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Batswana, a nation of defaulting borrowers

The recent Bank of Botswana Banking Supervision Annual Report shows that the banking fraternity is hampered by people who are failing to pay back the money they borrowed, with Non-performing loans and advances standing at P3.2 billion in the year under review.

According to the Banking Supervision Report, household non-performing loans and advances were high in 2017 at 52 percent followed by private businesses loans at 46 percent in the previous year. In the year under review, loans which have been defaulted were at 47 percent in the household sector compared to the 51 percent in the private business sector, numbers still at the peak of non-performing loans.

According to the central bank report the banks’ large exposures to unimpaired capital ratio increased to 209 percent (2017: 200 percent), and was within the 800 percent prudential limit for banks in Botswana. Generally, according to the Bank, the composite credit risk for the banking sector was considered high and is expected to increase in the short- to medium-term due to the dominance in banks’ loan books of the household sector credit, which is mostly unsecured. This makes the banking sector vulnerable to business restructuring and employment risks, particularly for state-owned entities, says the central bank.

“Past due loans (accounts in arrears) increased by 1.2 percent between December 2017 and December 2018. Non-performing loans (NPLs) increased by 10.7 percent from P2.9 billion to P3.2 billion in the same period. As a result, the ratio of NPLs to gross loans and advances rose from 5.3 percent in December 2017 to 5.5 percent in December 2018, thus a slight deterioration in asset quality.

The ratio of specific provisions to NPLs fell from 53.7 percent in 2017 to 42.7 percent in 2018, an erosion in the coverage of NPLs. But the credit-risk mitigation measures that banks have put in place are expected to absorb the residual risks,” says Bank of Botswana Banking Supervision Annual Report.

A cry echoing at judicial chambers

During the just ended Legal Year address Attorney General Abraham Keetshabe told the nation that the judiciary chambers of this country is constipated by debt collection cases. He said the justice system cannot handle the cases brought to court against people who cannot service their debts, as there is a stiff competition for space and time to have such cases heard and resolved within the shortest possible time.

Keetshabe borrowed from the central bank as he highlighted that the commercial bank loans to the household sector grew at elevated rates. “For example, about 13 percent in 2019, to approximately P40 billion and account for a larger proportion of bank credit, at 63.3 percent,” he said.

But the sad story does not end there, it continues with the total credit composition having 68 percent of unsecured loan, mortgages and motor vehicle loans account for 25 percent and 5 percent respectively. “Meanwhile household credit from micro lenders is estimated at P3.6 billion as at November 2019. Clearly the significance share of unsecured loans and advances has the potential to cause financial distress and conflicts in households, given the inherently expensive nature of such credit,” said Keetshabe.

The attorney general said that the risk posed by this credit composition is moderated by the extent to which unsecured credit is diversified. He added that the bulk of household credit is to the working class who are assessed by lenders to determine their capacity to repay the loan. Keetshabe also observed that credit risk is also lowered where a loan is under the custodian of a credit life insurance.

The amount of household credit relative to income and the size of the economy(GDP is modest and stable at around 48 percent and 19 percent respectively, but much lower than what pertains in more mature markets, said Keetshabe. “In this respect, domestic household borrowing appears to be in line with trends in personal incomes, representing relatively stronger debt servicing capacity.  As a result, the rate of household loan default has been modest at 3.3 percent as at September 2019,” said the number one state lawyer.

Keetshabe spoke to lack of financial discipline by Batswana who lack adequate financial planning and evaluation of prospects for borrowing as well as over-borrowing through use of multiple institutions and padding of income sources. He said this leads to inability to repay. This does not only affect the banking fraternity and debt collectors, but the courts also find themselves at loss of time and resources.

“We are all too familiar that there is a beehive of activity in the issuance of writs of execution and subsequent attachment and sale of whatever property that can be salvaged by Deputy Sheriffs; with traumatic effect on the concerned. In the business environment the philosophy is simple- minimize the minimums and maximize the maximums with a clear target of expanding the profit margin,” said the attorney general.

