Report No. 394a-BT FILE I( |i

Appraisal ofBotswana Development Corporation(BDC)

June 6, 1974

Development Finance Companies Department

Not for Public Use

Document of the international Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use oriy by the Bank Group. It may notbe published, quoted or cited without Bank Group authorization. The Bank Group doesnot accept responsibility for the accuracy or completeness of the report.

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EQUIVALETS

Currency

1 Rand = us$1.49

1 US$ o.67 Rand

Report No. 394a-BT

Appraisal ofBotswana Development Corporation(BDC)

June 6, 1974

Development Finance Companies Department

Not for Public Use

he ubshe4 t-j 4d t -I -

IQUIVALENTS

Curreacy

1 Rand us$1.49

1 US$ = 0.67 Rand

APPRAISALOF

THE BOTSWANA DEVELOPMENT CORPORATION

Table of ContentsPage No.

BASIC DATA

SUMMARY ........ .. **................. i

I. INTRODUCTION ..................................... 1

II. ENVIRONMENT ........................................ t

The EcOnomy . . ............. . . . . . . . . . . . .. . ..... ... 1

Customs Union Agreement .. ........ ..... .. ...... .. 6...* 2Mining Developments ... ...................... . 2The Manufacturing Sector . ............................ 3Government's Industrial Policy ........................ 3The Botswana Enterprises Development Program ..... 4Financial Environment ...... ............. * . 5

III. THE COMPANY ................ ............ 5

Memorandum and Articles of Association ....... ......... 6Share Capital ......................................... 7Policy Statement ........ . ... ........ *.,. ......... 7Interest Rate and Foreign Exchange Risk ............. 8Board of Directors ....................... ......... 8Organization, and Staff ....... ........... ........ 9Operating Procedures .......................... 10

IV. OPERATIONS AND FINANCE . .... . .. . . 10

Past Operations .............. ........... .... ... 10Portfolio .................. 0 ........... 13Profitability ... ... . .........,.... 14Financial Position .... .... .... . ..... .... ...... 14

V. PROSPECTS ................. ...... 15

Operational Forecasts ................................. 15Resource Requirements ....... ............. .* . 17Financial Projections ....... ....... 17

VI. CONCLUSIONS AND RECOMMENDATIONS , . 18

This report was prepared by Mr. Philippe Nouvel on the basis of hismission to Botswana in October 1973.

LIST OF ANNEX

Annex

The Customs Agreement 1

Proposed Policy Statement 2

Board of Directors 3

Organization Chart 4

Projects ready to be Implemented orunder Consideration 5

Investment Portfolio as of June 30,1973 6

Income Stateents: 1971 -1972-1973 7

Balance Sheets: 1971-1972-1973 8

Consolidated Income Statements: 1971-1972-1973 9

Consolidated Balance Sheets: 1971-1972-1973 10

Assumptions for Financial Projections :1973-1978 11

Projected Income Statements: 1973-1978 12

projected Balance Sheets: 1973-1978 13

Projected Uses and Resources: 1973-1978 14

Financial Ratios: 1971-1978 15

Estimated Disbursement schedule: 1974-1976 16

Basic Data

on

Botswana Development Corporation (ItBDc"')

Year of Establishment: 1970

Ownership (as of March 1974)(par value of shares = R1)

Issuedand

Share capital (in Rands): Authorized Paid-in

ordinary shares 2,100,000 1,945,4628% cumulative preference shares 300 3000

All shares are owned by the Botswana Government.

Historical Operational Data (ROOO as of June 30):

1971 1972 1973 3-31-1974

Loan and Equity Portfolio 71 76 1,762 2,352Total assets 838 1,316 2,729 6,051Equity 505 1,143 2,484 2,908Net profit 464 384 525 422Net profit/average networth % 82 45 29 11

Interest Rates:

8-10%; most loans are extended at 9%.No commitment f'ee

SUMMARY

i. The Botswana Development Corporation (BDC) was established in April1970 as a Government-owned company to act mainly as a promoter, identifyinginvestment opportunities in the industrial and tourism sectors, and associat-ing with experienced foreign partners for the implementation of projects. Itis the principal vehicle through which Botswana is taking a stake in newindustrial and commercial undertakings in the country. In 1972 it also tookcharge of the commercial development of the new town of Selebi-Pikwe at therequest of the Government.

ii. During its first three years of activity, BDC has developed a com-petent professional staff, almost totally expatriate; prospects for nation-alization of staff are limited, due to an actual and projected shortage ofBotswana university graduates. BDC has developed a strong equity base,through revenues originating from the sugar import trade which was granted toBDC by the Government.

