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Managing risk, driving trade will shape African growth story

“A correct understanding of risk in Africa – along with an appreciation of the growth potential yet to be unlocked by trade; both cross-border and intra-Africa, provides global corporates with a new lens through which to identify and access African growth,” says Vinod Madhavan, Head of Transactional Products and Services Africa, at Standard Bank, parent of Stanbic Bank Botswana.

Corporates remain ever-interested in high growth emerging markets. Currently a large number of the world’s high-growth emerging markets are in Africa. Forecasts for 2016-2020 place Africa as the second fastest growing region in the world (at a CAGR of 4.3%), just below Emerging Asia.  

Impressive as these figures are, they are down on the growth highs achieved during the heights of Africa’s commodity super cycle. This has led many commentators to conclude that Africa’s growth story is tailing off.

“Nothing could be further from the truth,” asserts Mr Madhavan. “Africa’s future potential remains far larger than its past achievements – especially when one considers the growth potential latent in the continents current low levels of intra-Africa trade. Currently hovering around only 12%, these intra-African trade levels offer great headroom for growth.”

Global perceptions of Africa as high-risk, however, often prevent businesses from correctly identifying opportunity on the continent.  This is exacerbated by perceptions that trade in Africa is also complex and high risk.

The numbers, however, paint a different picture of African risk. 

The 2015 ICC Trade Register study, conducted amongst 23 banks around the world jointly accounting for 60% of global market share, for example, reports that:

•            export Letters of Credit as well as Performance Guarantees in Africa and the Middle East have the same default rates as the Americas,

•            default rates in purpose specific loans and trade finance deals amongst African and Middle Eastern countries is 1.04%, lower than in the Americas, and

•            import Letters of Credit in Africa and the Middle East have only slightly higher default rates than in Asian and Pacific countries.

Separate research shows that an increase in the availability of finance for cross-border trade drives a disproportionate increase in SME growth. For example, a 2013 Asian Development Bank survey found that a 15% increase in access to trade finance enabled firms to hire 17% more staff while production increased by 22%.

Since SME’s are the biggest drivers of employment, any increase in access to trade finance should rapidly expand Africa’s middle class, driving consumption and growth for generations to come.

“This is the grand prize that global corporates’ and financial institutions should keep in mind when assessing African risk,” explains Mr Madhavan.

Asian corporates have been quick to recognise Africa’s growth opportunities. Chinese and Indian corporates in particular have approached African risk and opportunity with confidence, leveraging Asian centres of excellence in risk mitigation, such as Hong Kong and Singapore, to manage this risk.

This is not to say that the rapidly developing intra-African trade opportunities presented by the continent have been lost on developed world corporates. “At a strategic level, developed world corporates are very keen to do business in Africa,” observes Mr Madhavan. Their challenge, however, is twofold.  Firstly, developed world risk models along with the unintended consequences of compliance produce an inordinately high view of African risk. Secondly, Africa is yet to develop the kind of sophisticated local or even regional risk mitigation and insurance industries that would enable global corporates to distribute their risk exposures locally – through continent-wide risk mitigation programmes using regional counterparties as they would in Europe or Asia.

Instead, developed world multi-national corporates currently manage African risk by spreading this amongst their partner banks in their home markets. This means that large banks from the developed world, for example, will only manage risk for their existing or home-based clients operating in Africa. Moreover, this will typically only be offered on either a specific entity or counter party basis in Africa.

“This makes risk mitigation programmes generally more expensive, less comprehensive and, ultimately, increases counter party risk for many developed world corporates seeking to do business in Africa,” explains Mr Madhavan.

Since Standard Bank is present on the ground across the continent it is able to work closely with African corporates, insurers and other businesses to identify and assemble competent risk mitigation counterparties/techniques in local markets – or at least across regions. “Since we know these businesses intimately we are confident and able to underwrite and place risk for longer tenors in the local market,” says Mr Madhavan.

An added layer of confidence is afforded by Standard Bank’s sector focus approach. As opposed to  looking at corporates in Africa exclusively through, say, a geographic lens, “Understanding that MTN and Shoprite in Nigeria face very different risks because they operate in different sectors, provides an additional lens through which to assemble appropriate local risk mitigation solutions,” explains Mr Madhavan. 

Standard Bank remains optimistic about Africa as it is seeing the growth from the inside.  Not having this inside view means that many observers conflate risks, “allowing the very real opportunities presented by Africa’s growth in trade to be missed, through exaggerated constructions of risk,” says Mr Madhavan.

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Matsheka seeks raise bond program ceiling to P30 billion

14th September 2020
Dr Matsheka

This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.

“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.

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Lucara sits clutching onto its gigantic stones with bear claws in a dark pit

14th September 2020
Lesedi La Rona

Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.

A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.

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Botswana Diamonds issues 50 000 000 shares to raise capital

14th September 2020
Diamonds

Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.

A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.

Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.

In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.

The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.

In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.

Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.

The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”

In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.

Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.

The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.

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