Tuesday, September 22, 2020

When political stability hurts economic growth

Although Botswana scores well as a stable economy in political landscape within the continent, it still has a small market thus limited opportunities for investment instruments.

Economic experts have said that the relative political and economic stability of Botswana makes the country’s infrastructure sector attractive, but this attraction is undone by a small population.

Botswana’s political stability dates back to the 1960s and is ranked amongst the most stable environments in the African continent.

According to Vuyo Ntoi of Africa Investments Markets, the key to attracting foreign infrastructure investors is in strengthening the areas where the country is already a leader and in pursuing large scale foreign investments in infrastructure sectors where scale aggregation is possible to undo the impact of the small market.

“For instance, in power and transmission, resources related logistics such as rail, and bulk water projects”.

According to Ntoi, the small size of the Botswana infrastructure investment market has meant that there are relatively few managers of infrastructure capital looking at potential projects in the country

Ntoi formed part of the investment analysts who took part at this year’s Botswana Resource Sector Conference to share with the mining industry on investment opportunities in Botswana’s mining, energy and infrastructure sectors.

At this moment Botswana utilizes its Private Public Partnerships in a bid to attract investors to participate in the market. However, experts have observed that there is a challenge in the PPP infrastructure market precisely where further legal development is required.

Botswana adopted the PPP policy in 2009 and a PPP Unit was set up in the Ministry of Finance and Economic Development. However, despite the government’s attempt calling to go on PPP model, there still a relatively slow uptake of infrastructure on this model to date.

There are projects in the power sector that have attracted significant interest from infrastructure investors and developers and further projects that could in future be procured as PPPs.     

One of Botswana’s mega projects, the Morupule B power project has gone through the PPPs model and is still under expansion, whilst the Palapye Fengyue glass plant never saw the light of day.

Projects currently on the radar screens of international investors include; the 100MegaWatts Botswana Power Corporation Solar PV joint venture, Trans Kalahari Rail, Techobanine Rail Project, Zambezi Integrated Agro-Commercial Development, amongst many others.

It is said that most Fund managers do not find these projects attractive and therefore move to other attractive instruments.

Tshegofatso Tlhong, Portfolio Manager at Kgori Capital emphasized on the importance of investor education and has more information on investment instruments than the bare minimum. She also highlighted that the infrastructure that gets funded is often via debt. “There are infrastructure projects that by nature cannot be funded by debts”, she said.

RELATED STORIES

Read this week's paper

The Telegraph September 23

Digital edition of The Telegraph, September 23, 2020.