Loan will anchor supply chain in country catalysing local economic growth
The Overseas Private Investment Corporation (OPIC), the U.S. Government’s development finance institution, today signed a $125 million loan guaranty which will help Botswana develop its diamond industry in a sustainable manner that will promote local job creation and diversified economic growth. Historically, diamonds mined in Botswana and elsewhere would be sorted, marketed and manufactured in other countries. Bringing these value-adding functions into Botswana has been a priority of the country’s Government, and the guaranty will help provide the finical underpinnings for this economic development strategy to succeed. The $125 million represents the first tranche of a broader $250 million OPIC loan guaranty program for these purposes.
OPIC signed the $125 million loan guaranty with Barclays Bank of Botswana, a subsidiary of Barclays Africa Group Limited, together with Lazare Kaplan International (LKI) acting through its subsidiary Botswana Finance LLC. The agreement will establish a revolving framework facility in which OPIC will share the credit risk.
“This project will provide critical support to an industry that is central to Botswana’s economy and a key source of job creation,” said James Polan, OPIC Vice President of Small and Medium-sized Enterprise Finance. “Bringing the larger supply chain into Botswana will have a huge impact in local communities across the country.”
This project aims to facilitate further lending to diamond manufacturing and polishing companies with operations in the Republic of Botswana. This will support economic diversification by providing cutting and polishing companies in Botswana with access to long-term financing, as well as develop the country’s financial sector. Given the critical importance of the diamond industry to their economies, Botswana and other southern African countries have implemented local beneficiation policies that require additional economic benefits to be derived from their diamond resources.
Access to finance is an essential component of the development of the diamond manufacturing sector.
Barclays Bank of Botswana is the first lender under the broader $250 million loan guaranty program, and additional lenders may join the program in the future. This tripartite partnership reflects Barclays Bank of Botswana’s commitment to the local diamond industry alongside OPIC’s commitment to economic development and LKI’s longstanding record of investment in Botswana. This OPIC-supported loan will make it easier and more efficient for the local cutting and polishing facilities to borrow money locally, and add value to the supply chain in Botswana by creating employment opportunities and growth to this sector.
Reinette Van Der Merwe, Managing Director of Barclays Bank of Botswana, says it was imperative that Barclays finds a sustainable way to grow lending to the sector. “Diamonds have transformed Botswana’s economy from the poorest country in the world before independence to one of the fastest growing economies.”
Leon Tempelsman, President of LKI stated, “We are honoured to be associated in this undertaking with partners as strong as Barclays and OPIC, who not only hold the highest standing in capital markets but share our vision of the diamond industry: one which supports constructive economic growth in the countries and communities where it operates, and adheres to the utmost standards of accountability and integrity.
We commend both OPIC and Barclays for this substantial commitment to the next stage of development and diversification of the economy of Botswana, a nation which has been a beacon of good governance and responsible stewardship of minerals resources, and which we have been proud to be associated with as an investor and friend, for some four decades.”
About OPIC: OPIC is the U.S. Government’s development finance institution. It mobilizes private capital to help address critical development challenges and in doing so, advances U.S. foreign policy and national security priorities. Because OPIC works with the U.S. private sector, it helps U.S. businesses gain footholds in emerging markets, catalysing revenues, jobs and growth opportunities both at home and abroad. OPIC achieves its mission by providing investors with financing, political risk insurance, and support for private equity investment funds, when commercial funding cannot be obtained elsewhere. Established as an agency of the U.S. Government in 1971, OPIC operates on a self-sustaining basis at no net cost to American taxpayers.
All OPIC projects adhere to high environmental and social standards and respect human rights, including worker's rights. By mandating high standards, OPIC aims to raise the industry and regional standards of the countries where it funds projects. OPIC services are available for new and expanding business enterprises in more than 160 countries worldwide.
Botswana Finance LLC is a subsidiary of (Lazare Kaplan International) LKI, the project sponsor and investor. LKI is a New York-based global company with over 100 years of participation, and a long record of innovation, in the diamond industry, including leadership in promoting transparency and accountability within the trade. It was involved in the design of the Kimberley Process, the industry’s first attempt to establish verifiable chains of custody for diamonds internationally; was the first company specialized in diamond trading to raise funding in public capital markets; and the first also to become a participant in the UN Global Compact, the world’s largest social corporate responsibility initiative.
Barclays Bank is a leading commercial bank in Botswana. The company employs 1,200 people with 41 branches and 115 ATMs throughout the country. The bank opened its doors in Botswana in 1950 and continues to grow 60 years later. We are a publicly listed blue chip entity on the Botswana Stock Exchange, with a strong citizen shareholding. Euromoney and EMEA Finance have voted us the Best Bank in Botswana for more than 3 years in a row and we have been recognised for significant contribution in the implementation of vision 2016 goals.
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.