On 16th July 2020, His Excellency The President of the Republic of Botswana, Dr MEK Masisi launched the Revised CEDA Guidelines in Gaborone. One of the newest aspects of the Guidelines was the introduction of special sectors to be funded in line with the country’s strategic intents. These sectors include Manufacturing, Technology and Innovation, Construction, Agriculture, Creative Industry and Tourism.
Under these Special Sectors, projects seeking funding would get a preferential interest rate of Prime Rate minus 3% (currently 5.75% – 3% equalling 2.75% for loans lower than P1 million compared to Prime rate minus 1.5%) for micro and small loans and Prime Rate Minus 1.5% (4.25%) for Medium and Large Loans (compared to Prime rate of 5.75% for all other sectors). Additional to these preferential interest rates, if the projects also fall under youth, disabled and women or are considered to promote job creation, economic diversification or are hosted at a special location, they would be considered for a discount on security requirements.
The above announcements understandably created a lot of excitement especially around the sectors of the Creative Industry and Technology and Innovation as these have previously been underserved in Botswana with regards to consideration for funding. The Technology and Innovation sectors have challenges in Botswana including limited human resource capacity and skills, market access, unfavourable procurement conditions and access to funding. The move by CEDA to include this sector in special sectors will hopefully prove a favourable addition to the operating environment of local technology companies and start-ups.
With all the above said, CEDA itself has been the first to admit that they are wading into unchartered territory as an organization and are aware they will have to develop a lot of expertise in the area for them to successfully fund and manage the projects in the sector. CEDA has therefore implored the sector to give them feedback and assistance especially in understanding the sector business models and ensuring that the funding is relevant and appropriate. It is fairly common knowledge that straightforward loans which are appropriate to fund other sectors like manufacturing and Agriculture may not be appropriate for all of the technology sector because of the peculiarity of the business models and the differing life cycle needs. For example, most innovation companies attempt to create new applications which may address a problem which isn’t already understood or appreciated (e.g. who would have known we needed apps like Twitter and Facebook for connecting or that we would want applications like LinkedIn or Uber would be so popular). Therefore, attempting to define a market for the idea or application in the traditional sense of lending may be very difficult (markets may even prove to be beyond Botswana). This therefore requires the funder to have to believe in a “dream” and therefore attempt to rather assess the project on things like quality of management.
Another peculiarity to this industry, similar to the creative sector, is that of security. Whilst CEDA has decided to take assets funded as security in other industries, these 2 sectors epitomise the knowledge economy, that is, the companies are creating intellectual property (IP) which is not traditionally used in funding. CEDA has however taken the decision that it will take the IP from the technology companies e.g. patents, applications, licences etc and use them to assist in loan applications as security. This will be another aspect that will be interesting to see in practice and CEDA will need to get closer to CIPA in order to educate the relevant stakeholders on how this could possibly work and assist companies in the space to appreciate how this would be applied.
It will therefore be interesting to see how CEDA is going to work around these peculiarities. These could be solved by potentially being creative on funding structures e.g.
1. Project initiation funding in partnership with LEA can be used to fund prototypes and proof of concepts which can then be later funded more traditionally once a market is more proven.
2. “Purchase order” type funding where a company has to fund a potential consulting job to be paid in stages etc. Whilst venture capital equity funding would be the most appropriate at the earlier stages of the company lifecycle, these could potentially be found with other funders such as Botswana Innovation Hub (BIH) with CEDA potentially funding at a later stage.
Other opportunities that exist are for companies which are in another business line, funding their digital transformation and resultant use of technology using CEDA. For example, a retailer who wants to create an e-commerce platform or application to boost online sales, a farmer who wants to use technology to boost crop production and yields. These businesses would be easier to fund as they would potentially be able to show a track record and more business model that would be enhanced by technology. This aspect in transforming the business landscape in Botswana cannot be underestimated.
In conclusion, while the initial announcement on the Revised Guidelines was met in equal measure of excitement and cynicism, the truth is the journey to find a sweet spot that appreciates the challenges but facilitates the opportunities will not be an easy one but it is a great development that the process has at least started. The responsibility now lies with the different players in the sector to stand up together and attempt to jointly find a way to move forward and learn from each other in a constructive way. It is only through these coordinated efforts that create shared value, will we be able to take advantage of the 4th Industrial Revolution in Botswana and enable Digital Transformation that will transform how Batswana companies do business and the experience and efficiencies that customers will ultimately experience.
