Just as he was beginning to settle and recover from a year long persecution at the hands of officials at the Ministry of Finance who did not want his contract renewed, the Chief Executive of CEDA, Thapelo Matsheka, finds himself and his agency against a renewed and more sophisticated kind of criticism.
In their latest report, the Bank of Botswana has drafted what could easily pass for the harshest attack against citizen economic empowerment and organisations that run the schemes thus far.
With references of “moral hazards” and “short termi-sm” the Central Bank comes out explicitly clear that subsidised finance is not the best way to go.
In more ways than one, the Bank of Botswana’s criticisms of CEDA are a picture replica of a report authored by a government economic consultant called Nicko Czypionka, under the auspices of an ad hoc organization called the presidential Business Economic and Advisory Council.
Like Czypionka, the report rallies against government’s reservation and preference schemes.
The Bank of Botswana says foreigners should be allowed to enter such activities as fresh produce, butcheries, general trading, filling stations and bars as well as other small scale tourist related operations.
The Bank says excluding foreigners in these areas brings about the danger that Batswana could miss from foreign expertise.
The Bank of Botswana further says financial assistance is not a panacea to business success.
They advise that other fundamentals like good management are also crucial.
In its 2006 report, the Bank says subsidized capital fosters low-return projects that will not be viable when the subsidies are no longer available.
The Bank takes particular exception against CEDA that borrowers are encouraged but not required to make equity contributions.
They say the absence of equity contribution might act indirectly as a disincentive for entrepreneurs to strive for success of their businesses as there is no financial risk linked to failure of the business.
“The provision of loans on generous terms may also result in crowding out of the private financial sector in the credit market.
“If the borrowing terms from government-supported institutions are both easier and expose the lender to greater risk relative to the borrower, the latter has a clear incentive to borrow more from the government than elsewhere.”
The Central Bank says, as a result, commercial banks stand to lose out on potential customer base.
To further buttress their case, the Central Bank says private commercial banks are likely to be more staffed with highly skilled personnel than the quasi government institutions like CEDA.
“A more vigilant surveillance of borrowers by lenders can encourage entrepreneurs to ensure that their businesses succeed. Hence, leaving the provision investment funds to the private markets has the potential to enhance a more sustainable private sector.”
In a clear case of an attack on citizen economic empowerment, the Bank of Botswana says borrowing without the explicit requirement for equity contribution has “an inherent moral hazard possibly to the detriment of longer term private sector development.”
“Although there is a perception in Botswana that the commercial banks are ill equipped and often unwilling to provide funding for potentially risky business start-ups and expansions, it is also likely that a proportion of the jobs ‘created’ by CEDA could also have been financed by private financial institutions, while the presence of CEDA-type institutions might obviate the need for private sector innovation to meet the apparent demand for start-up capital, especially among citizen entrepreneurs.”
It is not the first time the CEDA Chief Executive finds himself on the defensive.
Before his contract was renewed, he had to go for close to a year working with no contract.
It was also not before he was audited by the Auditor General at the behest of the Minister of Finance that he was re-appointed.
Although the audit report is yet to be released, The Sunday Standard can reveal that a number of its findings did not speak charitably of Dr. Matsheka and his CEDA.