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Sub-Saharan Africa debt level Surges – Moody’s

Following a sharp decline in government debt from multilateral debt-relief initiatives in the last decade, primary fiscal deficits, currency depreciation as well as the materialization of contingent liabilities in some countries, has driven an accumulation in SSA sovereign debt since 2012.

This is according to a report by Moody's Investors Service released last week. The Global think tank says while containing debt-servicing costs in the near term, relatively favourable financing conditions in recent years have encouraged spending and debt accumulation especially for infrastructure investment. “Between 2012 and 2018, government debt-to-GDP ratios increased by at least 15 percentage points in almost two thirds of the sovereigns we rate in SSA and by at least 30 percentage points in about one third.” Reads the report released from UK this week.

Moody’s says Government debt now exceeds 50% of GDP in more than half of the region's rated sovereigns. Angola, Mozambique, Zambia and the Republic of the Congo are among the sovereigns that have experienced the most rapid accumulation of government debt since 2012. The report further reveals that drivers behind the debt increase vary, including disclosure of hidden debt in the case of Mozambique, exchange rate depreciation inflating the foreign-currency denominated debt in the case of Angola and Zambia as well as persistent fiscal deficits.

Sub-Saharan African sovereigns' debt has increased and affordability has deteriorated, with government debt now exceeding 50% of GDP in more than half of the sovereigns we rate in the region," said Daniela Re Fraschini, a Moody's AVP-Analyst and the report's co-author.
"At the same time, a shift in creditor bases has increased credit risks in several countries. He said

Moody's Investors Service says although the debt burdens of most Sub-Saharan Africa (SSA) governments will stabilize in 2020-21 after years of increase, several sovereigns are now increasingly vulnerable to a financing shock. Credit risks are highest in countries where unfavourable debt structures coincide with narrow external buffers, financing constraints on domestic banking sectors and weak debt-management capacity. The Republic of Congo, Mozambique and Zambia are most exposed, while Ghana, Angola and Kenya are also vulnerable but to a lesser extent.

With countries having greater access to capital markets, issuance on domestic and international capital markets has increased and the share of borrowing from multilateral lenders has fallen. Although this has diversified funding sources, fostered investor scrutiny on macro-fiscal policy and provided funding for development spending, Moody’s says it has also increased exposure to global financing conditions, amplified foreign-currency exposures and increased refinancing risk. At the same time, in some countries bilateral lending has shifted toward non-traditional creditors that usually offer less transparent and predictable terms.

Daniela Re Fraschini says the domestic banking sector remains the main holder of domestic bonds and a significant portion of total government debt and its absorption capacities may be limited, especially when the sector is small relative to the sovereign's financing needs. Fraschini however says its absorption capacities may be limited, especially when the sector is small relative to the sovereign's financing needs like in Kenya and government securities already account for a large share of assets.

In Ghana and Zambia, relatively high foreign participation in the domestic market intensifies the vulnerability to shifts in investor appetite. “Improvements in debt management have not been commensurate to the risks from higher debt levels and debt structures more exposed to financing shocks” he said

The composition of public debt in terms of maturity, interest rate and currency structure and the existence of explicit or implicit contingent liabilities determine a government's resilience to domestic and external shocks, and is an important consideration in our assessment of fiscal strength, government liquidity risk as well as external vulnerability risk.

Moody’s assessment of fiscal strength typically incorporates the vulnerability to adverse currency movements leading to an increase in the sovereign’s overall debt burden and a decrease in its debt affordability by measuring the share of foreign-currency debt. Debt affordability and contingent liabilities that pose substantial risks to a government’s balance sheet are also captured in the assessment of fiscal strength. Moody’s further assess government liquidity risk focusing on the sovereign's ease of access to funding, taking into account the maturity and cost structure, the currency mix and the creditor base.

Assessment of external vulnerability risk takes into account external imbalances, large reliance on short-term capital inflows to finance the current account deficit that can result in depreciation pressures and the adequacy of foreign reserve buffers to meet foreign currency payments.

Moody’s says amid favourable conditions in global financial markets and increased foreign interest in domestic debt markets, governments in SSA have shifted their borrowing strategies away from international financial institutions and traditional bilateral official creditors to private creditors.  The decline in the share of multilateral debt since 2012 has been most pronounced in Ghana, Kenya, Nigeria, Senegal, Uganda and Zambia. Sovereigns that have reported an increase in multilateral financing include Gabon and Niger

A total of 15 governments in SSA issued international bonds between 2010 and 2019, several on a repeated basis with sizeable issuances. “The eurobond issuance of the SSA sovereigns of countries rated by Moody’s reached a record high $19.2 billion in 2018, more than triple 2016 levels. Sovereigns across the region have tapped international bond markets for different reasons including supporting the development of the corporate bond markets in countries such as South Africa and Nigeria and mostly for financing the increase in public investment

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Botswana records first trade surplus since January

7th October 2021
Botswana-records-first-trade-surplus-

Botswana has recorded its first trade surplus for 2021 since the only one for the year in January.

