DBN defends disbursements to large corporations

By By Francis Mukuzunga
May 2010
Other Articles
THE Development Bank of Namibia’s vision of equipping Namibia’s Small and Medium Enterprises (SME’s) recently came under scrutiny with queries over its sincerity after over N$70 million (76 percent) of the N$92million disbursed in the first quarter of 2010 went to parastatals and private companies that are already doing well.

In total, SMEs got less than one million dollars each, depending on the type of project being undertaken, whereas Air Namibia got N$40 million and other established entities such as the International University of Management (IUM) and Tungeni Investments, got N$20 million and N$10 million, respectively.

But the Bank says its decisions are justifiable as it had met all its requirements according to its mandate.

Air Namibia, already has an N$80 million allocation in the 2010/11 National Budget, announced in March this year.

According to DBN’s Manager for Corporate Communications, Joy Sasman, the Bank’s intervention to Air Namibia was only temporary, as the Government and Air Namibia are working on an appropriate long term funding option.

DBN says the airline contributes to Namibia’s gross domestic product (GDP) through the value addition made by visitors brought into the country.

“The airline approached DBN and two commercial banks for temporary facilities secured by government guarantees. DBN provided a short term loan of N$ 40 million while the remainder of the funds were sourced from the commercial banks,” she says.

On 20 April 2010, the Bank announced that it approved 36 projects to the value of N$92.85 million between December 2009 and March 2010. According to the Bank, not all loans approved were disbursed, as clients do not always take up approved facilities, for a number of reasons.

“Some of these may include changes in shareholding and changing market conditions at the time of disbursement, which can lead to projects being postponed or called off all-together,” the bank notes.
The Bank says it helps emerging entrepreneurs to meet short-term cash flow demands and excludes financing for capital items that, through its Bridging Finance Facility - the facility predominantly used by SMEs.

The absorptive capacity of SMEs by virtue of their character, smaller than that of a larger entity like parastatals (or State-Owned Enterprises - SOEs). The Bank further alludes that an SOE or local authority may, for example, require N$ 50 million for large scale infrastructure development, while an SME’s capital requirements may be set at N$ 1 million. This means that over time, and as they grow, SMEs do access DBN’s other product offerings that provide larger loans, like the Enterprise Development Facility (EDF).

The Bank further explains: “It is important to note that, while the value of SME loans approved by DBN is lower than that of larger loans, the volume of SME loans is higher. This should, however, not be viewed as a statement on the sector’s contribution to development.”“The Bank may apply N$ 50 million to assist 50 SMEs, which may each employ up to ten people while it may, conversely, finance a local authority to the tune of N$ 50 million to develop much-needed energy or water infrastructure in a community. Both sectors’

contribution to development is important and the Bank has a role to play in each of their advancement.”
In addition, Sasman says the DBN’s SME facilities range between N$ 150 000 and N$ 3 million.

The DBN explained this by saying that its Bridging Finance Facility for SMEs provides funding to help entrepreneurs meet tender or contractual obligations.

“The facility helps emerging entrepreneurs meet short-term cash flow demands and excludes financing for capital items.

Typically, contractors apply for guarantees and working capital in their submissions to the Bank. Most contract vendors ask for between seven and ten per cent of the total tender amount and this is what DBN generally funds,” says the bank.

Sasman adds that the medium term finance for SMEs is being advanced through the DBN’s partnership with Bank Windhoek and FNB Namibia.

With regard to the volume of projects financed, the DBN approved 197 transactions amounting to N$ 1,438.79 million between 2004 and 2009. The bulk of the transactions over the five year period were in the SME sector as illustrated below: (graph)

Total transactions approved

Facility No. of transactions Percentage
Corporate Sector 60 30%
SME Sector 120 61%
Public Sector 17 9%

The DBN Chief Operations Officer Gotlieb Hinda noted that the Bank was out there to look for investment projects that bring development to the country.

Hinda adds that the Bank has a target to grow its loan book to the value of N$1 billion by the end of 2010.

“With the approval of each loan, and subsequent disbursements, we are able to move closer to realizing this target. The projects we finance create jobs and develop infrastructure for Namibia. For this reason, we believe that good business is good for development. Namibia is a growing economy and our efforts are geared to contributing to this growth and improve the citizens’ quality of life in the process,” Hinda adds.

The DBN provided a loan of N$20 million to the International University of Management for the construction of its new campus in Dorado Park. This, the Bank argues, will increase IUM’s student intake and contribute to the growth of Namibia’s education sector.

It is expected that temporary jobs will be created during the construction phase, while the university is expected to produce qualified graduates who will spearhead the growth of the economy.
DBN believes that education is a prerequisite for meaningful advancement, and that it requires participation by civil society and government alike.

