Windhoek – Namibian authorities have put plans afloat to launch an equity fund to breathe life into the Small to medium scale enterprises that are currently financially depressed since the onset of Covid-19, 18 months ago.
Development Bank of Namibia Chief Executive Officer Martin Inkumbi this week suggested that a solution to the ongoing viability problem for the country’s industry can be found in equity finance through a national equity fund for qualifying enterprises currently experiencing headwinds, but with potential for future growth prospects.
He said advancing additional loans to borrowers, even as temporary relief measures, is not always a solution that works for all struggling businesses impacted by Covid-19.
According to Inkumbi the financial sector has deployed a raft of measures to reduce enterprise vulnerability due to Covid-19, including, repayment holidays, grace periods, additional finance for operational costs and extension of repayment periods to offset the monthly cost of interest to the enterprise.
The Namibian banker argued that the measures are only effective when the depressed economic cycle lasted for a short period of 6 to 12 months.
“In the case of a protracted depressed economic cycle that we are seeing now, these measures are proving ineffective, if not detrimental to the long term sustainability of enterprises.
“A national equity fund would add to the financing toolkit, provided the equity investments or debt to equity conversions are made on pure business and economic merit, and on the potential viability and recovery of an enterprise. This requirement is paramount, “he said.
Inkumbi said the perceived equity finance vehicle, should not be taking a permanent shareholding, but should enable the original shareholders to repurchase their shareholding as the enterprise recovers and grows, or to onboard new shareholders depending on the preferences of the existing shareholders.
Inkumbi said the arrangement should allow the national equity fund to intervene or recommend managerial and operational methods to strengthen governance and improve business growth.
However, he said, the ideal will be to allow existing enterprise shareholders the independence to manage their business and turn it around through their own business acumen, learnings and experience.
Inkumbi reiterated that the requirement will be substantial, and suggests pooling of funds in a national vehicle.
“If such a National Equity Fund is capitalized with borrowed funds, e.g. private sector bonds issued to capitalize the fund, and repaid by taxpayers over time, this will be in exchange for equity in Namibian companies that will continue to grow in value over time.
“The important and imminent benefit of a national equity fund intervention however, is saving Namibian enterprises from collapsing during the current depressed economic cycle, preserving current and future employment and sustaining economic growth,” he said.
The DBN boss said over the last 18 months, four broad categories of borrowers are notable in the portfolio including borrowers who experienced headwinds prior to the onset of Covid-19 due to the economic slowdowns.
” These borrowers had their challenges compounded by the onset of Covid-19. These challenges included stiff competition, lack of demand, unaligned operating costs and price structures and poor business management. These borrowers have generally been facing a downhill and imminent foreclosure, and it is normal and acceptable that an unviable business will close down. Only Good Business is Good for development.
“The second category consists of borrowers who were similarly challenged, but were able to service their debts, albeit remaining persistently in arrears on their repayments. The third category consists of borrowers who were successful and were able to service their debts, but were challenged by the onset of Covid-19 lockdowns, which hampered business activities and revenues, “he said.
Inkumbi who heads the country’s state owned development finance institute said most businesses in Namibia would benefit immensely from the equity fund.