However, the challenge is that the country's largest capital pools, pension funds, which had over P139 billion in assets under management (AUMs), have mostly focused on investing their nests in public markets, whether locally via BSE listed entities and bonds, or abroad. How does the country convince these funds to reroute this capital towards private capital, be it private equity, venture capital, infrastructure, etc?
This was a question that speakers and panelists at the ABSA Bank Botswana Private Equity Forum sought to answer last week. The event was graced by Vice President and Minister of Finance Ndaba Gaolathe who delivered the keynote address. In his address, Gaolathe emphasised the need for the country to mobilise domestic capital in the form of pension funds and use it to drive the country infrastructure development.
"For far too long, developing nations like Botswana have looked outward for capital financing solutions," Gaolathe said. "Yet within our own institutions lies a pool of patient capital in the form of pension funds which can be harnessed to write a different story."
The Challenges & Opportunities
In a subsequent panel discussion moderated by Botho Phiri, Absa Bank Botswana's Head of Financial Institutions Group, Thato Norman, CEO of Debswana Pension Fund which has over P12 billion in Assets Under Management (AUM), said that the main challenge baring pension funds from strongly investing in alternative and private investment solutions was that unlike traditional asset classes like listed equities and bonds, the returns are not as high.
"If you invested in listed equities, especially globally, you can have those very good returns like with unicorn investments in the tech space. These can grow your AUM and returns by as much as 100% depending on where you are invested," Norman remarked.
"On the other hand, infrastructure, by its nature, is illiquid. So when you trade infrastructure, you really struggle to find off takers."
However, Norman noted the importance of financing infrastructure projects as they contribute towards the growth of the country and also contribute towards improving the quality of life of the pensioners themselves. He mentioned DPF's role in the financing of the Gaborone Private Hospital, a first of its kind investment for a pension fund in the country.
From an economist point of view, Dr Keith Jeffries, Managing Director at Econsult Botswana, emphasised that although it is true that government is having its own cashflow challenges and that it cannot finance as many infrastructure projects as in the heydays when it was constantly running a balance of payments surplus, bringing private capital into the foray would also require an adjustment of the modus operandi.
"If we're bringing in private sector finance into these public infrastructure projects, they've got to be structured very differently, and I think that's where we're lagging because we haven't yet adjusted to the new reality," added Jeffries.
Balancing National Development With ROI
As much as infrastructure projects supported by private capital are vital for national development, at the end of the day, there has to be returns for investors. With, for example, infrastructure projects having return timelines running into the decades, how can asset managers be convinced to provide the so-called "patient capital" for a viable return?
Norman pointed to collaboration between pension funds, development financing institutions (DFIs) and other entities as key to hedging the risk that comes with backing illiquid asset classes such as infrastructure projects.
"From an infrastructure lens, if you're looking at building a significant road network, you need large amounts of infrastructure, and I think partnering with banks like Absa, other pension funds, and government, will create an enabling environment for us to deploy some of these resources to these infrastructure needs."
An Enabling Regulatory Environment Is Key
According to Dr Kelesego Mmolainyane, head of financial stability and statistics at the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), the regulator has currently licensed six private equity managers in the country.
Additionally, as of December 2024, P3 billion had been committed to private equity investments, a significant increase from the P510 million recorded in 2021. However, of the P3 billion committed, only P600 million was drawn down, representing a significant difference between capital committed and capital deployed.
"Our observation is that investment around private equity is not only set aside for pension fund but there is interest from the broader financial market including insurers and professional investors," said Mmolainyane.
Industries Ripe for Private Capital Funding
In addition to industries such as energy, healthcare and water projects, Oteng Sebonego, CEO of Thusano Capital, added that digital infrastructure projects, specifically data centers, hold a lot of opportunity for financing by private capital providers.
Because the majority of data centers in the country are in the greater Gaborone area, there is a need to build redundancy data centers and equip them with cloud technologies. According to Sebonego, it is these kind of projects which are ripe for private capital financing.
"There's also an opportunity where you could expand your grid to the south west of the country and build hyper scale data centers, potentially using solar energy, which is obviously quite a big deal, because there's a lot of concerns around energy consumption of data centers," said Sebonego.
Other industries mentioned by Sebonego include battery storage systems and transport and logistics infrastructure including cross border bridges.
Going forward
The importance of private and alternative capital funding in supporting infrastructure development cannot be overstated enough. As Tebogo Giddie, Absa Bank Botswana's Corporate Director put it, the areas to address are the legal framework around private capital financing as well as government allowing the private sector to participate in some infrastructure projects.
Furthermore, as reiterated by Absa Bank Botswana managing director Keabetswe Pheko-Moshagane, banks act as a lever, connecting pension funds to a pipeline of viable infrastructure projects which they can embark on.
There is also a need to derisk infrastructure projects to a point where they become attractive for private investors, a point which was emphasised by Sebonego. Partnerships with more experienced players are also necessary to ensure success of ambitious infrastructure projects, a point which was drilled down by Norman.
Image source: The Executive Botswana