Millions in COVID-19 support for businesses lie unused
Millions of pula made available by government under the P1.3 billion Industry Support Facility and the P1 billion credit guarantee scheme for businesses are lying idle, with CEDA reporting that just P30 million of the P300 million it was allocated last November has been disbursed.
The Citizen Entrepreneurial Development Agency (CEDA), one of the key entities engaged by government to roll-out the P1.3 billion Industry Support Facility (ISF), is disturbed by the low uptake of the funds it is administering.
After spending billions of pula in various interventions to help the economy absorb the shock of the COVID-19 pandemic shocks last year, in early November, government shifted its attention to existing businesses through the ISF.
At that point, the previous interventions, which included wage subsidies, tax deferrals and others, had cost about P4 billion and provided blanket coverage. The ISF was specifically aimed at existing businesses, to provide them with working capital of business and make sure they stay in business.
“The idea is that the economy should not start from ground zero when a vaccine is found. Rather, the businesses should be kept in business,” said then Finance Minister, Thapelo Matsheka.
Under the ISF, the informal sector was due to be allocated P100 million to be disbursed through individual grants of P1,000 for all those registered with the Local Enterprise Authority (LEA).
Through the arrangement, agriculture was allocated P100 million to be administered by the National Development Bank (NDB) while CEDA would manage P300 million for small businesses. The NDB would also manage P300 million for general businesses and P200 million for tourism enterprises, while the Botswana Development Corporation (BDC) would administer P300 million for large enterprises.
Mmegi is informed that government took a decision to pay out the funds to the difference agencies in tranches of P100 million. The agencies are required to exhaust the first tranche, then give notice of the need for the next P100 million.
CEDA executives recently reported that just P30 million of the original P100 million allocation had been disbursed since the ISF’s establishment in November.
“There has been a lower than expected uptake of the ISF and it is quite low,” CEDA CEO, Thabo Thamane told a recent parliamentary committee hearing.
“The issue is that the eligibility for the ISF at CEDA is for businesses with a turnover of only P10 million. 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,” he said.
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 are concerned that they fund and help businesses 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.”
Thamane said CEDA has engaged with government on the challenges around accessing the ISF. The agency is also recommending a review of the tax regime to ensure that micro-enterprises are able to access the ISF.
Mmegi has learnt that similar challenges with access are facing the BDC and NDB. LEA, however, is reportedly enjoying success with its P100 million disbursement for the informal sector due to the low thresholds for access.
The division of economic sectors amongst the agencies is also reportedly not contributing to 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 other agencies for assistance under the ISF.
“They have to start from ground zero, doing Know Your Customer and others,” Thamane told Mmegi yesterday.
“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.” The CEO said CEDA’s belief was that in times of crisis, interventions should be relaxed to ensure greatest benefit to the beneficiaries being targeted.
Meanwhile, the P1 billion credit guarantee scheme anchored by government and provided through the Botswana Export Credit Insurance (BECI), is also reportedly struggling to pull in numbers. Launched in June last year, 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 this year, 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 this week.