Keetshabe said Batswana are easily tempted by earthly riches hence irresponsible borrowing. As the case of a public servant being rendered a defaulter, he or she is financially embarrassed to a point of being inefficient and this is considered as misconduct. He emphasized the need for continuously promotion of financial literacy.

A continuing credit plague

One of the leading commercial banks, a big player in the local bourse too, First National Bank Botswana could have been far if it was not the rise of non-performing loan exposure from 6.6 percent to 7.6 percent year-on-year, an huge increase to P1.26 billion, according to the bank’s last financial statements.

Three years ago Bank of Botswana Governor Moses Pelaelo highlighted that there is a disturbing emerging trend where customers cannot pay their loan. This was after there was a trend which showed that since December 2014, the industry’s NPLs rose from 3.6 percent to 3.9 percent in 2015 and 4.9 percent in December 2016.

That same year of 2017 when the central bank governor raised concern statistics shows that in July 31, 2017 the non-performing loans had increased further to 5.9 percent of total bank loans. Since 2013 International Monetary Fund (IMF) also shows concerns about unsecured household credit and risks to banks.

Solution

Years ago when Botswana was toying with the idea of strengthening its credit laws, it looked at its southern neighbor South Africa for benchmarking. This is despite antagonists of the South Africa credit legislation saying the law does not offer full solution the country’s high levels of non-performing loans. South Africa’s National Credit Act (NCA) of 2007 received a rude awakening barely two years in its existence as firms and households were not able to live up to their credit expectations in the 2009 recession.

In the past former, legislator, trade minister and Econsult Botswana economist Bogolo Kenewendo suggested that there should be a National Credit Information Registry to make it easier to track and evaluate trends in credit habits in the country.  Last year former Minister of Finance and Economic Development Kenneth Matambo said the ministry was in a process of drafting the credit information bill.

Matambo said the legislation is in line with the implementation of the national financial inclusion roadmap and strategy that runs from 2015 to 2021. According to Mathambo that time,“the bill will seek to improve both positive and negative financial information which will improve access to credit which is extended to small businesses and citizens.”

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Pan-African risk advisor Minet Group and Botswana’s Africa Lighthouse Capital acquire Aon Botswana

21st May 2021
Pan-African-risk-advisor-Minet-Group-

Strategic partnership offers inherent benefits of global knowledge, African insights, and local expertise and commitment

Minet Group and Africa Lighthouse Capital today announced that they have received regulatory approval and fulfilled all requirements to acquire Aon’s shareholding in Aon Botswana, and consequently will begin the process to rebrand to Minet Botswana.

Minet Group is a well-known and trusted pan-African risk advisory firm and Aon’s largest Global Network Correspondent and has been rapidly expanding its African footprint since 2017 through the acquisition of operations from global professional services firm Aon in Kenya, Lesotho, Malawi, Mozambique, Namibia, Tanzania, Uganda, and Zambia.   Minet has been delivering world class products and services across Africa for over 70 years.

Africa Lighthouse Capital (ALC) is a leading Botswana citizen-owned private equity firm focused on investing in Botswana companies and propelling them into regional champions, with over BWP 500 million in funds under management.

The new entity will be rebranded to Minet and will inherit deeply rooted respect by its clients for their innovative and locally relevant solutions, responsiveness, and efficient processes. Furthermore, it shall have the benefit of consistency in leadership and staffing, with Barnabas Mavuma, previously Managing Director of Aon Botswana, continuing to lead the business as the MD supported by the local management team.

 “The addition of Minet Botswana to our growing African network affirms our belief in the great opportunities for growth that Africa offers, driven by rising consumer demand, huge investment in infrastructure and quick adoption of new technology,” says Joe Onsando, CEO at Minet Group.

“This transaction significantly adds to the diversity and skills base of our team and will have a positive impact on the range of products and services we provide. Our Correspondent agreement with Aon gives us access to global expertise and data driven insights and uniquely positions us to deliver risk advisory solutions that reduce volatility, thus driving improved performance for our clients. This is a very exciting time to be Minet in Africa.”