Apart from the allocation for IUM, eyebrows were raised over the N$10 million loan that went to Tungeni Africa Investments.

The Bank however, clarified how the decisions to fund the projects were made:

“The DBN follows an appraisal process designed to objectively identify the viability of each application, as the Bank is financed from the Treasury and accountable to tax payers in Namibia. The criteria used in the appraisal process include consideration of a project’s financial, managerial and technical soundness as well as the environmental and social impacts.”

Tungeni Africa Investment was awarded two lease agreements by Namibia Wildlife Resorts in 2008. The first lease agreement is for the upgrading and managing of the West Coast Recreational Areas; Mile 72, Mile 108 and Jakkalsputz, for a period of seven years, and the second lease agreement at Von Bach Dam Resort for a period of 50 years, which consists of two phases. Phase 1 entails the upgrading of the existing bungalows and construction of a new restaurant to be outsourced, and Phase 2 for the development of the lifestyle village.

DBN’s funding will be used for infrastructure development through the upgrade of the resorts and enable Tungeni to pay outstanding concession fees to NWR.

“Tungeni’s presence will enhance the country’s tourism offering, attract foreign tourists and contribute to the socio-economic development of the country.

The tourism sector is vital to Namibia with tremendous income potential for the economy. The project presents infrastructure development in a key economic sector, the tourism sector, which is a growth sector in Namibia,” says Sasman.

Questions have also been raised on the acquisition of 48% shareholding by BEE company Kumwe Investments Holdings in Witvlei Tannery, currently 100% owned by an Italian national- Meneguzzo Armando, who is expected to benefit from the proceeds of the sale of shares once the N$6.4 million deal has been signed.

DBN argues that the transaction falls in line with its mandate as Ciara Investments (the holding company for Witvlei) is a Namibian registered company, created to take over the tannery in the Omaheke Region.

In its announcement, the bank also mentions Pro Building Construction (N$2.46 million) and Vonke Electrical (N$1.9 million) as some of the newest projects that it financed in its quest to “create jobs and develop infrastructure for Namibia”.
“Pro Building Construction was granted permission by the Ministry of Regional and Local Government and Housing Development to establish a new township in Okahandja Extension 6. The DBN loan will be used to purchase machinery and equipment, and for working capital and a 10 percent performance guarantee,” says the Bank.

Vonke Electrical Services, a company that was awarded a five-month rural electrification tender by the Ministry of Mines and Energy to construct and rehabilitate low voltage networks in the Caprivi Region would use the loan for working capital as well a 10 percent performance guarantee.

Other investments worth noting, DBN says, include Ondero Investment Holdings, Kazo Farming and Aluminium & Glass Suppliers CC.

Ondero Investment Holdings secured a 10 year franchise agreement to operate Panarotti’s restaurant in Windhoek as from 1 September 2009. The N$3 million DBN funding was used for renovations, to purchase equipment and stock, and for working capital, the Bank says.

“Kazo Farming (that got N$3.35 million) is an independent cattle and small stock farmer and livestock trader that provide premium preserved beef products directly to consumers. Kazo Farming has concluded agreements with local retail outlets to supply processed meat on a weekly basis.

The DBN loan was used to purchase a building, machinery and equipment.”

Aluminium and Glass Suppliers CC (AGS) operates as a manufacturer and supplier of finished aluminium and glass products. AGS specialises in standard and non-standard aluminium and glass products ranging from windows to doors as well as subcontracting on large building and house contracts.

“The business is 100% owned by a woman. The business experienced an increase in the demand for its products and will use the N$2.9 million loan to purchase additional machinery to cater for the increased demand and in an effort to expand the business,” the Bank says.

Meanwhile, DBN’s plans to acquire a yet undisclosed stake in the new Ohorongo Cement facility currently under construction in Otavi are still on course. Hinda said the Bank will go ahead in acquiring a shareholding in the German-based Schwenk Group once current negotiations on its involvement are finalized.

“Negotiations (with Ohorongo) are still in progress. A formal announcement with the details of the agreement will be made in due course,” the Bank says.

However, a locally based cement manufacturing company Cheetah Cement has cried foul saying the DBN chose to invest in a foreign company than a local one for its development projects. In its response, DBN says it had already made a commitment on the Ohorongo project and viewed the Cheetah Cement project as a “conflict of interest”.

Asked whether DBN still held its view against investing in locally-owned Cheetah Cement, Sasman says, “All applications are considered on the basis of the opportunities and risks in respect of management, market, technological, social, environmental and financial viability including overall risk exposure in terms of a single entity, sector and region.”

The Cheetah Cement project, envisaged for construction at a site near Otjiwarongo, has been on the cards since 2008 and the developers have been trying to woo potential investors for the multi-million development without much success.PF