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AfDB supports Botswana’s economic diversification programme
In a bid to help Botswana diversify its economy, the Board of Directors of the African Development Bank has approved a 850-million Pula (US $76.2-million) line of credit (LOC) to Botswana Development Corporation (BDC) to be invested in key sectors with a view to ultimately help diversify the country’s economic base.
The government will provide a sovereign guarantee to the facility to finance BDC’s investment pipeline in key sectors such as agri-business, clean energy, services, infrastructure and manufacturing. The LOC will be complemented by a grant to strengthen the BDC’s implementation capacity, effectiveness and deliver institution’s implementation skills.
Established in 1970 as a limited liability company with the Government of Botswana as the sole shareholder, BDC’s remit is to promote and facilitate the development of industrial, commercial and agricultural enterprises within the framework of the government’s plan for economic development. It has emerged as one of the country’s big investors with investment assets of over 2 billion Pula in key non-mining sectors of the economy.
As part of its strategy, the corporation aims to diversify its funding mix and reduce its reliance on shareholder and short-term revolving credit lines financing while increasing longer term funding from borrowings. This will also help the company to address its funding maturity mismatch challenges and align its on-lending terms with the needs of the target sectors and clients. The LOC will provide scarce and competitively priced long-term funding to enable BDC to meet its growth and financing needs and complement efforts to mobilize resources from other sources.
Botswana’s economic base is narrow, dominated by mining and the public sectors. The country’s real GDP grew on average by 6.6% during 2010-2014. In 2014, growth slowed down to 3.2% and further to 1.2% in 2015 due to weak demand for diamonds as well as electricity and water shortages. The downturn in the global diamond market and its impact on the economy prompted the Government to adopt the Economic Stimulus Programme (ESP) as a strategy to boost growth, promote economic diversification, and create jobs.
In line with the government’s ambitions, the LOC will support entrepreneurship, economic diversification and avail scarce long-term funding to critical sectors in Botswana as well as enable jobs and wealth creation and tax-revenue generation.
In approving the support, the Board noted that Botswana is at a critical development juncture given its vulnerability to external shocks due to its reliance on diamonds resources that are liable to depletion in the medium term. Therefore, there is a need to accelerate economic transformation from the primary sector to advanced manufacturing and services, which in turn, requires significant appropriate long-term financing whose availability is limited in the market, according to papers presented to the Board.
The LOC is fully aligned with the Bank’s strategic priorities for Botswana such as promoting private-sector development and contributing to economic diversification by facilitating access to finance for private sector projects. It is in line with the High Five priorities such as industrializing, feeding, lighting and powering Africa. It is also consistent with Botswana’s 10th national development plan objectives and its financial sector development strategy in Africa.