iii. Due to Botswana's small market, prospects for BDC's operations inthe industrial sector are not numerous. However, BDC has identified invest-ment opportunities for several projects that it is actively promoting. BDCalso became deeply involved in tourism development, with the Governmentpassing to BDC its assets in this sector. Given the lack of local entrepren-eurs, BDC, unlike most DFCs, has had to undertake a basic promotional roleand has developed many of its operations through subsidiaries, for which itendeavors to find experienced external management.

iv. BDC's current small portfoolio of R 2.3 million (March 31, 1974) isscattered among a number of companies which it has set up alone or with exper-ienced partners. BDC's operations should increase substantially in the nextfive years, as a consequence of its investments in tourism and industry andof its involvement in the commercial property development in Selebi-Pikwe.During FY75 and FY76 BDC's investments should total R 5.5 million, of vh'chR 1.6 million would be for commercial property development. A Bank loan of $4million would meet a substantial part of BDC's foreign resource requirementsthrough FY76; it is proposed that up to $80O,000 may be used to finance theforeign exchange component of BDC's investments in the commercial developmentof Selebi-Pikwe. The balance would essentially be used for industrial andtourism projects.

v. The terms of the proposed loan should be those normally appliedto development finance companies. Since BDC is a young institution, it isrecommended that BDC be granted concessional treatment on commitment charges.A free limit of $75,000 is recommended, with an aggregate limite of $800,000.It is proposed that BDC's disbursements on account of loans or investmentsapproved after Februaryl, 1974 be eligible for Bank reimbursement subjectto their being consistent with the terms of the loan, and to the Bank's priorapproval of related projects: it is recommended that such retroactive finan-cing be limited to $300,000 (see para. 5.05).

I. INTRODUCTION

1.01 The Botswana Development Corporation (BDC), a Government-ownedcompany, was established in April 1970 following a feasibility study under-taken by British consultants for the Government of Botswana. An exploratorymission which visited BDC briefly in March 1973 concluded that BDC was like-ly to meet the Bank's requirements for lending to DFCs, and the Governmentsent an application for Bank assistance in July 1973.

1.02 An appraisal mission visited BDC during October 1973. This reportreviews BDC's performance and outlook and recommends a Bank loan of $4million.

II. ENVIRONMENT

The Economy

2.01 The economv of Botswana is described in "Memorandum on RecentEconomic Development and Prospects of Botswana" (AE-18, June 16, 1971). Aspecial Bank mission to review creditworthiness issues visited Botswana inFebruary 1974 and a basic economic mission began work in the country in May.What follows is brief description of the environment in which BDC works.

2.02 Botswana, which became independent in 1966, is a land-locked coun-try in southern Africa slightly larger than France with a resident popula-tion of 640,000, increasing at an estimated rate of 2% per year. The climateis arid with annual rainfall varying from 12 to 25 inches. Botswana's popula-tion has been deriving its livelihood mainly from raising cattle for whichclimate, vegetation and soils are particularly well-suited. The populationis unevenly distributed and about 75% live in the eastern 10% of the countrynear the North-South road and the parallel railway line.

2.03 Botswana has long depended on annual grants from the United King-dome to balance its recurrent budget. The need for such grants ceased inFY73 as a result of (1) the signing in December 1969 of a new Customs Agree-ment with South Africa, Lesotho and Swaziland (see para. 2.05), (ii) theemergency of an important mining industry in the country (see para. 2.06),and (iii) the substantial expansion of livestock production and meat exports.The average GlqP per capita grew from $110 in FY68 to about $300 in FY74 -about 20 percent a year.

2.04 Botswana has had development plans since before independence. Themost recent plan covers the period FY74 to FY78. Its main objective will beto achieve over the five-year period an 18% p.a. real rate of growth through(a) returns from intensive investments in mining and other industries main-ly aimed at export markets, and (b) reinvesting the revenue from these invest-ments in education and training, promoting of agriculture and manufacturing

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activities and improvement of services in rural areas. Government revenueswould substantially increase, enabling the Government to set aside over thenext five years $200 million of domestically-generated funds to meet thecapital costs of the development program. The most serious bottleneck tothis ambitious development plan remains the shortage of educated and exper-ienced Botswana; the country during the next five years will remain crticallydependent on foreign technical assistance.

