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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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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