14 Aug 2024

Government has during the past four years, invested an average of P12 billion in local businesses with an annual turnover of less than P50 million.

Answering a question in Parliament on Monday, Minister of Finance, Honourable Peggy Serame said for the same period, an average of eight local businesses with less than P50 million in annual turnover had their proposals rejected by Asset Managers for funding.

She said in terms of implementing a regulatory requirement that specified a certain portion of investments to be directed towards SMEs, government had, to date, taken a decision aimed at reducing the exposure of pension assets to global markets, to support domestic economic activity.

The Minister said the new Pension Fund Investment Rule 2 (PFR2) that effected in June last year, had increased the limit on domestic investments from 30 per cent to 50 per cent, over a five-year period.

“Therefore to ensure alignment with the policy decision, the Retirement Funds Act was renewed in 2022 particularly in relation to PFR2 of 2023 which is the regulatory tool that dictates investment limits for pension funds,” she said.

She added that the rule introduced a new asset class of Infrastructure Funds with a limit of five per cent, adding so far there were two such funds licensed.

Minister Serame said the policy allowed institutional investors or pension funds to invest through asset managers up to five per cent in infrastructure developments such as roads, air, rail, communication networks and others.

She explained that an asset manager was a legal person who managed the assets for another person by way of investment or through an agreement with the person.

“Asset management firms adopt different investment strategies to invest to invest pools of money across different asset classes. They choose the right portfolio of investment which can be from fast growing risky stocks to safe but low yields sovereign bonds. The aim is to achieve the return objective of the client at a level of risk they are comfortable with,” the Minister said.

She further said capital raising was an essential function that supported start-ups and growing businesses to source funds through various financial strategies to pursue new business opportunities or grow existing enterprises thus SMEs or large corporations.

Minister Serame explained that the policy increased investment limits by institutional investors such as pension funds for local private equity funds from five to ten per cent.

“So far the Non-Bank Financial Institutions Regulatory Authority has licensed six specialised asset managers and one general asset manager that included private equity in their portfolio.

She said the potential benefits to Botswana’s economy and business development particularly for SMEs were evidenced by the increased limits under PFR2 which was already in place.

The framework, Minister Serame said allowed all asset managers to allocate part of their funds into private equity and alternative investments while the increase in investment limits enabled SMEs to grow and expand therefore contributing to the economic growth of the country at macro and micro level.

Additionally, she said the current status showed that asset managers were amongst the largest capital providers to the large corporates such as banks.

“Some of the capital raised by banks is in turn deployed to finance loans to SME businesses. In terms of PFR2 asset managers are allowed to invest, inter alia up to 100 per cent in government bonds, 70 per cent in local equity and up to 40 per cent in local listed or unlisted corporate bonds,” she added.

Parliament also heard that there was no specific policy or directive for asset managers to allocate a certain portion of investment funds to SMEs.

However, the minister indicated that government, through Local Enterprise Authority and the exchange, supported SMEs through provision of guidance and mentorship on business management and access to funding from government owned institutions such as Citizen Entrepreneurial Development Agency and National Development Bank, asset managers as well as the Botswana Stock Exchange through the Tshipidi Mentorship programme.

Kanye North MP, Mr Thapelo Letsholo had asked the minister to apprise Parliament on the role of asset management firms in supporting local businesses in terms of investment and capital raising and the potential regulatory measures being explored to stimulate SMEs growth in particular, over the past three years.

Mr Letsholo also wanted to know how much capital had asset managers invested in local businesses with an annual turnover of less than P50 million each year as well as the number of local businesses with less than 20 million annual turnover that asset managers had rejected as investment opportunities each year.

He further wanted to know if government had considered implementing a regulatory requirement specifying a certain portion of investments to be directed towards SMEs in Botswana. ENDS