Gov’t confirms P560m of COVID-19 bailout lying unused
Mbongeni Mguni | Monday March 14, 2022 06:00
This comes more than a year after the funds were announced as part of the Economic Recovery and Transformation Plan (ERTP). Government unveiled a P1.3 billion Industry Support Fund (ISF) in November 2020 targetted at the hardest-hit sectors of the economy and limited to businesses already in operation. The funds comprised informal sector grants and loans priced at both interest-free and concessional rate terms.
Last October, Mmegi exclusively revealed that millions of pula in bailout funds were lying unused, largely because the requirements for businesses to access the funds proved beyond their reach. In addition, the parastatals involved in disbursing the funds noted technical limitations in their existing regulations to better extend assistance.
Investment, Trade and Industry minister, Mmusi Kgafela this week confirmed the challenge, saying of the P700 allocated to the parastatals under his mandate, just 20% or P140.2 million had actually reached businesses.
“There has been low uptake of this fund, but efforts continue to be made through intensifying marketing and stakeholder engagements,” he told legislators.
Kgafela said of the P300 million allocated to CEDA, just P19.5 million has been disbursed to 128 businesses, while of the P100 million allocated to LEA, only P45.7 million has been sent out. BDC, which was allocated P300 million, has thus far disbursed P75 million, out of the total applications worth P307.2 million received.
According to the ISF’s guidelines, CEDA’s allocation was designed to bailout Small to Medium Enterprises, while LEA’s funds were targetted at giving informal sector participants a once-off P1,000 grant. The BDC’s allocation was targetted at large enterprises and would be disbursed through loans and equity injections.
The National Development Bank (NDB), the only ISF parastatal outside the ambit of the trade ministry, has disbursed P445 million from the P600 million it was allocated, officials at the bank told BusinessWeek recently.
BusinessWeek was previously informed that government had decided to pay out the ISF funds to the difference parastatals in tranches of P100 million. The parastatals are required to exhaust the first tranche, then give notice of the need for the next P100 million.
At CEDA, which has the lowest disbursement ratio of the four ISF parastatals, CEO Thabo Thamane previously told a parliamentary committee that eligibility issues were hampering the rollout of bailout funds.
“The issue is that the eligibility for the ISF at CEDA is for businesses with a turnover of only P10 million,” he said. “The maximum loan we can give is 10% of that turnover, which is P1 million. “Those businesses that need more working capital than P1 million, we cannot help and we have to say go elsewhere.
The situation means that for CEDA’s customers with an annual turnover of more than P10 million, no assistance or part-funding can be provided.
“We cannot say take the P1 million and find the rest elsewhere, because that business’ turnover will be more than P10 million and therefore not qualifying,” Thamane said. “Even if you are a customer, if your turnover is more than P10 million, we turn you away.”
CEDA technocrats expressed concern that the agency funds and helps businesses to grow, but once these reach more than P10 million in turnover, they are left on their own.
“Once a business gets a tender for P20 million, for instance, then we cannot help them through the ISF,” an insider at the agency said.
In addition, micro-businesses are failing to access CEDA’s ISF funds due to the requirement for tax registration. Smaller businesses view tax registration as a cost burden and many want to avoid the expenses that come with enhanced administration for tax compliance. CEDA’s smaller enterprises are generally covered by the Letlhabile and Mabogo Dinku programmes, where interest in the ISF has reportedly been high.
“Once you say you want a tax identification number, they say 'I’ll be back' and that’s it, they’re gone. “That’s the reality of it and these are people that need to dip into the ISF.”
The division of economic sectors among the agencies is also reportedly not contributing to the smooth uptake of the ISF. For instance, agriculture and tourism account for P700 million of CEDA’s portfolio, but customers in these sectors have to go to the NDB for assistance under the ISF.
“CEDA is a general fund and if you start sectoring to say tourism and agriculture must go that side, that’s difficult because they represent a large part of our business. “These issues have been highlighted to the shareholder and we are hopeful of engagement,” Thamane told Mmegi previously.
While Kgafela did not provide any details on the progress of the P1 billion credit guarantee scheme anchored by government and provided through the Botswana Export Credit Insurance (BECI), all indications are that uptake under the initiative has also been below par.
Launched in June 2020, the scheme had only provided P46 million to businesses as at December 31, 2020, when it was originally due to elapse. The initiative was then extended to March 31, 2022, but by June 2021, figures provided by BECI to Mmegi showed coverage of only P100 million.
“At that usage level, the uptake of the loan guarantee scheme remains low,” the Bank of Botswana said in a note accompanying the Banking Supervision Report last October.