Climate change and COVID-19
Business
Designated as a climate “hotspot” by the Intergovernmental Panel on Climate Change, Southern Africa is prone to recurrent extreme climatic shocks such as droughts and flooding. The findings appear in the newly publishedSynthesis Report on the State of Food and Nutrition Security and Vulnerability in Southern Africa 2021.
Countries in the eastern parts of the region are particularly vulnerable to cyclones three tropical storms or hurricanes made landfall in eastern parts of the area during the 2020/21 season. In the past five years, many parts of the region experienced recurrent droughts.
The report indicated that climate-induced shocks and hazards are linked to reduced agricultural production, displacement of people, damage to homes and critical infrastructure, and disease outbreaks such as malaria and cholera.
“Many parts of the region experienced good rainfall in only two of the last six cropping seasons. One of these two good seasons was the 2020/21 rainfall season when normal to above-normal rainfall was received in most areas, prompting good regional crop production expectations.
However, in western parts of the region and southern Madagascar, prolonged poor rainfall resulted in severe drought, significantly impacting crop production,” reads part of the report.
Despite the generally good rains received in many areas this season, the study alleged that repeated extreme climatic shocks observed in the recent past across the region mean that the part remains at risk of high rates of acute food insecurity if effective interventions are not implemented.
The most pronounced manifestations of climate change and variability in the region include an increase in temperature, leading to increased heat stress and reduced crop yields, changes in rainfall patterns: increasingly erratic rainfall events of high intensity, leading to floods and more frequent droughts and dry spells, delayed onset of the rainfall season and an early tailing off, thus reducing the growing period for crops and climate variability and change, coupled with human-induced modifications, may also affect ecosystems, e.g., mangroves and coral reefs, with additional consequences for fisheries and tourism.
Some Member States experienced localized prolonged dry spells in this report, including Angola, DRC, Namibia, Madagascar, and Mozambique. Food security in affected areas has worsened compared to last year, with increased acute malnutrition.
“In Angola, rainfall was 60-80% below average over the cereal-producing provinces of Namibe, Cunene, Huila, and Cuanza. In most southwestern areas, this was the driest season experienced since 1981. The dry season resulted in stressed vegetation conditions and a reduction in the availability of water for livestock. At the start of the harvest in March, a significant cereal production decrease was forecast, particularly in maize,” the study said.
By March 2021, farmers in the Southern and Central regions of Angola reported more than 45% production losses due to drought. The losses were due to a marked increase in AML swarms between January and March 2021 in south-eastern parts of the country, mainly in Cuando Cubango Province.
Over the southern regions of Madagascar, specifically Androy, Anosy, and Atsimo Andrefana, monthly rainfall amounts between October 2020 and March 2021 were significantly below average. In some of these areas, the season was one of the driest since at least 1981. These conditions have led to severe drought and severe crop failure. Adverse effects can be observed in pasture availability and quality, with 60-70% of grasslands already affected by drought conditions, deterioration of livestock, and decreasing seed availability.
Insufficient rainfall, farmers’ low financial coping capacity, and the effects of COVID-19 have led to a sharp deterioration in the food security situation, with prices of commodities such as rice increasing by 7%. This is the second consecutive drought being experienced in parts of southern Madagascar, following the poor 2019/20 season, thereby putting considerable strain on the coping capacity of households.
Despite the unfavorable rainfall that has affected some parts of the region, most areas have experienced good rain conducive to crop development. The normal to above-normal rainfall received in many areas this season has been conducive to crop development, and favourable crop conditions have been noted in the several Member States.
The study said the crop production outlook is generally positive, with some countries expecting bumper harvests. The high rainfall in many areas has also positively impacted forage for livestock, with significant improvement in vegetation conditions, including in some areas which had previously been affected by recurrent episodes of drought in previous years.
BOTSWANA CASE
The report said rains were generally favourable, but the agricultural yield is expected to be lower than last year. A total of 236,292 ha has been cultivated by 58,443 farmers, of which 32,382 are women. It further underlined that pasture conditions are good but may degrade during winter and requires monitoring.
A total of 36,171 Batswana are food insecure and prone to other vulnerabilities, a 3% increase from last year. Contributing factors include increased unemployment, low business earnings, and an economic slowdown.
According to the study, the government will assist those food insecure through inclusion in one of its social safety nets. Improvements in health education on hygiene and sanitation have contributed to a slight reduction in child malnutrition (measured by underweight).
