Pension industry urged to support private equity funds establishment

The pension fund industry has been urged to invest in private equity funds in an attempt to stimulate growth, citizen empowerment and to diversify the economic base away from mining ÔÇôespecially diamonds.
Speaking at the Botswana Pension Society conference on Thursday, Jacob Motlhabane, head of the African Alliance Botswana private equity fund, stressed the need for private equity funds at a time when government is looking into private, public partnership arrangement that would see an increase in the participation of the private sector in the economy.
The pension industry, which today is valued at P 25 billion, is the third richest industry after government and Bank of Botswana, but has so far invested very little into private equity which would enable it to drive the economy forward. And as much as 67 percent (P 15.8 billion) of that money is invested off-shore.
However, the increasing need to stimulate economic growth and to foster the citizen empowerment needs, in line with countries such as the USA, UK and South Africa, have resulted in calls for the pension industry to look into ways in which it could assist government through its huge funds.
“In Botswana, private equity as a formal industry is still in its infancy though informally a number of investments in private companies have been done now,” he said, adding that there was a need to develop the sector to improve the risk reward characteristics in the unlisted companies.
His call came at a time when government is struggling to diversify the economy and has injected huge capital into its private equity funds such as Botswana Development Corporation and Citizen Economic and Development Agency. Further, there is a great concern over the failure rate of the SMEs which is largely attributed to lack of finance and business skills.
The SMEs are the largest employers in the country, accounting for 50 percent of the private sector and contributing 20 percent of the national output, which is estimated at P 44.3 billion.
“…involvement of private equity in this sector makes it more palatable and will advance government initiatives of creating an entrepreneurial environment with private sector,” he added.
The development of the private equity funds is expected to strengthen managerial skillsÔÇöespecially at board levelÔÇö and capital finance of the SMEs to duck-out of a possible collapse within their first five years.
“The Botswana government has in the past initiated a number of programmes to entrepreneurship and its growth for the purpose of diversifying the economy as well as creating employment.
“The ultimate aim is to give private sector lead role of public sector in the provision of marketable goods and services. It is with this initiative that we believe there is a scope for establishment of a successful vibrant private equity industry in Botswana,” Motlhabane said.
However, Botswana Public Officers Pension Fund (BPOFP), valued at P 20 billion and is the largest in the country, said last month that it would earmark 2.5 percent of its fund to the development of private equity funds to drive the citizen economic empowerment component and the diversification of the economy.
The move will see part of the BPOPF money being invested in unlisted and green-fields companies which originally do have complicated structuresÔÇöincluding poor corporate governance issues.
That would also help companies which are trying to spread their wings beyond the borders of Botswana to take advantage of reconstruction work in countries such as Angola, Democratic Republic of Congo, Zambia and Zimbabwe when it returns to normality.
The move might see about P 400 million from BPOPF alone being injected into the economy and triggering the establishment of private equity outfits starting from next year.