Customs Union Agreement

2.05 Botswana is joined to Lesotho, Swaziland and South Africa in aCustoms Union Agreement which provides for free circulation of goods betweenthe member countries. Under the previous Customs Agreement of 1910, Botswanareceived a fixed percentage (0.31%) of the Custom's Area customs and exciserevenues. A new agreement signed in 1969 provides that South Africa compensateBotswana for revenues collected on its behalf according to a formula basedmainly on the size of Botswana's imports. The total income to Botswana fromthe common revenue pool is equivalent to about 20% of the country's importsvalued at their border price (which includes transportation charges to theborder and eventually duties paid in Southern Africa), regardless of theirorigin, and is paid to Botswana with a time-lag of two years. The formula forsharing revenues is favorable to Botswana in that its share of revenues isbased on 142% of Botswana's actual imports. At the same time, however, thisspecific arrangement discourages Botswana from implementing import substitu-tion projects because of the negative effect any such project would have onGovernment revenues. An exception to this, because of the nature of thesharing formula, is for projects producing goods which-pay excise taxes,such as beverages. The revenue-sharing formula is shown at Annex 1. Thisarrangement resulted in a considerable increase in the revenue from customsand excise duties from $ 1.4 million in FY69 to $25 million in FY73.

Mining Developments

2.06 Intensive mineral prospecting during the last decade brought anumber of important discoveries which are now leading to the large-scaledevelopment of a mining industry. Production of diamonds by de Beers start-ed at Orapa in 1971, and production of copper and nickel at Selebi-Pikwe bya company sponsored by American Metal Climax (AMAX) and Anglo-AmericanCorporation began recently. The World Bank provided $40 million to financethe infrastructure facilities of the Selebi-Pikwe mine. In both cases, theGovernment has received a 15% equity participation in the mining company.As a result of this development, the mineral exports have increased from nilin FY65 to an estimated $150 million in FY75 and are projected to exceed$450 million in FY85. Botswana also benefited by receiving revenues on goodsimported for these projects under the Customs Union Agreement.

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The Manufacturing Sector

2e07 The only modern large-scale enterprise in the manufacturing sectoris the Government-owned Botswana Meat Commission (BMC) which operates a largemeat packing plant in Lobatse and employs 1,200 persons; the contribution ofthe manufacturing sector of GDP was 8.8% in FY72, i.e. R 7.7 million (ofwhich R 6.2 million for BMC). Another indication of the infancy of thissector is the very small number of enterprises (28) employing over nineworkers that are registered under the Industrial Licensing Act. Totalemployment in the manufacturing sector (excluding the Botswana Meat Com-mission) was about 1,500 persons in 1972.

2.08 A small local market, the lack of entrepreneurial initiative andof skilled manpower, an unfavorable communications system and competitionfrom South Africa are indeed obstacles to rapid development of manufacturingin Botswana, although it is imperative that those opportunities that do existbe exploited to help in diversifying the economy. It is expected that therapid development of the mining industry and revenues derived from it willresult in an increased demand for consumer goods. There is also scope forthe creation of industries linked to mineral production, such as a jewelleryindustry for the production of industrial abrasives and semi-precious gemstones,or chemical industries based on the brine deposits in the Makarikari region.The United Nations Industrial Development Organization has been asked to assistin planning for a group of industries to use known resources of clay, gypsum,limestone and silicacious earths. The agricultural sector also offers someopportunities for investments, particularly to process the by-products of themeat industry. The Development Plan's target of a 20% p.a. growth rate inmanufacturing is not unreasonable, given the very low level of manufacturingoutput at present. BDC has carefully explored some investment opportunitieswhich is prepared to exploit, acting as promoter and associating with exper-ienced foreign partners. Under the Customs Union Agreement, Botswana. may,after consultation with the other parties, grant protection to infant i-Tdus-tries, through levying additional duties, for a maximum period of eight years.Given this envirorment private investment in the man faec -ring seetcr ianticipated to amount to R 12 million over the period 1973-78.

2.09 The tourism sector will also offer some investment opporturitifees;the annual number of foreign visitors is expected to increase from an, estimated57,000 at present to 100,000 in 1977. The northern and north-eastern partof the country have substantial attractions (game viewing, fishing, hunting),which could lead to several tourism developments. There is also an acuteshortage of good accommodation in the south-eastern part of the country.BDC has recently sponsored a feasibility study on tourism possibilities andthe Government is also planning to set up a development scheme for tourism.Five-hundred additional beds are presently planned for the period 1973-78,for a total investment cost of R 3.5 million.