The country’s exports for the month of July surpassed the value of imports, Statistics Botswana’s July International Merchandise Trade data reveals.

Released last Friday, the monthly trade digest reports a positive jump in the trade balance graph against the backdrop of a series of trade deficits in the preceding months since January this year.

According to the country’s significant data body, imports for the month were valued at P7.232 billion, reflecting a decline of 6.6 percent from the revised June 2021 value of P7.739 billion.

Total exports during the same month amounted to P7.605 billion, showing an increase of 6.1 percent over the revised June 2021 value of P7.170 billion.

A trade surplus of P373.2 million was recorded in July 2021. This follows a revised trade deficit of P568.7 million for June 2021.

For the total exports value of P7.605 billion, the Diamonds group accounted for 91.2 percent (P6.936 billion), followed by Machinery & Electrical Equipment and Salt & Soda Ash with 2.2 percent (P169.7 million) and 1.3 percent (P100.9 million) respectively.

Asia was the leading destination for Botswana exports, receiving 65.2 percent (P4.96 billion) of total exports during July 2021.

These exports mostly went to the UAE and India, having received 26.3 percent (P1. 99 billion) and 18.7 percent (P1.422 billion) of total exports, respectively. The top most exported commodity to the regional block was Diamonds.

Exports destined to the European Union amounted to P1.64 billion, accounting for 21.6 percent of total exports.

Belgium received almost all exports destined to the regional union, acquiring 21.5 percent (P1.6337 billion) of total exports during the reporting period.

The Diamonds group was the leading commodity group exported to the EU. The SACU region received exports valued at P790.7 million, representing 10.4 percent of total exports.

Diamonds and Salt & Soda Ash commodity groups accounted for 37.8 percent (P298.6 million) and 6.2 percent (P48.7 million) of total exports to the customs union.

South Africa received 9.8 percent (P745.0 million) of total exports during the month under review. The Diamonds group contributed 39.9 percent (P297.4 million) to all goods destined for the country.

 

In terms of imports, the SACU region contributed 62.7 percent (P4.534 billion) to total imports during July.

The topmost imported commodity groups from the SACU region were Fuel; Food, Beverages & Tobacco, and Machinery & Electrical Equipment with contributions of 33.3 percent (P1.510 billion), 17.4 percent (P789.4 million) and 12.7 percent (P576.7 million) to total imports from the region, respectively.

South Africa contributed 60.1 percent (P4.3497 billion) to total imports during July 2021.

Fuel accounted for 32.1 percent (P1.394 billion) of imports from that country. Food, Beverages & Tobacco contributed 17.7 percent (P772.0 million) to imports from South Africa.

Namibia contributed 2.0 percent (P141.1 million) to the overall imports during the period under review. Fuel was the main commodity imported from that country at 82.1 percent (P115.8 million).

During the months, imports representing 63.5 percent (P4.5904 billion) were transported into the country by Road.

Transportation of imports by Rail and Air accounted for 22.7 percent (P1.645 billion) and 13.8 percent (P996.2 million), respectively.

During the month, goods exported by Air amounted to P6, 999.2 million, accounting for 92.0 percent of total exports, while those leaving the country by Road were valued at P594.2 million (7.8 percent).

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Business

The 2021/2022 Stanford Seed Transformation Program Begins

7th October 2021

Founders from twenty companies have been accepted into the program from Botswana, Namibia, and South Africa

The 4th Cohort of the Stanford Seed Transformation Program – Southern Africa (STP), a collaboration between Stanford Graduate School of Business and De Beers Group commenced classes on 20 September 2021. According to Otsile Mabeo, Vice President Corporate Affairs, De Beers Global Sightholder Sales: “We are excited to confirm that 20 companies have been accepted into the 4th Seed Transformation Programme from Botswana, Namibia, and South Africa. The STP is an important part of the De Beers Group Building Forever sustainability strategy and demonstrates our commitment to the ‘Partnering for Thriving Communities’ pillar that aims at enhancing enterprise development in countries where we operate in the Southern African region”. Jeffrey Prickett, Global Director of Stanford Seed: “Business owners and their key management team members undertake a 12-month intensive leadership program that includes sessions on strategy and finance, business ethics, and design thinking, all taught by world-renowned Stanford faculty and local business practitioners. The program is exclusively for business owners and teams of for-profit companies or for-profit social enterprises with annual company revenues of US$300,000 – US$15million.” The programme will be delivered fully virtually to comply with COVID 19 protocols. Out of the 20 companies, 6 are from Botswana, 1 Namibia, and 13 South Africa. Since the partnership’s inception, De Beers Group and Stanford Seed have supported 74 companies, 89 founders/CEOs, and approximately 750 senior-level managers to undertake the program in Southern Africa.

