Local economic analysts, Econsult have challenged government to consider alternative financing options for infrastructure development before committing to borrow 12 billion pula from China.
Econsult’s latest economic review report released this week said government has more choices to finance infrastructure development. “It is not obliged to borrow from China if it deems the designated projects to be worthwhile, as it could also borrow domestically or finance the investments from its accumulated savings in the Government Investment Account (GIA) at the Bank of Botswana.
“With these available choices, it is important to evaluate the various options and determine, on the basis of the costs and benefits of each, which financing options to use for infrastructure financing,” said researchers at Econsult led by renowned economist, Keith Jefferies.
He said the Chinese soft loan’s repayment could be made high due to exchange rate, advocating for domestic borrowing. “It is also cheaper to issue domestic bonds than to use the savings in the GIA, which we estimate to have earned an average annual return of 8.1 percent over the past decade.”
Estimates prepared recently by Econsult for the pension sector conclude that the industry requires P1.5 – P2.5 billion of additional bonds each year over the next five years, with a total demand of P11 – 12 billion over the next five years – exactly the same amount as the envisaged borrowing from China. “This is without factoring in potential demand from foreign investors in Pula bonds. So borrowing from China doesn’t appear to be a very good deal in terms of the government’s own strategy.
“It does not support the stated objective of reducing foreign borrowing and increasing domestic borrowing, and does not minimise financing risks,” said the researchers. Econsult believes it is more expensive to sign up for the Chinese loan than borrowing domestically, and so does not meet the cost minimization objective. “It does not meet the objective of domestic capital market development.”
Jefferies’ team warns that borrowing from China has strings attached such as being tied to procurement from Chinese firms. Government wants to use borrowing for rebuilding of major trunk roads in the north and east of the country and constructing a new northern railway link from Mosete to Kazungula and across the new Zambezi bridge into Zambia.
Meanwhile Econsult has advised that the infrastructure projects should be evaluated to determine if they pass the economic viability tests before implementation. “If they are good projects, they do not depend on loans from China, but can be financed from domestic capital markets.
Indeed, financing the projects from other sources enables a much more rigorous procurement process to be undertaken, based on competitive, open international tendering.”China recently stepped up its participation in Africa through a USD60 billion offer to various African countries at the recent Forum on China – Africa Cooperation (FOCAC).