News Without Fear or Favour
Skyscraper Left

Diversification the key to economic development: Seleke

 

THE Lesotho National Development Corporation (LNDC) has launched new business financing packages to aid the growth of locally-owned private businesses in the country.

The Lesotho Times’ (LT) Business Reporter, Bereng Mpaki, this week sat down with the LNDC’s chief executive officer (CEO), Mohato Seleke, who reflected on his two years at the helm of the corporation.

He also unpacked some of their new products to help local businesses recover from the effects of Covid-19 and boost productivity.

LT: Since you took over, the talk from key players within the business sector has been that you have successfully refocused LNDC back to its core objectives and away from the negative news. How did you manage to achieve that? 

Mr Seleke: When I came in there was no strategic plan. The last strategic plan had come to an end in December 2017. Even then, it was not being implemented. There was random activity happening at the LNDC.

Secondly, there was no executive management. Eight heads of departments, some of whom had been here for more than 20 years, had been allowed to go home.

I had to put together a new team and crafted a new strategic plan for the LNDC. Fast forward to June 2018, we were able to unveil our new direction and the way we see the future as LNDC to the public.

When you go through that strategic plan, it is about economic diversification. We have to diversify Lesotho’s industrial output and also diversify Lesotho’s destination markets. This is consistent with what the government has pronounced over many decades, that diversification of the economy is key.

And in saying that, the government has also been very consistent in that they see the biggest potential in the diversification drive in four critical sectors namely, manufacturing, agriculture/agro-processing, technology and innovation as well as mining.

Lesotho has done well in the areas of textile and garments manufacturing. It has been ranked number three or four in terms of the value and volume of exports it sends to the United States (US) under the African Growth and Opportunity Act (AGOA) where it competes with countries like Kenya and Ethiopia.

But what was lacking was making strides in other areas that are also part of the LNDC mandate like agriculture and agro-processing. This is the area that also holds a great potential to change the lives of many ordinary people around the country.

And that is one area that we chose to strongly put our efforts into. When the LNDC talks about agriculture we talk agri-business, big and serious investments. We are talking commercial viability.

The types of projects that we have been looking at tend to integrate a number of value stages.

As you would also recall, we have been in the process of restructuring the corporation. Part of that process was building a new development finance institution meant to build a number of financial products. Among them is what is called the project preparation facility.

But what is its purpose and barrier are we trying to address? Some entrepreneurs and politicians say you can’t get money from these banks because they charge so much interest. They are not telling the truth. Somebody who says that has not gotten closer to having a successful application at the bank. That is a very small part of the whole discussion.

What the banks consider is whether there is a strong business case there or not. The bank considers the credibility of the story you are putting before them from a commercial point of view of risk. The whole issue of interest and securities come last.

We need to be able to build strong business cases but it is very costly to develop a business plan that can transform an entire value stream and unlock significant amounts of jobs.

So, we had to come up with the project preparation facility to enable the private sector projects to move from stages of concept all the way to bankability. The facility is a kind of grant and not a loan. We can give a couple of millions for a transformational private sector project with no conditions.

The Project Preparation Fund is our fund where the government and the LNDC jointly contribute funds to assist businesses to prepare sound business projects.

LT: Who can qualify for the facility? 

Mr Seleke: All manner of projects. But it should be private sector projects. Secondly, it should be private sector projects that are within the priority sectors identified under the National Strategic Development Plan (NSDP II) such as manufacturing, agriculture and agro-processing, innovation and technology and creative industries.

We narrowed it down to the 77 projects identified under the economic laboratories project of the government. These are projects at different stages of development requiring certain interventions to take them to bankability.

LT: Do you have any timelines of when you are going to start giving out this project assistance? 

Mr Seleke: I think by December we will have clarity on that depending on size of the pool of projects that we will be having. But the most important thing is that the facility will be open to the private sector. It’s a grant facility, it’s not a loan. The purpose is to find and build credible private sector-led projects that have important impact on supply chains or value chains of importance to the NSDP II.

LT: How much is this project preparation facility worth? 

Mr Seleke: We have not put a file amount as yet. But I can only say it’s a few millions that we have put into it now and we expect the government to also boost the fund because we are just furthering the objectives of the government.

LT: How have you been affected by Covid-19? We see that your cash cow, the Maluti Mountain Brewery (MMB), is not really functional now because of the laws against the sale of liquor. How has that affected you and what are the mitigation measures that you are taking to deal against Covid-19?

Mr Seleke: As the LNDC we have two revenue streams. The first one is dividend income which is the income we get when our equity portfolio declares dividends. The equity portfolio of the LNDC is made up of eight companies. These are companies where we have equity holding ranging from 11 percent all the way to 74 percent. And the MMB is one of those companies in that stable.

The second revenue stream is rental income which comes from our rental portfolio made up of three property classes. We have the industrial estates that we lease to industrialists; the Tikoe facility, the Maseru industrial facility and others. We also have the commercial property class. The LNDC is actually the biggest landlord in the country.

Rental income accounts for about 44 percent of the income and about 52 percent is dividend income from the equity portfolio. Our equity portfolio accounts for more than half of our income. Among our equity portfolios is the MMB.

The risks are very significant for us. We have been hit hard by the adverse decision that has affected MMB production. But we also recognise and understand that the government had to make tough decisions to fight Coviod-19.

LT: How are you dealing with the Covid-19 threats to the viability of businesses? 

Mr Seleke: Some may say we are only interested in our income and our balance sheet. But of all the government parastatals, none has done more than the LNDC has done in terms of helping government to mitigate the impact of Covid-19.

We have given our industrialists and small business people who occupy our properties two months rental holidays. This is not a deferment of rent where they still pay later. Ours is two months of not paying any rent and this rent will never be demanded. No one else has done that.

We also announced some financial instruments to help businesses mitigate the effects of Covid and even grow.

The government is putting in M350 million for the Covid-19 partial credit guarantee scheme. The other M60 million will come from the LNDC. It brings the total value of the instruments to M410 million.

This is what is called coming to the party when the nation needs us. The instruments were launched as a means of offering financing solutions to support private sector-led industrial development and broader economic diversification, and to alleviate the effects of Covid-19 pandemic.

Leave A Reply

Your email address will not be published.