Expects infrastructure fund will be in the market for a while
Due to their focus on infrastructure, which is inherently long-term, pension funds’ assets repatriated to Botswana make them sticky, Tshepiso Mokgethi-Magapa, First National Bank Botswana’s Treasurer said. Mokgethi-Magapa was responding to a question recently during the bank’s results presentation.
In light of this, she believes that such circumstances present opportunities for asset managers within the money market space, typically spanning up to 12 months. The money market involves trading in very short-term debt investments, including Treasury bills and Bank of Botswana Certificates (BoBCs).
The rationale behind this phenomenon lies in the prolonged nature of tendering processes, which may result in funds remaining idle before deployment.
The market has witnessed a surge in liquidity driven by government expenditure and the inflow of pension funds’ money into the country. Botswana’s Economic and Financial Statistics for December 2023 indicate a significant influx of funds into the country, as evidenced by the decrease in the composition of offshore investments. From June 2023 to November 2023, offshore investments declined from 63.4% (P82.7 billion) to 58.5% (P78.59 billion).
As the government plans to increase borrowing from local capital markets, a significant portion of the funds are designated for infrastructure projects. Pension funds view infrastructure investments as an appealing asset class, capable of accommodating substantial investments with significant impact. Asset managers categorise infrastructure as a long-term asset that aligns well with the requirements of pension funds.
The government’s proposed development budget for the 2024/2025 financial year stands at P29.77 billion, marking a substantial increase of P8.76 billion or 41.7% compared to the approved budget for 2023/2024. A significant portion of this budget, totaling P17.0 billion, is allocated for infrastructure development, serving as a fundamental component and cornerstone for National Development Plan 12 (NDP 12). Among the projects earmarked to address these deficits are initiatives in water management, transportation, energy, information communications and technology (ICT), as well as land servicing.
Finance Minister Peggy Serame revealed that a total of 17 projects from various ministries are currently undergoing processing under Public-Private Partnership (PPP) arrangements, with three of them already at the tender stage to engage private partners, as stated by the government. These three projects are the Tshele Hills Oil Storage, Ikaegeng XTL Project, and Glen Valley Wastewater Reclamation.
Serame emphasised that once the preferred bidders are identified, the projects will proceed to the negotiation stage. Acknowledging the complexity of PPP projects, she stressed the importance of negotiations to develop contracts that are appealing to private lenders, thus facilitating funding for the projects.
“In addition to investment by private shareholders, projects delivered through PPP are largely funded by private financial institutions and retirement funds, therefore this also offers an opportunity to those that are locally based to diversify their investment portfolios,” Serame said.
A tender process is set to commence by the first quarter of the 2024/25 fiscal year for one additional project. Additionally, nine other projects are currently at various stages of feasibility studies, all slated to be completed within the same financial year.
Against the background of these processes, Mokgethi-Magapa believes, “the money will still be in the market for a very long time”. Standard Chartered Bank Economist Emmanuel Kopong has also cautioned about the under-execution of Botswana’s development budget.
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