Saturday, November 28, 2020

Inside Botswana’s Industry Facility Fund that seeks to resuscitate the economy

Nearly nine months after its arrival in the local shores, COVID 19 rages on, and there is no sign of it giving way atleast to the birth of Jesus Christ – the Christian religion leader whose birthday is celebrated by billions of people across the world every December.

While to date there is still no global consensus on what exactly need to be done to ‘wash away’ COVID 19, many countries across the world including Botswana are side by side battling to save the soul of their economies.

In Botswana, the COVID 19 pandemic has led to big shifts in the economy, and some kinds of jobs may disappear completely. The hardest-hit sectors include tourism & hospitality, mining as well as the informal traders –all of which employ thousands of women and youthful members of the populace.

Official figures released by Statistics Botswana – a government owned data collection agency shows that the local economy recorded its biggest contraction in both the first and second quarters of the year, officially entering recession.  Economists – both locally and abroad project that the domestic economy will contract further in the remaining quarters in what could be the country’s worst economic year.

The Botswana government’s Budget Strategy paper, which lays the foundation for the 2021/22 national budget, does not shy away from bearing the bad news – the economic situation is still evolving and characterised by very high levels of uncertainty. The strategy paper authored by policymakers at the country’s Treasury department states that as a result of significant disruptions to production in key economic sectors, and the consequent loss of income, the economy is operating below potential.

“Domestically, all sectors of the economy, including the informal sector, have been impacted, and many businesses will experience fundamental changes in their operations”, states the Budget Strategy Paper.

INDUSTRY FACILITY FUND – The Secret weapon?

In the early months of COVID 19, financial institutions in Botswana stepped up to allow deferrals in loan and mortgage payments. This complemented the government’s actions – amongst them the wage subsidy Fund to help households weather income loss and also allowed banks to avoid some loan losses.

Early figures from the government shows that between April and October 2020, the Botswana government spent close to P2 billion to pad the ailing economy. A breakdown of the bulk of the funds shows that P831 million was directly spent on distressed companies as part of the wage subsidy while about P350 million was used to purchase food packages for needy households. A further P396 million was spent on health supplies, with the remainder spent on recruitment of safety health officers, psychological services as well as the evacuation and financial assistance to Batswana outside the country according to the government.

With so much money spent and COVID 19 still knocking at many doors of Botswana’s households and workspaces, the question remains: What is next for the limping economy? The head of Treasury – Dr Thapelo Matsheka says the answer lie in the newly announced Industry Facility Fund.

In a televised address made this past week, Dr Matsheka said that the Botswana government has through a Supplementary budget approved by Parliament in September has set aside P1.3 billion to help jerk up the economy.

“The approach is to make sure that businesses do stay in business. We do not want start from ground zero when a vaccine has been found, we want to be able to keep those businesses in place so that we sustain them. We have identified institutions that would be disbursing or considering applications under this Industry Facility Fund”, Dr Matsheka said.

Apart from the general industry businesses, the funds, according to Matsheka, will also be disbursed to atleast three sectors of the economy – Informal sector, Agriculture and Tourism through state agencies – Botswana Development Corporation, Local Enterprise Authority, Citizen Entrepreneurial Development Agency and National Development Bank.

Local Enterprise Authority – P100 million

Local Enterprise Authority or LEA has in the recent past embarked on a project to register informal sector and Small Medium Enterprises across the country after emerged that the government enclave does not have their database. Matsheka says those already registered with LEA will now be eligible for a P1000 grant from the P100 million set aside for the informal sector.

“This will have an impact of a mid-term fiscal injection into the economy so that we support aggregate demand and the economy. All the recipients that are registered on the LEA database are eligible”, Matsheka said.

At the last count, the Quarterly Multi Topic Survey (QMTS) carried by Statistics Botswana in 2019 (Q3:2019) pegged the total number of non-formally employed Botswana citizens at 261,741. QMTS gathers information about individuals and households relating to employment, other economic activity and expenditure. While not all of the 261, 741 citizens are into business, the Botswana Informal Sector Association pegs its membership at 25 000, mainly based in urban areas. The association says its members have had a cold 2020 winter and now a hot summer thanks largely to the national lockdowns sponsored by COVID 19.

Citizen Entrepreneurial Development Agency – P300 million

Tax compliant small businesses owned by Botswana citizens with a turnover of up to P10 million or even less can now apply for a loan with the Citizen Entrepreneurial Development Agency (CEDA). The funds are not restricted to CEDA existing clients and will be ring-fenced, as it is not part of the CEDA loaning programme.

“It is not the money that will go to start-ups”, said Matsheka. The applicants, according to Matsheka, will be eligible to 10 percent of their previous year’s turnover.

National Development Bank – P600 million

The National Development Bank (NDB) has been given the responsibility to service the medium scale general businesses with a turnover between P10 million and P50 million. The state owned bank will offer unsecured loans to tax compliant firms – either citizen or non-citizen owned at an interest rate of 3.75 percent, which is the current prevailing bank rate. For such disbursement NDB has been given P300 million and a further P200 million for the Tourism sector.

“There won’t be any interest paid on these loans by the tourism sector. It is open to businesses registered for tax across all categories – small, medium and large businesses. In terms of the small businesses there won’t be insistence on the TIN number”, Matsheka said.

NDB has also been given P100 million to disburse to farmers at zero cost of borrowing. The loan duration, just like others has been set at 30 months, which also marks the period in which the National Development Plan 11 will end.  

Botswana Development Corporation – P300 million

As for large corporations – both citizen and non-citizen owned which are tax registered a total amount of P25 million is available for grabs at BDC. The corporation has been given a total of P300 million to disburse to large businesses operating in Botswana at an interest rate not exceeding the prime rate.

“We insist on a previous year turnover of over P25 million. We also insist on tax registration and BICA accounts. The duration will be same (30 months) as set in other facilities”, Matsheka said.

The Minister also emphasized that borrowing firms will be expected to keep their current head counts as the intention is to save jobs.

“I want to appeal to the eligible beneficiaries that we need to demonstrate patriotism and responsibility in the use of these funds. We need to see where this money has gone to in terms of output”, Matsheka said.

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