users expectations and engineers must be honest in their work.

“Approximately 8000 engineers registered with Engineering Regulatory Board (ERB) are not members of the BIE, engineers need to make every effort to recruit them to BIE” he said.

He alluded that BIE being a society, it currently needs to upgrade itself at par with professional institutions elsewhere like the UK and USA.

He further stated that BIE has to have engineering units of specialised disciplines like Civil/Mechanical/electrical etc

“As President Masisi indicated in his inaugural speech, the young people, who make 60 percent of the population of this country, are the future leaders and therefore investing in them is building the bridge to the future” said Raveendran

Kandima indicated that BIE has a memorandum of Understanding with Engineers Registration Board (ERB), where BIE is a recognised provider of CPD training, mentorship programmes and more importantly IPD undertaking to upgrade the skills and know-how of our engineers.

“For us to achieve our mandate and make worthwhile changes to engineering in Botswana, we have to be totally focused and act with intent” said Kandima.

Furthermore, Stephen Williams, past president of the BIE from 1986-1988 told the engineers that  the BIE provides a fertile environment where they can meet, share ideas and grow professionally.

“The BIE is also a nesting place for graduate engineers to learn from their peers and seniors, it also cater for engineering technicians and technologists and so nobody in the technology field is left out” he said.

He further indicated that Botswana Government provides a conductive environment for growth of engineering professionals.

“It must be stated that the Botswana Government recognises the existence of BIE and it can further be stated that the government enables ERB to carry out its mandate as a regulator of engineering professionals” said Williams

He plead with engineering companies to recognize and support BIE as it is the only source of engineering personnel’s for various Industries .

Furthermore, when giving his farewell speech, Michael Pinard , a past president of the institution  said how they are viewed as engineers by the general public might be due to some lack of appreciation as to exactly what role they play in the development of the country.

“The BIE slogan is aptly coined-Engineers make it happen, in other words, what man dreams engineers create” Said Pinard.

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