BoB outline financing strategies for industrialisation
The central bank has identified a number of financing strategies, which it believes will ensure Botswana’s transition to high income status.
Despite government’s best efforts at an upgrade, the country has long been trapped in the ‘upper-middle income’ bracket.
This week, during the annual economic briefing, Bank of Botswana (BoB) announced financing strategies for Botswana’s industrialisation strategy, which is premised on harnessing the country’s potential and value chain in relation to endowments.
Speaking during the briefing, BoB Head of Research and Financial Stability, Dr Tshokologo Kganetsano revealed they identified several financing methods.
One such method is government financing, which is direct funding that mostly involves infrastructure projects and social amenities that facilitate economic activity.
“For Botswana, there has been a continuous commitment in terms of funding of infrastructure and social projects. Government funding is backed by revenue comprising mainly of minerals and SACU revenue,” said Kganetsano.
However, he said these two sources are highly volatile and not sustainable going forward which means the country has to look for other sources of funding for government whilst expanding on those that already exist.
Another source of revenue identified is Development Finance Institutions, which is essential to address market failure and close the funding gap.
Thirdly, is the Private Sector Financing, which generally looks at the economic activity, including for businesses and households and lastly the Domestic Capital Markets such as bonds and equity.
Notwithstanding, the central bank also looked at what could be restricting access to financing in Botswana.
“If you look at various reports, including BIDPA report of 2007 which was a study on SMMEs, the 2011 World Bank Group study and the World Economic Forum Global Competitive Report, all these reports cite limited access to finance as one of the key constraints to business growth in Botswana,” revealed Kganetsano.
The first challenge is the short-term nature of banking sector financing, the maturity mismatch.
“If one takes a look a the balance sheet of a commercial bank, you will realise that on the liabilities side you will find deposits are generally of short-term nature. Out of these deposits, commercial banks do lend to businesses,” explained Kganetsano, noting the requirements from the lending side are of long-term nature, especially when talking about infrastructure development.
According to Kgametsano, this mismatch means commercial banks are constrained in terms of lending to businesses.
Another challenge is the absence of the collateral registry. However, a draft legislation is currently in the pipeline, as announced by President Mokgweetsi Masisi in his State of the Nation Address last year.
Other challenges that are said to impede access to funding are shallow capital markets and Development Financing Institutions (DFI).
A recent study by the International Monetary Fund (IMF) identifies three areas that continue to detract growth in Southern Africa and delay transition to high-income status.
First is the uninspiring relative export performance and shrinking tradable sector. Secondly, is low and declining total factor productivity encompassing land, capital and labour. Lastly it is the relatively large public sector, including state-owned enterprises.