As many young people have taken advantage of opportunities presented by the new Citizen Entrepreneurial Development Agency (CEDA) Lending Guidelines, Chief Executive Officer Thabo Thamane says more still need to be done Mmegi Staff Writers OARABILE MOSIKARE & PAULINE DIKUELO recently caught up with the CEO to discuss the funding of businesses in Botswana under the new guidelines. At least 4, 500 business projects have been funded since the revised CEDA Lending Guidelines and Requirements launched in July 2020.
Mmegi: CEDA recently launched its revised guidelines and is also administering part of the Industry Support Facility for small businesses. To what extent do you reckon these measures will sustain existing businesses and create new diversified sectors of the economy?
Thamane: We launched the revised guidelines some time last year in winter and after that, we had the institution administer the ISF (Industry Support Facility). Let me start with the guidelines.
The reason why we reviewed the guidelines was because of many factors and the first factor was one; we listened to Batswana saying there were some obstacles in our guidelines, especially around young people and the issue of inclusivity or lack of it.
The second thing is that we looked at all other places, especially within the government enclave at our Ministry of Investment, Trade and Industry looking at policies that were geared towards creating an enabling environment for business.
We looked at the National Development Plan (NDP) 11, Vision 2036 and all these documents, amongst others and did the manufacturing study, which revealed that we were a net importer of everything that you see in Botswana on the manufacturing aspect.
The review of the guidelines does not necessarily mean we will compromise their bids because what we are seeing now is that people come up with substandard projects, and when you tell them that this does not make sense they say “it was said since there are new guidelines it is easier to qualify”.
The guidelines are basically saying there shouldn’t be any impediments that will discourage Motswana from being assisted. We are very clear in our guidelines that manufacturing, innovation, construction, agriculture, tourism, energy and creative industry will drive the economy forward.
If you look at these seven sectors I have mentioned, you will realise that most of our citizens were spectators. They found it very difficult to penetrate, so we then said let us identify these sectors.
The Industry Support Fund is the support fund introduced by the government and commissioned by the Ministry of Investment, Trade and Industry as part of the Economic Recovery and Transformation Plan (ERTP).
We as CEDA are administering the small and medium part of it. Under this particular Industry Support Fund, we are looking at those businesses that have a turnover that is up to the maximum of P10 million.
And we can only lend them a maximum of 10% of their turnover. We have been allocated P300 million that will be disbursed in trenches of P100 million. Under the new guidelines since we launched them, we have funded P200 million worth of projects.
That is about 4, 500 projects worth P200 million under the new guidelines. That is a very interesting update and interest of people under the new guidelines.
But of course, I need to caution my fellow citizens that we are also seeing another strange development. A lot of businesses are being sold all over. All I can say is that they must do their due diligence as to why those businesses are being sold so that they are not sold empty shells.
When we advise them to do the due diligence they get agitated and say they are losing opportunities.
I am just cautioning my fellow citizens that when you get into these agreements of buying existing businesses make sure you do your due diligence and that due diligence naturally makes sense that you do it yourself, not the seller doing the due diligence of the business being sold.
Mmegi: You have previously said that funding is not the principal challenge affecting small or citizen-owned businesses. Where do the problems lie and what are the solutions?
Thamane: The reason why I said that and I said it many times, on average every year, as an institution we fund close to more than P400 million worth of projects.
The National Development Bank (NDB) does the same, Botswana Development Corporation (BDC) does the same, commercial banks do the same, other intermediaries available and other players also do the same. So effectively, we look at the business debt in Botswana. Can you say the problem is access to funds? It can’t be. That is why I am saying the funds are there in different establishments but the biggest problem is that a lot of applicants fail to submit convincing business plans. That is the problem. Their business plans are rashly done and some of them are done by consultants and the applicant has no idea what is in there and when you ask them to come and substantiate what is here they cannot.
So that is the single biggest problem of business plans submitted. T the lender must have comfort that they will be able to pay and it must not be on social emotions. More often than not when people appear the first question they amplify is that their business is going to create jobs, the government says we must create jobs.
That is what they do. Yes, we know that but at the end of the day, first and foremost the business must be able to pay its loan. So these
They have the same problem. I have asked colleagues across the region because I am a chairperson of the Association of African Development Finance Institutions (AADFI), and they say that is the challenge they have because these are government programmes, people then come to us with the mindset that this is government funds so, ‘I must get it’.
That is the problem because the entitlement is there. I always tell people that your business plan must talk for itself.
When your business plan is before us even if you are not there, it should talk to us. Some of our applicants want their business plans to be defended by other structures and we will not allow that. Some of the applicants do not invest the effort, time and energy in their business plans.
Mmegi: How do define CEDA’s survival rate and what is its survival rate at the moment?
Thamane: First and foremost you must know how we calculate the survival rate. The way we calculate the survival rate involves looking at the propensity of a startup to survive in the next three years; that is the number of businesses that we funded and have survived beyond three years over the total number of businesses funded. And our survival rate does not necessarily say if you are in arrears, it only means you are not surviving. It also includes those businesses that are struggling to pay but are cooperating and employing people. We as CEDA our business survival rate is 72%.
Mmegi: In the coronavirus (COVID-19) era, which pandemic has impacted the business environment, how can CEDA help survivability of beneficiaries and also ensure that only those that can survive are funded?
Thamane: COVID-19 has affected business and we have not been spared as an institution. COVID-19 has without a doubt adversely impacted the majority of our portfolio and this has required us to re-evaluate the funding terms and conditions that our clients were initially funded under and we have provided rescheduling of loans, revised payment terms as well as repayment windows for some projects that were still in the implementation stage of the business. I think this year it is going to be worse, looking at the COVID-19 positive cases.
Mmegi: How much capital has the government, as the shareholders, extended to CEDA to undertake the revised guidelines? Alternatively, how much capital will CEDA require to fund the revised guidelines in the first and subsequent financial years?
Thamane: Government did not give us any money to implement the guidelines. Never! We have been running a tight business model. We run this model on the strict basis that we cannot approve any project if we don’t have money for that project. We never have liquidity mismatch. Government has only given us money for the Industry Support Fund.
Mmegi: What level of interest are you seeing in applications that support the priority sectors outlined by both the revised guidelines and government’s ERTP? Are applicants showing more interest in these priority sectors or are they still seeking out the old sectors?
Thamane:There is currently an observation of slow uptake that could be associated with the slowing down of business for most industries.
The launch of the revised guidelines during the COVID-19 pandemic was a deliberate action to stimulate all Batswana to become active participants in the diversification and strengthening of our economy within the ‘new normal’. Additionally, the ISF product also being relatively new, current activities have mostly been on enquiries and it is expected that submission will increase in time. The performance of the facility was reported as of January 10, 2021. The agency has received 52 applications valued at P18 million comprising five manufacturing projects and 47 service projects. Out of the 52 applications received, nine applications valued at P3.5 million have been closed due to non-compliance to the facility lending criteria, 22 applications valued at P6.8 million have been approved while 21 applications valued at P8 million are still in process. There were no rejected applications during the reporting period.
Mmegi: You are also on record as saying the youth should not merely believe their youthfulness is the only ingredient to succeed in businesses. Please elaborate on this statement.
Thamane: Youth is not a panacea for success. They (the youth) have had special opportunities to explore these challenges and their solutions for them to be the implementers of these solutions.
What this country needs is a strong pool of thinkers and do-ers; the type of individuals who thrive to develop and instil a sense of pride, hard work and determination when it comes to growing industries. Government has implemented a lot of initiatives to bring up the youth. Many young people have taken advantage of these opportunities, but it is still not enough. We all need to do more.