Claims and recoveries in Sub-Saharan Africa: Spotlight Botswana

The trends for claims and recoveries in Botswana remains relatively benign. Tsumisang Ntebela, Team Leader – Recoveries and Gofaone Masile, Risk and Compliance Manager with BECI (Export Credit Insurance and Guarantee Company Botswana) explain

Claims and recoveries in Sub-Saharan Africa: Spotlight Botswana

The rate of growth rate sub-Saharan credit insurance cover is among the highest in the world. This is attributable to the ‘global village’ now looking into Africa as a prime investment hub. Sectors with good growth are, among others: manufacturing, construction, and infrastructure development. The demand for credit insurance has been increasing gradually over the years, which means there is an increased likelihood of claims. Here we look at these claims trends over time, mitigation and claims recovery challenges and best strategies based on the case of Botswana.

Claims trends in Botswana: Skewed by balloon payments

A comparison of the claims paid in 2020/2021 versus 2019/2020 shows an increase in claims payment. However, a month-to-month comparison reflects a decline of paid claims in the 2020/2021 financial year as it was the period COVID-19 struck. This means, although there was an overall increase in claims, if we look on a month-to-month basis the trend is similar to that of the previous year or even lower in terms of claims paid in value.

This is attributable to balloon payments [lump sums paid at term end] which were made in three out of the 12 months (October and November 2020 and January 2021) due to the sectors affected being industries IT and building (construction). These sectors have been hit particularly hard by the pandemic. There was an increase in the value of claims paid.

It is worth noting that the claims paid over the pandemic period may have not increased drastically due to the current state of emergency in the country as there has been leniency by policyholders as most payments pending are from debtors owed by the Government of Botswana. It should be noted that unlike most countries, Botswana’s economy is mainly driven by the Government.

Further to this, debt collection matters have not been prioritised by the courts since the beginning of the pandemic as they are deemed to be less important than businesses actually surviving the pandemic and households fending for themselves with the bare minimum. The current trend demonstrates that there are more potential claims in the same industries where a lot of claims in value have [already] been paid.

Of the potential claims that were received in the year 2020, only 55% of those were received as payable claims with 45% being mitigated. The restrictions on movements of people and goods, together with closure of ports of entry in the country really affected national trade which then meant little or no revenue for clients. Of the 55% potential claims received and paid out, the mitigated claims amount to 30% in value terms. These potential claims are as a result of delays in payments by the Government as the government is operating on a budget deficit which has been exacerbated by COVID-19.

Challenges to claim mitigation and recovery

The current challenges faced in the recoveries of these debts are due to a variety of reasons derived from the COVID-19 pandemic including: projects pending due to skeletal staff function; projects pending due to delayed payment from government; and lack of working capital due to payments of salaries during the lockdowns over the state of emergency. This was enacted on 2 April 2021 and has been extended, with the latest extension being for six months up to 31 September 2021. Any distress on Government coffers has an adverse effect on the economy. This is notwithstanding the closure and liquidation of some businesses where BECI has a material unsecured debt but is not prioritised in the list of creditors, with preference being to secured creditors.

Claim mitigation and recovery strategy

Utilisation of legal services to recover debt at an early stage is the best approach. This assists in salvaging funds before payment stage. This would be aided by a fast approach to matters as debts age. This means that securing judgments and affording BECI an opportunity to be the first to attach and recover through sale in execution before other creditors is the best strategy. Subject to the nature of the client this is applicable to debts above BWP200,000 (around $18,500), which are deemed higher in value for potential claims. For new potential claims amounting to less than BWP200,000, in-house collections have been effective and these will be applied going forward, and matters will be escalated to litigation if there are lower probabilities and prospects of in-house recoveries.

Claims stable, but impact expected later this year

The claims situation in Botswana has been stable over the last 12 months. With the long tail of COVID-19, BECI expects the impact to be felt in the latter part of 2021. The most effective mitigation strategy in Botswana is to collect on debts while they are relatively new. Depending on the nature of the client and amount involved in-house collection services are utilised before handing them over to the lawyers. In spite of uncertainties, BECI is optimistic that the claim situation will be benign in the short to medium term, hence Botswana will continue to be among the top countries not only in Sub-Sahara but also in the whole of Africa in terms of the [World Bank’s] Ease of Doing Business index.