A fierce and passionate advocate for citizen economic empowerment, Member of Parliament for Shoshong, Duke Lefhoko, has come down strongly against the line of thinking adopted by Bank of Botswana report on citizen economic empowerment.
Debating yet another motion calling for citizen economic empowerment, which he himself tabled this time around, Lefhoko referred to the Central Bank as “unethical.”
He said for the Bank officials to have developed a counter argument against citizen economic empowerment policy when their political supervisor, the Minister of Finance, had agreed in parliament of the need for such a policy, the Central Bank was essentially behaving like a “Bull in a China shop.”
Clearly annoyed and contemptuous of the Bank’s latest report, Lefhoko said the Bank of Botswana had been “odd” and “ridiculous.”
He demanded an explanation how it was possible that the Central Bank could get away with a slap in the face against the Minister of Finance.
“Bank of Botswana should be called to order,” said Lefhoko.
Among other things in their latest soon-to-be-published report, the Central Bank takes a swipe at CEDA, the government owned empowerment financier, saying financial assistance is not a panacea for economic empowerment.“
“Subsidised loans, especially those given as help to a select category of potential businesses have a tendency to inhibit proper project costing and appraisal by prospective entrepreneurs and lenders, and indiscipline in financial management. In addition, there is evidence that subsidised financial support is insufficient if other fundamentals of viable business planning are not in place. Moreover, as shown by FAP, provision of subsidized capital fosters low-return projects that will not be viable when subsidies are no longer available.”
The Bank of Botswana laments the fact that in the case of CEDA, borrowers are encouraged but not required to make equity contributions.
“While this arrangement is meant to ease the equity capital requirement on small borrowers, there is an inherent moral hazard, possibly to the detriment of longer term private sector development. The absence of equity contribution might indirectly act as a disincentive for entrepreneurs to strive for the success of their businesses as there is no financial risk to them that is linked to failure of the business.”
The Central Bank goes on to say the provision of loans on generous terms using government funds 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 government than elsewhere.”
To drive home their irritation against CEDA, the Bank of Botswana says “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.”
Clearly this has not gone down well with Lefhoko and Sebetela who say they are not surprised because early investigations have proved that the Bank of Botswana’s procurement has favoured foreign companies over citizens.