Business
Moody’s Reaffirms African Trade Insurance’s A3 Rating & Revises Outlook to Positive
Moody’s Investors Service (“Moody’s”) has affirmed the A3 insurance financial strength rating (IFSR) of the African Trade Insurance Agency (ATI) for the fifth consecutive year and changed the outlook from stable to positive.
Moody’s noted that the change in outlook to positive reflects the strong growth in ATI’s membership base – that has resulted in improved portfolio diversification, strengthened capital adequacy, and the good profitability despite the challenging operating environment. In addition, ATI benefits from its preferred creditor status (PCS) amongst sovereign member states which protects it from the risk of default by member sovereigns through securing recoveries against claims paid on guarantees.
The strong membership and equity growth are some of the key considerations for the consistent reinstatement of ATI’s A/Stable rating by Standard & Poor’s and Moody’s rating, over the years. Also supporting the rating affirmation are; consistent improvement in financial performance, commitment of its shareholders who continue to uphold the preferred creditor status, its high quality and conservative investment portfolio as well as strong relationships with a number of global reinsurers that provide significant risk-bearing capacity.
With the change in outlook to “positive”, ATI is now better placed to provide enhanced support to its member countries, attract additional shareholding and grow its portfolio. The positive outlook is an indication that if ATI continues to demonstrate its strong underwriting performance and ability to recover claims under the preferred creditor arrangements, among other factors, an upward pressure towards an upgrade may be generated. The Moody’s press release can be accessed from here
Commenting on the rating, Africa Trade Insurance Chief Executive Officer Manuel Moses said: “This positive revision is in line with our 2023 – 2027 strategic objectives in which we set to improve our rating outlook to positive in the first year, and achieve an upgrade of at least “AA”/Stable rating by both Moody’s and S&P within this Strategic Plan period. We aim to achieve this by doubling our exposures and increasing our capital to more than USD1 billion.”
ATI’s mandate is to provide trade-credit and political risk insurance, as well as other risk mitigation products to its member countries and related public and private sector actors. These insurance products not only directly encourage and facilitate foreign direct investment as well as local private sector investment in our member countries, but also contribute to intra- and extra-African trade.
About The African Trade Insurance Agency
ATI was founded in 2001 by African States to cover trade and investment risks of companies doing business in Africa. ATI predominantly provides Political Risk, Credit Insurance and, Surety Insurance. Since inception, ATI has supported US$78 billion worth of investments and trade into Africa. For over a decade, ATI has maintained an ‘A/Stable’ rating for Financial Strength and Counterparty Credit by Standard & Poor’s, and in 2019, ATI obtained an A3/Stable rating from Moody’s, which has now been revised to A3/Positive.
Business
Moody’s Reaffirms African Trade Insurance’s A3 Rating & Revises Outlook to Positive
Moody’s Investors Service (“Moody’s”) has affirmed the A3 insurance financial strength rating (IFSR) of the African Trade Insurance Agency (ATI) for the fifth consecutive year and changed the outlook from stable to positive.
Moody’s noted that the change in outlook to positive reflects the strong growth in ATI’s membership base – that has resulted in improved portfolio diversification, strengthened capital adequacy, and the good profitability despite the challenging operating environment. In addition, ATI benefits from its preferred creditor status (PCS) amongst sovereign member states which protects it from the risk of default by member sovereigns through securing recoveries against claims paid on guarantees.
The strong membership and equity growth are some of the key considerations for the consistent reinstatement of ATI’s A/Stable rating by Standard & Poor’s and Moody’s rating, over the years. Also supporting the rating affirmation are; consistent improvement in financial performance, commitment of its shareholders who continue to uphold the preferred creditor status, its high quality and conservative investment portfolio as well as strong relationships with a number of global reinsurers that provide significant risk-bearing capacity.
With the change in outlook to “positive”, ATI is now better placed to provide enhanced support to its member countries, attract additional shareholding and grow its portfolio. The positive outlook is an indication that if ATI continues to demonstrate its strong underwriting performance and ability to recover claims under the preferred creditor arrangements, among other factors, an upward pressure towards an upgrade may be generated. The Moody’s press release can be accessed from here
Commenting on the rating, Africa Trade Insurance Chief Executive Officer Manuel Moses said: “This positive revision is in line with our 2023 – 2027 strategic objectives in which we set to improve our rating outlook to positive in the first year, and achieve an upgrade of at least “AA”/Stable rating by both Moody’s and S&P within this Strategic Plan period. We aim to achieve this by doubling our exposures and increasing our capital to more than USD1 billion.”
