Wednesday, May 5, 2021

Thamane’s CEDA venture capital fund headache

Questions abound as to whether the Citizen Entrepreneurial Development Agency (CEDA)’s venture capital fund (CVCF) was a success or not. Reports emanating from CEDA headquarters indicate that CEDA Chief Executive Officer (CEO), Thabo Thamane is embroiled in a bitter dispute with his CVCF partners, Venture Partners Botswana (VPB), which has led to CEDA not submitting its audited books of accounts for the last two years.

Introduced in 2003 with an initial capital injection of P200 million, the CVCF was hailed a move in the right direction by the government of Botswana. At the time, it was believed that the CVCF would wean Botswana’s economy from being largely driven by government, private financiers and foreign direct investment (FDI) and introduce it to venture capital and private equity financing, which were emerging as the premier drivers of large economies worldwide.

With P200million in hand, the 10 year CVCF got off to a bullish start in 2003, mandated to facilitate skills transfer by promoting partnerships between citizen and foreign-owned companies. Venture Partners Botswana (VPB) was appointed as its fund managers. The CVCF would target ventures, takeovers, greenfields and brownfields with investments ranging between a minimum P500, 000 and a maximum P30 million, while the minimum return on investment was pegged at 23 percent. Over the years, the Fund has invested in companies like Tannery Industries, Builders Merchants Botswana, AON Botswana, PG Timbers, Delta Dairies and Latex Medical.

However, after winding down in 2013, doubts have started to emerge as to whether the CVCF was a viable investment or not. In fact, CEDA Chief Executive Officer (CEO), Thabo Thamane recently revealed that his agency will institute an audit to determine whether the Fund had been successful and whether it should be managed internally going forward or outsourced to independent fund managers. When presenting before the Public Accounts Committee (PAC) hearing on statutory bodies recently, Thamane revealed that the Agency had not submitted consolidated books of accounts over the last two years because of differences with VPB over which model should be used to value companies in which the CVCF had invested. Thamane told the PAC that even though the CVCF investment guidelines did not allow investment in more that 40 percent equity, there were instances when the fund managers exceeded the 40 percent threshold, even going as far as holding more than 80 percent equity. 

“These investments were now considered subsidiaries,” said Thamane.

To that extent, there are companies in which the CVCF still holds an interest, even though the Fund was supposed to have divested when it reached its 10 year maturity in 2013. Differences emerged when CEDA and VPB could not agree on the model to be used to value some of the investments, which led to CEDA failing to produce consolidated financial results for the past two financial years. Thamane told the PAC that CEDA had instituted an audit to determine the model of valuation to be adopted, and also advise on whether the Fund has been performing well or not. 

“I must assure you that despite this setback, CEDA books are in order. The only problem is with consolidation,” said Thamane.

In 2009, CEDA set up a structured finance department after realizing that there was need to harness liaison between the CVCF, fund managers and the Agency. The structured finance department now manages those investments in which CVCF had not yet exited. In its 2011/12 annual report, CEDA indicated that the CVCF was facing challenges in some of its investments because of eroded business confidence, weak domestic demand and increased labor and input costs. The CVCF venture capital segment, which included companies such as Delta Dairies and Latex Medical Products, continued to demonstrate challenges which primarily emanated from inability to withstand unforeseen cash flow shocks. The said companies have since been liquidated. However, the Fund experienced remarkable successes in investments like AON, MRI and PG Industries. In 2012, AON declared dividends after recording a turnover of P70.7 million while PG Industries’ turnover was P149.4 m.

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