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Minergy overcomes challenges – improves revenue and produces record breaking coal sales to date

7th October 2021
Minergy

Minergy, the coal mining and trading company with the Masama coal mine, this week released results for the year ended 30 June 2021. The company achieved revenue of P193 million (2020: P81 million) with significant improvement in sales volumes surpassing 415 000 tonnes sold for the year.

The performance was divided into two distinct periods with very different operating environments. The first eight-month period (July 2020 – February 2021), was negatively impacted by delayed funding, COVID-19 impacts and excessive rain; and the last four-month period (March – June 2021), was a more stable production environment moving toward nameplate capacity.

According to Minergy CEO, Morné du Plessis, production and sales initially recovered in July and August 2020 with the easing of COVID-19 restrictions and recoveries were further bolstered by the successful launch of the rail siding. Delays experienced in concluding the funding contributed to contractors limiting operations to manage arrears.

“However, the heavy rains we experienced from December 2020 through February 2021 flooded the mine pit making access difficult and impacting both production and sales. Fortunately, the rain subsided in March 2021, and we entered a more stable environment, with a positive impact on operations. Good recoveries in production and sales were experienced during the last four-month period of the year, with the mine moving closer toward a breakeven position.”

“Despite these operational constraints, including the effects of COVID-19 on logistics and manning of shifts, we expect to reach consistent nameplate capacity in the 2022 financial year,” du Plessis added.

FINANACIAL REVIEW

In addition to the revenue reported above, the company incurred costs of sales of P256 million (2020: P150 million) with operating costs of P23 million (2020: P31 million). This effectively resulted in an operating loss of P86 million (2020: P100 million). Finance costs of P51 million (2020: P17 million) were incurred, bringing the net loss before taxation to P136 million (2020: P117 million).

Du Plessis explains that the adverse conditions in the first eight-month period contributed to 86% of the gross loss, while the more stable four-month period alone contributed to 50% of total sales value, helping to decrease monthly gross losses, albeit below breakeven levels.

The company benefited from a strengthening in the South African Rand (“ZAR”) supporting higher back-on- mine sales prices.

“As announced, we’re pleased to have secured P125 million of additional convertible debt funding through the Minerals Development Company Botswana (Proprietary) Limited (“MDCB”). Minergy remains grateful for this support.”

He added that the first tranche of additional funding provided by the MDCB had been received in December 2020, which allowed Minergy to settle the majority of the contractor’s arrears and allowed their teams to be remobilised. The second and final tranche was paid post the financial year-end and will allow the business to reach nameplate capacity in the new financial year.”

COAL SALES AND MINE PERFORMANCE

Sales volumes increased by 110%, supported by increased sales in Botswana and internationally in South Africa and Namibia. Sales for June 2021 exceeded 56 000 tonnes, a record since the inception of the mine, with pricing increasing late in the financial year on the back of buoyant international prices and a strengthening ZAR.

Minergy also concluded a further 12-month off-take agreement to the existing off-take agreement, with a further agreement finalised post year end.

Overburden moved during the reporting period increased by 86% and extracted coal by 50%. Coal mined in June 2021 alone exceeded 100 000 tonnes. “This is a good performance considering the challenges faced such as sacrificing pre-stripping activities for a period to manage arrears, excessive rain and COVID-19,” du Plessis indicated.

“The wash plant was initially starved of coal due to the factors noted already. Despite this, overall plant throughput performance was 37% higher than 2020. Consistent output was supported by the completion of the Stage 2 rigid crushing section as well as the water saving dewatering screen with filter press contributing to a reduction in water usage of 60% per tonne of coal. A record throughput of more than 84 000 tonnes was achieved in March 2021 and this consistency has been maintained.”

OUTLOOK

According to du Plessis, the completion of Stage 4 of the Processing Plant, the rigid screening and stock handling section, remains a key optimisation step, which has associated benefits. “The completion was unfortunately delayed by a southern African wide shortage of structural steel but was commissioned post year-end.”

Minergy expects the positive momentum in international coal pricing for southern African coal to remain in place. Higher coal prices have resulted in coal being withdrawn from the inland market in favour of lucrative international markets. Du Plessis added that the regional market is currently under- supplied with sized coal, which supports higher pricing and new customer opportunities for Minergy.

“Our objective for the 2022 financial year is to achieve nameplate capacity by completing final ramp-up of operations. This will enable the company to generate sufficient cash flow to stabilise the business at breakeven or better. The bullish coal market is also providing support. COVID-19 will still be closely managed, and we look forward to the lifting of the State of Emergency, as announced, and trust that vaccination programmes will achieve herd immunity in Botswana during the next 12 months.”

Du Plessis expressed his excitement on prospects stating that, “The Eskom due diligence process is continuing, and we are hopeful of receiving feedback during the current financial year. In addition to this opportunity, Minergy is also investigating participation in the request by the Government of Botswana to provide a 300MW power station for which the company has been shortlisted.”

The approved process to issue shares for cash is showing positive leads and he concluded by saying that a listing in London is still being investigated.

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