“The significantly increased Botswana citizen shareholding effected by this transaction gives rise to an exciting era of local market focus and growth for Minet Botswana,” says Bame Pule, Founder and CEO of Africa Lighthouse Capital.  “We intend to work with Minet Botswana’s local management team to further localise the business in terms of product development, while at the same time investing in local skills development and business development.  We look forward to this exciting journey, which will result in a significantly enhanced service offering for Minet Botswana’s clients.”

Consequently, and similar to the other members of the Minet Group, Minet Botswana becomes an Aon Global Network Correspondent, retaining its access to Aon’s resources, technology, and best practises, combined with the benefit of independent, local agility. This transaction furthermore significantly increases local shareholding, enabling operations to become even nimbler and better positioned to unlock new and existing growth opportunities.

Clients of Minet Botswana will experience continuity of product and service delivery standards in the short term. In the near future, they can expect an enhanced offering that combines agility with technology and product innovation, tailormade for their specific needs.

Together, Minet and ALC bring a sound understanding of local market conditions, strong governance, and an established track record in the region. These qualities, combined with Aon’s global capabilities and expertise, will bring clear benefits for clients.

This transaction vastly increases citizen ownership with shareholders who are going to be active in the business. The transfer of equity interests in Botswana to investors with local and regional expertise, presence and commitment will allow the businesses to move quickly in line with market movements, and to introduce products that are tailored to the local market.

“Minet’s commitment and drive to incessantly adapt to changing market conditions, and to innovate to meet the unique insurance demands of the African continent, while maintaining the high standards customers have come to expect – Onsando concludes – will continue to grow and give Minet a powerful competitive edge within the African market”.

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Africa scores $285 Billion IMF deal

21st May 2021
IMF-Managing-Director-Kristalina-Georgieva

French President Emmanuel Macron received 21 Heads of state and government officials from Africa during the recent summit on the Financing of African Economies that focused on Africa to take full advantage of the tectonic shifts in the global economy and the call for a joint effort for financial and vaccination support for the continent.

President Emmanuel Macron stressed that “Most regions of the world are now launching massive post-pandemic recovery plans, using their huge monetary and fiscal instruments. But most African economies suffer the lack of adequate capacities and such instruments to do the same. We cannot afford leaving the African economies behind.

We, the Leaders participating to the Summit, in the presence of international organizations, share the responsibility to act together and fight the great divergence that is happening between countries and within countries.

This requires collective action to build a very substantial financial package, to provide a much-needed economic stimulus as well as the means to invest for a better future. Our ambition is to address immediate financing needs, to strengthen the capacity of African governments to support a strong and sustainable economic recovery and to reinforce the vibrant African private sector, as a long-term growth driver for Africa.”

For her part, International Monetary Fund (IMF) Managing Director Kristalina Georgieva highlighted that “there is urgency to focus on financing Africa. Last year, the pandemic-caused recession shrank the GDP of the Continent by 1.9 percent – the worst performance on record. This year, we project global growth at 6 percent, but only half that 3.2 percent for Africa.” Adding that Africa needs to grow faster than the world at 7 to 10 percent to meet the aspirations of its youthful populations, and become more prosperous and more secure.

Georgieva revealed that the price tag on the shot is estimated to be “$285 billion through 2025. Of this $135 billion is for low-income countries. This is the bare minimum. To do more – to get African nations back on their previous path of catching up with wealthy countries – will cost roughly twice as much. These are large numbers. They may seem out of reach. But to quote Nelson Mandela: impossible until it is done.”

The main areas of interest to achieve this include; first, end the pandemic everywhere, 40 percent of the population of all countries is targeted to get vaccinated by the end of 2021, and at least 60 percent by mid-2022.

Second, bilateral and multilateral development financing grants and concessional loans ought to go up. Over the last year, the IMF have swiftly ramped their financing for the Continent, including providing 13 times their average annual lending to sub-Saharan Africa. And are working to do much more. The IMF has also received support to increase access limits so they can scale up their zero-interest lending capacity through the Poverty Reduction and Growth Trust.

The IMF has also devised exceptional measures. Their membership backs an unprecedented new allocation of Special Drawing Rights (SDR) of $650 billion, by far the largest in their history. Once approved, which is intended to be achieved by the end of August, it will directly and immediately make about $33 billion available to African members. It will boost their reserves and liquidity, without adding to their debt burden.

