Striking right balance: Sustainable development vs Sustainable debt
Over the past two decades, sub-Saharan Africa has made considerable economic progress: extreme poverty levels have declined by one third; life expectancy has increased by a fifth; and real per capita income has grown by about 50 per cent on average. Yet, sub-Saharan Africa is still only half way to meeting the Sustainable Development Goals.
To achieve these goals, according to International Monetary Fund IMF Blog, sub-Saharan Africa will need financing. One of the ways to access financing is through borrowing. It makes sense for governments to incur debt if done wisely. If debt is used to finance projects that boost productivity and living standards, such as investing in roads, schools, and hospitals, and if governments can recoup enough of the benefits of these investments to repay the incurred debt, then borrowing is worthwhile, IMF said
However, room for borrowing has become more limited in this region as public debt levels increased rapidly between 2011 and 2016; they have since stabilized at around 55 per cent of Gross Domestic Product GDP on average.
IMF further indicated that countries in the region have also relied more heavily on commercial borrowing on domestic and international financial markets, such borrowing accounted for more than 70 per cent of the increase in debt stock this decade. This shift to non-concessional financing means more spending on debt service and less on social and infrastructure investment. It is clear that sub-Saharan African countries will not be able to simply “borrow their way” to the Sustainable Development Goals SGDs.
So, what is needed? This was the topic of a conference organized by the IMF together with the Government of Senegal on December 2 2019, in partnership with the United Nations and the Cercle des économistes. Dakar was a fitting venue as Senegal has launched its Plan Sénégal Emergent aimed at transforming its economy, creating jobs, and boosting living standards. It was also apt because, as I told the conference attendees, policymakers can draw inspiration from the Lions of Teranga, Senegal’s national soccer team, which impressed everyone at last year’s Africa Cup of Nations.
IMF stressed that the Lions of Teranga’s success is based on a balanced approach, between the urge to attack and the need to defend, between individual efforts and team performance. Similarly, Africa is seeking to find the right balance between financing development and safeguarding debt sustainability, between investing in people and upgrading infrastructure, between long-term development objectives and pressing immediate needs. In short, a balanced approach is needed; and, in order to get there, all stakeholders will need to raise their game.
There are five powerful tactics that we can all pursue to find the right balance between development and debt, three directed at sub-Saharan policymakers and two at the international community and the private sector. The first tactic is to generate higher public revenue. This is an area where sub-Saharan Africa lags other regions. ‘’We estimate that revenue collection is 3–5 percentage points of GDP below revenue potential. Closing that gap can be done, as shown by the good example of Uganda, where, with technical support from the IMF, reforms helped raise the revenue-to-GDP ratio from 11 per cent in 2012 to almost 15 per cent last year’’.
The second tactic is to make investment spending more efficient, IMD said. The reality is that only about 60 per cent of the region’s infrastructure spending translates into public capital stock. For every dollar spent, you are getting only about 60 cents worth of assets. The third tactic is to strengthen public debt management. A key objective is to boost debt transparency by providing accurate, comprehensive, and timely data. This in turn can help build trust with investors, support domestic capital markets, and reduce debt service costs.
‘’And yet, even as countries pursue the three tactics, we all need to do more. Boosting domestic resources is critical, but not enough. Even strong domestic efforts are likely to cover just a quarter of the estimated SDG needs. So, the global team also needs to do more’’ IMF expert highlighted
So, fourth tactic: Advanced economies can do more, especially when it comes to aid. The goal is to raise official development assistance to 0.7 per cent of donors’ national income. Donors could also focus more on infrastructure by providing grants and concessional financing for projects with credibly high rates of return.
‘’Fifth tactic: We also need to bring in more private-sector players, including more foreign direct investment, to help close the significant financing gap. Responsibility for achieving the SDGs must begin with efforts by the public sector, but it cannot end there. Above all, we need to ensure that private and public players can both end up on the winning side. A good example can be “blended finance,” which brings together grants, concessional financing, and commercial funding’’.
How can we encourage risk-sharing? How can we scale up development finance for the benefit of all? These are just some of the issues that Africa is now grappling with. But it is clear that we all benefit if we act jointly to promote the good of Africa. As the Senegalese proverb puts it: “Whatever one person can do, two people can do it even better.” That is the spirit of the Lions of Teranga. It is the same spirit that lies at the heart of what we are trying to achieve across sub-Saharan Africa.
Other experts close to IMF indicated that those multilateral and advanced economies must help capacitate the emerging economies effective and efficient revenue collection especially from multinational companies who may be understating their bottom line. Additionally politicians in most emerging markets especially in Sub-Saharan Africa are using politics to amass national resources through corrupt means and end up acquiring huge properties in developed countries at the expense of the poor national.
Why don’t assist these poor countries by letting these selfish leaders account for some of the acquired properties through illicit measures. There is also need to increase financing to watchdog institutions in Sub-Saharan Africa who can assist in monitoring the appropriation of national budgets in emerging economies. Another expert indicated that the major problem of the sub-Sahara Africa continent is bad political leadership and followership. Both are contributory factors with the direct consequence of corruption.
Also, the international community has aided these two factors to their self-centred goals. Thus, this region will keep grappling with all factors mentioned in this article until the advance nations and or international community start working for the benefits of Africans as against their self-centred goals
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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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