Dawn breaks after the storm at BDC
Mbongeni Mguni | Friday December 16, 2016 15:34
Times have been tough at the Botswana Development Corporation (BDC). In recent years, the corporation hit the headlines for all the wrong reasons, with Parliamentary probes, management shake-ups, disastrous investments and the associated loss of millions of pula.
With its coffers taking a beating and financiers raising the cost of providing support, the BDC’s public image was in tatters, the spectacular failure of the Fengyue Glass Manufacturing project clouding any previous successes the corporation had.
The image of imprudent investment decisions, financial misrule and corporate misgovernance was seared into many observers’ minds and remains even today, when the BDC has completed a remarkable turnaround, doubling its profits, easing its debt burden, building up healthy reserves and fortifying its investment principles.
Bashi Gaetsaloe, the corporate dynamo who since April 2014 has been charged with turning the BDC around as its managing director, found this out earlier this year, when legislators rejected a request to guarantee P1 billion in bonds for investment.
At least P850 million of the funding was to be raised through a line of credit from the African Development Bank (AfDB), which since August, has been waiting like the BDC, to hear a final word on the guarantee.
“How do I get back and answer to members of the public that I approved another big transaction on an organisation whose success story has not been avowed,” Tati East legislator, Samson Moyo Guma said in rejecting the request for a guarantee in August.
“As a legislator, I have taken an oath, am I doing myself justice? The answer is no.
“Where is the success story? We have had a long debate about failed projects, the glass one is an example.” On that day, Finance Minister, Kenneth Matambo left without his guarantee and Gaetsaloe would appear before a famously unyielding Parliamentary committee charged with probing the BDC’s latest request for funding.
Unlike his predecessors, Gaetsaloe was confident going before the committee. Despite the prevailing perceptions, the BDC has turned the corner from its troubles and for the financial year ended June 30, posted a 104% jump in pre-tax profits to P224 million. Assets in the group rose six percent to P4.4 billion, with investments during the year of P588 million generating 830 new jobs across various sectors.
One of those investments is clearly a source of pride for Gaetsaloe and in terms of success and impact, the exact opposite of the failed glass project. Pasdec, an automotive components manufacturer, was the spring in Gaetsaloe’s step as he walked to the Parliamentary enquiry. The Malaysian firm has established in Lobatse and is exporting 100% of its products to notable automakers such as Nissan and Volkswagen in South Africa.
“This is one of those investments that prove you can set up shop in Botswana and export 100% of what you are producing,” Gaetsaloe says. “Pasdec is one of the flagship investments and it is very exciting. It will create up to 500 jobs alone, but they are targeting 800.
“People take job creation very lightly, but creating even one job means there must be a strong, viable, competitive business behind that.
“It’s not like colleting firewood.”
The BDC’s turnaround, guided by a five-year strategy, has been underpinned by a focus on profits and impact, restructuring of investments including divestments, organisational restructuring and enhancement of risk assessment capabilities.
“In 2014, we were in Phase I of our journey and it was about fixing the business and getting ourselves back on track, reversing the loss making position,” he says. “Phase II last year, was about capacity building and getting the right skills as well as raising long-term funding. “We are going from there to preparing the business to grow and we expect accelerated growth in the next year, both profitability and the impact in the market. “We will be investing in sustainable and viable business.” The MD is confident the turnaround and the opportunity legislators have had to be briefed about the BDC will produce the guarantee in the current sitting of the august House.
He speaks frankly about the disappointment of not securing the guarantee in August, without which the BDC will not be able to access the AfDB credit at discount rates.
“It has been disappointing because it has not come as quickly as we wanted, but at least Parliament has asked for more information and we have been in dialogue. “They have asked what we do and asked for understanding, which is a welcome development. They wanted to know more, how we operate, how we fund projects, how we mitigate risk and we have been having this dialogue.
“That line of credit lowers our cost of funding and that can only benefit the economy and its people. You take the cheap money and put it into sectors such as agriculture.
“If we don’t get the guarantee, we still tap into the credit, but at more expensive rates. The only people who lose out here are the people coming asking us for funding. “I’m confident that legislators will see the value in it for the BDC and Batswana.”
The AfDB credit is part of the funding for a pipeline of projects the BDC plans to put equity into, in the coming years, under its strategy. For its current financial year, which started on July 1, the corporation plans to invest P800 million in several projects.
Gaetsaloe says funding will come from a draw down on the corporation’s existing P1 billion bond programme, as well as bank debt and the BDC’s own reserves, a position previously inconceivable when the organisation was making losses of P220 million.
The corporation plans to pump P4.5 billion into several new projects in coming years, creating 3,500 direct and indirect jobs. Targeted sectors include infrastructure and industrial property (P1.5bn), emerging and key industries (P975m), other services (P730m), financial services (P420m), education (P248m) and agri-processing (P180m).
Newly healthy, Gaetsaloe’s next frontier is debuting the BDC’s capital in Africa via an equity investment. “We will do this in the next year,” he says.
“It’s important to diversify geographically and we believe it’s the right thing to do.
“Africa is our home and we believe it will rise and fall as a single continent. You cannot have conflict residing next to prosperity and we must be looking at playing in our own backyard.” While opportunities have been scouted in Nigeria, Ghana, Kenya and the SADC region, it is possible the BDC’s pioneering African investment could be in Rwanda.
“We have had interest there and we have put eyes and feet down there. There are good things happening there and the ease of doing business is very good, as well as the ability to repatriate profits and property rights.”
From the darkness of previous years, the BDC appears ready to once again glow.