COMMENDABLY, public sector funding was allocated in this year’s national budget for on-lending and to help in other ways wannabe entrepreneurs, through existing development finance institutions (DFIs) such as the Development Bank of Namibia (DBN), and by creating new government-backed institutions.
The government’s aim is to help those with an idea to secure funding for capital needs, and help in other ways to turn that idea into a business reality.
DFIs are created by a country’s government to invest in private sector projects, or to provide funding to entrepreneurs who find it challenging to borrow through traditional lending channels. As the DFIs’ working capital is provided by taxpayers, not by shareholders wanting a return on their investment, an investment safeguard and investor protection, the focus is usually on job creation and sustainable economic growth.
Using public funds, DFIs then help those with a viable and sustainable idea, those yearning to go into business but unable to access a loan in a security or collateral-based banking environment, gain easier access to the needed money or start-up capital. In short, this is a borrowing and lending solution that sidesteps security or collateral requirements of the country’s regulated commercial banking sector.
Not all DFIs are government-owned banks or money lenders like DBN. Some are structured to provide venture capital (VC) funding, to guarantee credit or loans provided by commercial banks, and to help hone business skills by way of training and mentorship. As often articulated in the past by finance minister Calle Schlettwein, Namibia plans to follow this model.
Although details are still sketchy, in his budget presentation to parliament last month, Schlettwein announced a public funding allocation of N$110 million. This money will be used to provide business skills training and mentorship, for the establishment of a credit guarantee scheme, and to roll out the setting-up of a VC fund.
All good stuff, but something is missing, and that is business rescue or relief for existing firms who have gotten into trouble. Other than media reports highlighting job losses, there is just no talk about efforts to rescue troubled firms.
Although no enterprise – micro, small, medium or large – spared the impact of Namibia’s limping economy, medium and larger firms are hardest-hit. Unsurprisingly, not micro and small enterprises, as they are generally unable to access loans or supplier credit lines, and have little option than tightly controlling operating costs.
Based on what one hears, it seems the larger enterprises in trouble are mostly newer firms on the business landscape. They experienced tremendous success during start-up, thought good times never end, and focused on growth. They borrowed to increase stock holding, fund business premises’ construction, bought plant and equipment to grow production capacity, and acquired vehicles to expand customer reach and deliveries to other towns.
Helping emerging or budding entrepreneurs get started is a way to grow the economy. There is and will always be merit in helping newcomers embark on their entrepreneurial journey. But what about the many entrepreneurs already in business, now in troubled situations, many relatively new to the game? Is it okay, for Namibia’s economy, for them to fold and exit the arena?
Many are first-generation in business. Their parents and older relatives were labourers, factory and farmworkers, and domestic servants. These newbies never grew up in an entrepreneurial environment, where doing business was discussed over dinner.
Business rescue is not new, and exists in many countries around the world. Surely, one is needed here right now, and more than ever before – a distressed business protection legislation coupled with a business rescue strategy to help entrepreneurs who have stumbled, back on their feet again.
*Danny Meyer is reachable at danny@smecompete.com.