Over the course of the last year, the IMF has built experience in facilitating the on lending of SDRs – thus managing to triple their concessional lending capacity as a result.

The Third being, actions at home. According to Georgieva “a crisis is an opportunity for transformational domestic reforms that increase domestic revenue, improve public services, and strengthen governance. For instance, digitalization can improve tax administration and revenue collection, and the quality of public spending. And with radical transparency, Africa can tap into new sources of finance – such as carbon offsets.

There is ample scope for countries to encourage private investment, including in social and physical infrastructure. New IMF research, published today, highlights that domestic and international investors could provide at least 3 percent of GDP per year of additional financing by the end of this decade.”

Reforms of international taxation can also support Africa’s growth. For a long time, the IMF has been in favor of minimum corporate tax rates to reduce the race to the bottom and tax avoidance. And they strongly support an international agreement on digital tax, something France has been a leading voice for. It is important to secure fair distribution of tax revenues, so they can contribute to closing Africa’s financial gap.

Georgieva called on to each and every one to step up. Reminding the attendees that from history they are all familiar with what a shock of this magnitude can do if not countered forcefully and effectively.

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Indian COVID-19 variant hits Botswana diamond sales

20th May 2021
Indian-Covid--19-variant-hit-rough-diamonds-sales---De-Beers-

De Beers’ Group, the world’s number one diamond producer by value, this week attributed the downfall of its sales for the fourth cycle week to the second wave of the Covid-19 variant (B.1.617.2) which was first discovered in India.

Diamond trading conditions have been hit by the Covid-19 crisis in India which is a major cutting and polishing centre for the world’s diamond trade.

The outbreak of the new variant has led to a humanitarian crisis with 280, 284 fatalities of the disease reported.

The London headquartered company said the sales in its fourth cycle fell to $380m (about P4.1 billion) down from $450m (about P4.8 billion) in the third cycle though it was higher than the fifth cycles of last year when the group shifted only $56m (P600 million).

De Beers emphasized that they continued to implement a more flexible approach to rough diamond sales during the fourth sales cycle of 2021, with the Sight event extended beyond its normal week-long duration.

The De Beers group Chief Executive Officer (CEO), Bruce Cleaver said the company continues to see robust demand for diamond jewellery in the key US and China consumer markets.

“However, the scale of the second wave of Covid-19 in India, where the majority of the world’s diamonds are cut and polished, has led to reduced midstream capacity and subsequently lower rough diamond demand, during what is already a seasonally slower time of year for midstream purchases,” said Cleaver.

Meanwhile Botswana health officials have confirmed the new Covid-19 variant in Botswana. The Ministry of Health and Wellness -through a press statement- informed members of the public that the variant (B.1.617), was confirmed in Botswana on 13th May 2021.

According to Christopher Nyanga, spokesperson at the Ministry, this followed a case investigation within Greater Gaborone, involving people of Indian origin who arrived in the country on the 24th April 2021.

Moreover the World Health Organization (WHO) recently announced that the Indian Covid-19 variant was a global concern, with some data suggesting that the variant has “increased transmissibility” compared with other strains.

The India variant (B.1.617.2) – is one of four mutated versions of the coronavirus which has been designated as being “of concern” by transitional public health bodies, with others first being identified in Kent, South Africa and Brazil.

Nevertheless when speaking at Bank of America Global Metals and Mining conference, Anglo American Chief Executive Officer, Mark Cutifani said the company portfolio is increasingly tilted towards future enabling products and those that need to decarbonise energy and transport in order to meet consumers’ needs – from home appliances, electronics and infrastructure, to food and luxury goods.

“We see material opportunity for Anglo American to continue to set itself apart in terms of the performance of our diversified business, further enhanced through sector-leading 25% volume growth over the next four years, led by copper and the platinum group metals,” said Cutifani.

“Most importantly, as the supplier of such critical materials, it is the duty of our industry to ensure that in everything we do, we act responsibly and deliver enduring value for our full breadth of stakeholders, including our planet.”

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