Private equity - Botswana's latest engine of growth

| Friday January 29, 2010 00:00

Funding from government, lending institutions, Foreign Direct Investment and the stock exchange has historically driven economic development in Botswana. However, all these sources of funding have their limitations and their susceptibilities to a variety of conditions and factors.

Private equity and venture capital are fast emerging as the premium drivers of Botswana's economy. Fund managers such as Venture Partners Botswana, are utilising their expertise to strategically invest capital into the growth of the private sector, at the same time driving economic diversification and employment creation.

Mmegi: CEDA's Annual Report 2009, indicates that companies under the CVCF portfolio came under stress during the reporting period, due mainly to the recession. What is the fund manager's take on the portfolio's performance generally and for the reporting period in particular?

Siwawa: The one thing we do in portfolio management is to segment it and apply different strategies that are specific to the challenges of that segment. Within our portfolio, the biggest knock has been on the start-ups, which, by value, make up 50 percent of the portfolio. Our focus, thus, is on the start-ups and how to address the challenges they have.

Up to 2009, the CVCF's performance was in line with other international benchmarks, but after that, most funds worldwide declined. The drop we have experienced in our portfolio has been lower than the average. The CVCF's performance has been generally good in relation to our peers elsewhere, but we of course review the portfolio on a continuing basis and develop strategies with our partners to maintain growth.

Mmegi: In the 2008/09 financial year, the CVCF pulled out of two investments. Within the associate companies and subsidiaries currently in the portfolio, are there possibilities of further disinvestments?

Siwawa: The portfolio left still has its own challenges but I would be loathe to suggest that we have reached a point of saying one investment is not worth it. Those that are sick, we are working them out. I feel that our whole portfolio is one in which I'm fairly positive; our growth has been well above the norm in terms of the benchmarks. It's the start-ups that we are working on day and night. However, this is not unique to us and this is a challenge that is expected.

Mmegi: Turning to Venture Partners Botswana, we understand you are in the seventh year of a ten-year contract to manage CEDA's Venture Capital Fund. What will happen to VPB once this contract is over, given the contribution the Fund has made to your overall business?

Siwawa: There's a perception that we rely solely or that we were formed for the CVCF. This, of course, was a great stepping-stone for VPB, but our business is to be a fund manager; we manage investors' funds. As it is, we are working on a regional equity fund, which we hope to launch before the middle of this year. We are also a corporate finance and advisory business. Thus as VPB, our core business is fund management as well as corporate finance and advisory.

We have a number of on-going initiatives that we will inform the public about at the right time. We also have equity investment management programmes that we are working on. The relationship with CEDA has been fantastic for VPB's growth, but it must be noted that we did not get CEDA funding; the relationship empowered us and today we are one of the leading private fund managers in the region.

Mmegi: Kindly shed light on the status or performance of the private equity/venture capital market in Botswana?

Siwawa: The equity-funding requirement on an annual basis in Botswana is about P1.5 billion and a lot of that gap is met by off shore funders. The problem is that with that gap being taken up from outside, it means locals will always have challenges getting equity capital for big projects at home.

Mmegi: What is the importance of private equity for Botswana and its economic growth aspirations?

Siwawa: Most people don't realise that on a performance basis in terms of jobs created, growth, return on investment etc, private equity or venture capital in Europe, South Africa and others, has exceeded the publicly listed companies.

The World Bank has also seen that a gap exists in private equity in growing economies such as ours.

The World Bank sees private equity as a way of getting international development capital into development projects in emerging markets, instead of providing aid to these governments. We are challenged here, but we are seeing - from the pension funds and insurance companies - a desire to participate in the industry. This should help fuel economic growth agents.

Mmegi: Please share with us, your views on the Budget the Finance Minister, Kenneth Matambo, will present next month.

Siwawa: Firstly, we should not expect any significant uplift in the economy. I expect Rre Matambo to be bearish in terms of what he will do and this will be in line with the uncertainty in the world economy coming particularly from the US. I would like to see Rre Matambo maintain the conservative status and constrain public spending. Many people don't want to hear this but if we are using our revenues on development spending, this should be focused on projects that actually measure in terms of growing the Gross Domestic Product.

I would also like to see a budget that is focused on human resource development in a strategic manner. This is one area we are lacking in.