ATI’s mandate is to provide trade-credit and political risk insurance, as well as other risk mitigation products to its member countries and related public and private sector actors. These insurance products not only directly encourage and facilitate foreign direct investment as well as local private sector investment in our member countries, but also contribute to intra- and extra-African trade.
About The African Trade Insurance Agency
ATI was founded in 2001 by African States to cover trade and investment risks of companies doing business in Africa. ATI predominantly provides Political Risk, Credit Insurance and, Surety Insurance. Since inception, ATI has supported US$78 billion worth of investments and trade into Africa. For over a decade, ATI has maintained an ‘A/Stable’ rating for Financial Strength and Counterparty Credit by Standard & Poor’s, and in 2019, ATI obtained an A3/Stable rating from Moody’s, which has now been revised to A3/Positive.
Business
BoB confident inflation will return to objective range in Q2 2024
Bank of Botswana anticipate that inflation will normalise in the second quarter of the year 2024 after staying above the central bank’s objective range for over a year now. Governor Moses Pelaelo said when launching the monetary policy statement for 2023 on Wednesday.
Inflation was above the Bank of Botswana’s inflation objective range of 3 – 6 percent in 2022, against the background of improved domestic demand, upward adjustment in administered prices, as well as higher foreign inflation.
Inflation increased significantly from an average of 6.7 percent in 2021 to an average of 12.2 percent in 2022, thus remaining above the Bank’s 3 – 6 percent objective range since May 2021.
The high inflation in 2022 was mainly due to significant upward adjustment of administered prices, which added 5.2 percentage points to inflation during the year and associated second-round effects.
However, inflation generally trended downwards from September 2022 and was 12.4 percent in December 2022, higher than the 8.7 percent in December 2021. Food price inflation also increased from 7.2 percent in December 2021 to 16.9 percent in December 2022, in the context of significant domestic price increases for bread and cereals, oils and vegetables.
Regarding core inflation measures, the 16 percent trimmed mean inflation increased from 8 percent in December 2021 to 11.2 percent in December 2022, while inflation excluding administered prices increased from 7.1 percent to 8.7 percent in the same period.
Inflation has generally been on a downward trend since September 2022. It is projected that the downward trend will be sustained and that inflation will revert to within the Bank’s 3 – 6 percent medium-term objective range in the second quarter of 2024.
According to Governor Pelaelo this will be mainly on account of the dissipating impact of the earlier increases in administered prices, the recent reduction in domestic fuel prices, the expected decrease in international commodity prices and implementation of a smaller downward annual rate of crawl for the Pula exchange rate.
The projection also considers the anticipated increase in economic activity supported by both fiscal policy and relatively accommodative monetary conditions; the impact of the recent increase in private school fees in January 2023; the impact of the price increase in Kgalagadi Breweries Limited (KBL) products effective February 1, 2022; the expected upward adjustment of Botswana Housing Corporation (BHC) rentals and electricity tariffs in April 2023 and April 202411; as well as the possibility of higher prices due to resumption of the 14 percent VAT following implementation of the Government’s temporary inflation relief measures introduced on August 1, 2022.
Pelaelo said in the overall, risks to the inflation outlook are assessed to be skewed to the upside.These risks include the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints due to lags in production; the adverse economic and price effects of the protracted Russia-Ukraine war; the uncertain COVID-19 profile; and ongoing tension between China and the United Sates over South China Sea and Taiwan.
On the domestic front, the risks for higher inflation than currently projected relate to possible annual adjustments in administered prices not included in the forecast; short term consequences of import restrictions; prospective fiscal developments, namely implementation of potentially expansionary two-year TNDP.
The possibility of a higher than projected impact of the resumption of the 14 percent VAT (from 12 percent) in the second quarter of 2023; upward pressure on wages across the country emanating from the 5 percent increase in public service salaries effective April 1, 2023; were also highlighted as some of the factors that could lead to higher general price adjustments.
Pelaelo also added that there is also a likelihood of an upward adjustment in domestic fuel prices, in response to any increase in international oil prices.
He said these risks are, however, moderated by the possibility of weaker-than-anticipated domestic and global economic activity due to geo political tensions and possible restrictions in response to any emergence of new COVID-19 variants.
Lower international commodity prices than currently projected could also result in lower inflation, as would capacity constraints in project implementation. Meanwhile, according to the December 2022 Bank’s Business Expectations Survey, the business community expects inflation to remain above the Bank’s objective range in 2023.