Monday, June 5, 2023

Tale of two CEDAs – development house vs. commercial entity

Journalists like the Chief Executive Officer of Citizen Entrepreneurial Development Agency (CEDA) because of his quotable quotes.

This week he was at his best at a media briefing to unveil the agency’s results for the financial year 2008/2009.

“We should not be trigger happy to truant clients,” he charmed the journalists.

Matsheka’s comments show how contradictory the organisation he runs is.

CEDA is a government agency responsible for the development of small, medium and large scale enterprises through soft widow packages not offered by commercial entities.

It charges the lowest rates in the financial services sector at between 5%-7%, less than the commercial rates, which makes it difficult for the market to compete with.

Matsheka acknowledges the situation his organisation finds itself in and that has led to huge arrears that nearly led to bankruptcy last year.

“We are a development financial institution, however, it does not mean we should not maximize efforts to collect money,” said the former University of Botswana lecturer.

In the financial year 2008-09, CEDA’s arrears position stood at P152. 4 million representing 34% of its over P546.4 million loan book, especially that conditions were hard for the general economy.

The high arrears led to the organisation writing off debts although the legal department will follow the promoters around.

CEDA is expected to get P300 million from government in the coming financial year to keep it afloat and finance new viable business ideas.

“The two challenges are supporting entrepreneurs and collecting money,” added Matsheka.

During the same financial year, the agency managed to collect P112.9 million out of the targeted P139.9 million.

In an effort to improve performance of the funded projects, Matsheka warned that CEDA will emphasise owner management of projects thus avoiding situations where promoters stay in the city and only go to the cattle posts over the weekend.

It has been found that projects often fail because promoters do not give their businesses time as they will normally be employed at another company on a full time basis and running their business on a part time basis.

“We will only be financing projects where the promoter is willing to manage the project fulltime, (which is under the CEDA guidelines),” warned Matsheka.

The other problem with CEDA at the moment is that its loan book is skewed towards agriculture, which normally has moratorium of repayment until such a time when projects start bearing fruit.

Of the funded projects, agriculture accounts for the larger share of 30%, followed by common Batswana businesses in retail sector at 14%, manufacturing 9% and lastly property at 3%.

However, a breakdown shows that 50% of the agencies’ collections are from service, followed by agriculture, then property and manufacturing.

The agency runs a portfolio called CEDA Young Farmers Fund that is targeted towards young people as the country tries to diversify the economy from diamonds.

Although the current arrears position is 34%, CEDA wants it to fall to 20%, but warned it will be difficult because of trading conditions.

“We need to bring the arrears level to the target level,” Matsheka said, adding that initiatives like rearranging the loans could be looked at.

“If you were given seven years (to pay), we could be given three more years. We should not be trigger happy to truant clients,” promised Matsheka.

The CEO believes they will be closer to the 30% target for collection for 2010.

CEDA has also come under scrutiny from its clients on the way they disburse funds to promoters as they directly pay suppliers rather than giving cash directly.

Matsheka, however, stated that they will continue with the arrangement because in the past those spoilt by CEDA predecessors (SMME) connived with suppliers which led to business failures.

“We took the hardline position on disbursement; we now disburse directly to the supplier. But, we have honourable clients who we can disburse directly to their accounts”.

“Those who are complaining do not want to account,” he said, adding a balance needs to be struck.

Matsheka told Sunday Standard that the problems inherent with development funds were beginning to show in their outsourced products hence in-sourcing.

CEDAs divisions like Venture Capital Fund, and recently the Citizen Entrepreneur Mortgage Assistance Equity Fund (CEMAEF), and Credit Guarantee Scheme are moving towards in-sourcing.

The CEMAEF guidelines are under a review process including offering it as a mortgage assistance product rather than a fund.

“The challenges with development fund are now emerging with venture capital fund,” reasoned Matsheka.

The P200 million CEDA Venture Capital Fund, which runs for 10 years, has been outsourced to VPB and the fund manager is expected to divest in the next three years.

The financial year of March 2009 marked the end of another year of operations of the fund, which also included the end of the investment period of the fund.
The fund has fully committed its capital to proposed investments and as a result saw reduced activity in the origination of new investments.

CEDA has now established structured finance division and new transactions that were in the pipeline handed to the Fund Manager at CEDA.

But Matsheka said the fund has had some difficulties coupled by global economic recession.

During the period, two portfolios faced difficulties, including the selling of tobacco plant for P5 million and difficulties with Mabele Breweries, which was set up as a sorghum beer manufacture.

The other notable failures include busting of flower factory and shareholders difficulties with the condom manufacturing factory.

“There is nothing that is done special; the challenge with the fund manager is the limitation of 10 years, so in-sourcing means we will be able to finance well over 10 years,” he said.

He also revealed that the equity strategy will be redefined like, for example, the contribution could be what the promoter is worth.

“There ought to be Special Purpose Vehicles (spvs) that we support.”


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