One of Botswana’s indigenously home grown businesses Letshego Holdings Limited, this week announced a watershed investment deal that saw the company secure over 250 million pula in specialist funding, the funds, according to a press statement from the fast growing financial group, will be used predominantly to expand its African footprint.
The new funders include specialist and impact investors who focus on micro and inclusive finance ventures, according to Letshego. This new group of finance partners are global capital houses based in the United Kingdom and Europe with a keen interest in sustainable development in Africa.
The structured funding arrangement will deliver treasury benefits and mitigate funding risk for the Letshego Group by achieving geographical diversification in its funding base, increasing the current number of funders, securing longer tenors as well as reducing the Group’s overall open foreign exchange exposure by drawing new local currency-denominated facilities. After standard foreign exchange hedging operations, the funding will be available in Botswana Pula, Kenyan Shillings, Tanzanian Shillings and Nigerian Naira – some of the key currencies in which Letshego operates across the region.
Letshego Holding Group Managing Director, Chris Low said in the statement that his company was progressing well from short term and long term strategies. He said as Letshego progresses in its sustainable growth strategy, with marked in-roads in increasing inclusive finance through digital innovation, there was noteworthy increase in interest and support from new investors and funders. “These are financial partners who share our ambition in delivering a commercial strategy which supports long term economic value for Africa’s under-served communities,” he said.
Letshego will be allocating this funding to support a variety of growth ambitions, which include: expansion of the loan book in selected markets; further investment into Group systems and financial solutions technology; as well as embedding existing and new strategic partnerships which expand the Group’s customer base. Verdant Capital, a specialist Africa investment bank, has facilitated and assisted Letshego in structuring and finalising this latest funding programme. The Letshego Group continuously reviews and manages its funding sources to maintain acceptable levels in costs of funding, while delivering further value for customers and all stakeholders for the long term.
The Group which operates in 11 African Countries won the New Age Banking Summit 2 award for ‘Excellence in Microfinance Banking last year and it boasts of being on the right path to be Africa’s leading inclusive finance Group. Latest figures from the Group on financial year ended 31st December 2017 shows that the group‘s Total revenues exceeded P2.5 billion indicating 15% increase compared to the year ended December 2016 with yields on loans to customers and the cost of borrowings not registering any significant change.
Founded in 1998 and listed on the Botswana Stock Exchange in 2002, the group continues to grow as a pan African inclusive financial services provider.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”