LOC to the National Development Bank (NDB)


Overview

  • Reference: P-BW-HAA-001
  • Approval date: 08/10/2004
  • Start date: 12/10/2005
  • Appraisal Date: 10/06/2004
  • Status: OngoingOnGo
  • Implementing Agency: NATIONAL DEVELOPMENT BANK
  • Location: GABORONE- BOTSWANA

Description

The project involves the extension of a long-term Line of Credit (LTLOC) of Yen5.5 billion to the National Development Bank of Botswana with a Technical Assistance component for capacity building. NDB will on-lend part of the funds to its corporate clients and enterprises in the various sectors of the economy, including but not limited to: the Manufacturing; Industrial; Commercial & Services Sectors; Mining; Water, Power and Telecommunications Infrastructure Sectors; Agriculture & Agro-Business; Real Estate Development Enterprises; Construction; Tourism; Etc. The LOC will be used to provide long-term project finance, and to finance replacement equipment and machinery, which would be used to increase the productive capacities, export potentials and import substitution of the sub-borrowers. The LOC may also be used, where applicable, to finance the rehabilitation, renovation, expansion and re-capitalization of the balance sheet of recently privatised companies, so as to, inter alia, increase the productive capacity utilization of those enterprises.

Through this direct LOC to NDB, OPSD supports inter-alia expansion of water supply infrastructure and services as well as the rehabilitation and upgrade of power generating and distribution infrastructures in Botswana, by facilitating access to Bank non-sovereign guaranteed financing to the Water Utilities Corporation (WUC) and Botswana Power Corporation (BPC) respectively. Under the proposed financing structure, NDB would bear the credit risk of WUC and BPC, while the Bank bears the credit risk of NDB. The structure was discussed with the parties concerned and the Ministry of Finance. In the words of the Finance Ministry Officials, all stakeholders would benefit under this financing structure. Consequently, the Board of Director of NDB adopted a Resolution mandating the CEO to take all necessary steps to successfully conclude the proposed LOC with the ADB.


Objectives

The first component involves the extension of a long-term LOC of Yen5.5 billion to the National Development Bank (NDB) of Botswana. NDB will on-lend part of the funds to its private sector corporate clients and enterprises in the various sectors of the economy, including but not limited to: the Manufacturing; Industrial; Commercial & Services Sectors; Mining; Agriculture & Agro-Business; Real Estate Development Enterprises; Construction; Telecommunications; Tourism; Etc. The LOC will be used to provide long-term project finance, and to finance the importation of capital/replacement equipment and machinery, which would be used to increase the productive capacities, export potentials and import substitution activities of the sub-borrowers. The loan may also be used by the Borrower to finance the re-capitalization of the balance sheet of recently privatised companies, rehabilitation and renovation, so as to, inter alia, improve the productive capacity utilization of those enterprises. Part of the LOC would be extended to entities and enterprises responsible for the provision of water supply infrastructure and services in the urban areas, municipalities and villages in the country. Projects under consideration/implementation include, but are not limited to, the expansion of the Francis town water supply infrastructure; installation of pre-paid water meters in Gaborone , drilling of boreholes for sell/rehabilitation of existing boreholes and the construction/installation of more potable water treatment and distribution facilities. Part of the funds would also be extended to an entity responsible for the provision and rehabilitation of power generation and distribution facilities in the cities, municipalities and rural areas of Botswana.


Rationale

The project concept is sound. The project will support the National Development Plans of the Government of Botswana. NDB is a well-managed self-financed DFI whose activities are conservatively financed with gearings much lower than other local and international financial institutions. The financial strength and prudence are further demonstrated by the high asset quality, low cost to income ratio, and substantial retained income. NDB's credit evaluation guidelines, management policies and procedures have led to the maintenance of a well-managed loan portfolio with very low non-performing that are adequately covered by collaterals and loan loss provisions.


Benefits

(a)Economic benefits: Economic benefits likely to accrue from the sub-projects to be financed by NDB include but are not limited to: (a) An estimated 3,000-3,800 new employment in the water, and power infrastructure expansion and rehabilitation servicessectors, construction, transportation, mining and agro/food processing industries; (b) numerous job opportunities in the associated informal sectors in both rural and urban areas of Botswana; (c) An estimated P70million in foreign exchange savings from import substitution enterprises; and (d) Transfer of technology from foreign/joint venture enterprises, development of local entrepreneurship and technical skills; (e) It is very likely that some of the sub-projects, for example, those in the agro-business, agro-processing and construction industries, will use local raw materials produced in the rural areas and in the process, contribute to the reduction of poverty; (f) The sub-projects will generate government revenues in the form of value-added tax, income and corporation tax.

(b) Development Impact: Citizen Economic Empowerment (CEE) is one of the major goals of the NDP9. The sub-projects that will benefit from ADB LOC operate mainly in the local markets. For example, In the commerce/services industry, sub-sector projects would include 'primary, secondary and tertiary schools; retail businesses; construction services; business/professional services; medical services; motor vehicle repairs and maintenance services; laundry and dry cleaning; hotels, lodges and catering. In the industrial/manufacturing sector: the projects would include -industrial plants and equipments, manufacturing of industrial and domestic furniture, textiles, steel, leather, paper products, to mention a few. Under this facility, the loans from NDB to these enterprises would include, working capital, machinery and equipment, furniture & fixtures, motor vehicles, building construction & refurbishment. As shown in table 3 more than 84% of all disbursements in 2003 were made to citizen owned companies and enterprises. The LOC will enable NDB to increase its development role and impact in Botswana through the empowerment of the citizens. The sub-projects that will benefit from the proposed ADB LOC to NDB will contribute towards raising the rate of GDP growth, reduce the rate of unemployment, increase exports and import substitution.

(iv)

(c) Impact on Poverty: The impact of the LOC in reducing poverty in the country is expected to be direct. For example, the activities in the agriculture sector are predominantly undertaken in rural areas. These include the financing of: Livestock Breeding & Production, Crop Farming, Horticulture, Agricultural Machinery, Equipment & Inputs, Water Development & Distribution, Borehole Drilling Equipment, Water reticulation, Purchase of already developed Boreholes, Farm Development & Security Systems, Purchase of Farms & Ranches, Kraals, Farm Houses, Farm Machinery & Equipment, Farm Produce Storage & Transportation Facilities, all of which benefit from the 'Botswana Agricultural Credit Guarantee Scheme'. Therefore, the agricultural facilities from the proposed LOC will have positive impact on reducing poverty and contributing to sustainability of food production and conservation in the country from livestock and crop production. The other products like beef and leather products have the potential for foreign exchange earnings therefore contributing to the development of the economy.

(d) Catalytic Role: By recognising the status of NDB as a public sector DFI and providing it with a commercially and competitively priced LOC the Bank is playing a catalytic role in lending to public sector DFIs without the usual sovereign guarantee. This will encourage other such institutions in the sub-region and indeed, in the rest of the continent, to develop strong balance sheet and profitability tract record in readiness for benefiting from Bank non-sovereign backed LOC. Bank endorsement of the credit worthiness of NDB symbolised by the proposed LOC, will provide more visibility to NDB and strengthen its capability to raise funds from other sister institutions and subsequently, the international capital markets at more competitive rates than otherwise.


Key contacts

ANSAH Dennis - OPSD4


Costs

Finance source Amount
ADBJPY 34,611,004
DeltaJPY 54
TotalJPY 34,610,950