Government's Industrial Policy

2.10 The development of industry is given high priority by the Governmentas a means of creating employment. The Government has made considerable

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efforts in creating the necessary infrastructure, establishing the requisiteinstitutional framework and providing incentives to attract and induce invest-ments. Given the lack of domestic enterpreneurs, the Goverment created BDCin 1970 to identify and promote productive enterprises and to locateforeign investors interested in establishing joint ventures with BDC.Botswana is a signatory to the International Convention on the Settlementof Investment Disputes (ICSID). It has entered into an investment guaranteeagreement with the U.S., and is currently negotiating similar agreements withother countries. While Government has generally welcomed foreign investmentin productive enterprises, it wants to minimize foreign ownership of trade,real estate, and agricultural land. One means by which Government hopes toencourage private investment is by setting aside land for industrial use. Onehundred and thirty-four hectares are to be provided during the uext Plan inGaborone, Lobatse, Francistown and Selebi-Pikwe. Government also providestax incentives to prospective investors. The normal rate of corporate tax is30%, the lowest in Southern Africa. Repatriation of profits is not subjectto any restrictions, after payment of a 15% tax on dividends paid to non-residents. Under the Income Tax Act of 1973, the cost of plant and machinerymay be written off immediately and tax losses carried forward. Besides, inthe case of new hotel and industrial businesses, 25% of the costs of equip-ment, and 15% of the buildings costs are tax-deductible. In addition, 125%of local citizens' training costs may be deducted from taxable income. Theseprovisions are essentially automatic under the law. Additional tax incentivesmay also be granted selectively under Development Approval Orders for projectswhatever their szope, providing substantial employment or participation ofcitzens. In practice, this is rare. Howaver, im thre ra-fe of industrial orcommarclial projects considered of great lmportarce Ito the economic developmentof Botswana, the Government may also draw up a special tax agreement as wasdone for the Selebi-Pikwe mining venture. All these measures seem to besensible given the special conditions existing in Botswana. Nevertheless,there is now need to formulate a more precise strategy for industrial develop-ment and the Bank's economic mission will endeavor to provide guidance forthis area. One result of Bank assistance to BDC will be a substantial up-grading of how BDC examines projects in terms of economic cost benefitanalysis,

RhBotswana Enter rie

2.t"?. To provide assistance for the development of enterprises owned andmanaged by local entrepreneurs in the commercial and industrial sectors, theGovernment has created the "Botswana Enterprises Development Unit" (BEDU)with in the Ministry of Commerce and Industry. The unit will have a staff ofaine expatriate experts, plus volunteers from the Peace Corps and otherorgarizations, who will train local counterparts to assist Botswana enter-prises. Tghe Un-it is under the directiotn of the Commissioner for Inidustrywho was appointed in 1972 after establishing a similar project in Swaziland.During the first two years the program will concentrate on the creation ofenterprises in the fields of building and construction, ready-made clothing,wood and metal working, and processing of semi-precious stones. The initialphase of the program will be financed through SIDA and UNDP grants (totallingabout $1 million). Most of the funds will be to provide technical assistance

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but, under the SIDA agreement, about $250,000 has been allocated for threesmall industrial estates, and $110,000 put aside for loans to Botswana enter-prises. It is expected that the National Development Bank (see para. 2.14)will make loans to the enterprises assisted.

Financial Environment

2.12 Botswana, together with Swaziland, Lesotho and South Africa, is amember country of the Rand currency area. It thus has no Central Bank of itsown. Under this arrangement, Botswana benefits from belonging to a strongcurrency area. Balance of payments disequilibria are automatically eliminatedthrough contraction or expansion of the money supply. However, Botswana isdependent on monetary and credit policies over which it has very limited con-trol.

2.13 There are two commercial banks operating in Botswana: BarclaysBank and Standard Bank, both with headquarters in London. They maintainten branches in Botswana and thirty other agencies, mainly mobile units.Deposits with the commercial banks increased from R 13 million in 1969 toR 22 million in 1972, whereas advances only increased from R 7 million toR 13 million during the same period, which seems to indicate that part ofthose funds are sent outside Botswana. Considering the integration ofBotswana into the Rand currency area and the current absence of nationalbanking legislation, a control of these funds is difficult. Since, in addi-tion, most of them are short-term funds - in particular the accounts ofthe mining companies - these funds cannot be used to finance a substantialamount of long-term investments. BDC, however, intends to raise in thefuture some local resources from these banks through an association withthem in a financial company (see para. 4.06).

2.14 The National Development Bank (NDB) was established in May 1964,mainly to lend for the development of agriculture, livestock and housing.Between its inception and the end of 1972, NDB granted approximately 3)000individual loans. The amount outstanding at end 1972 was R1.3 millioI. Itsrole will expand during the next Plan period, since it will administer ornbehalf of the Government the loans to farmers to be made under the IDA-SIDALivestock Development Project (No. PA-1Ola), and since the Government'spolicy of rural development envisages the injection of increased amouats ofcredit into the agricultural sector. Finally, NDB will be used as a vehiclefor financial assistance directed to Botswana entrepreneurs under the BEDUprogram. NDB will have adequate resources to fund this program. NDB hadin 1968 and 1969, before the establishment of BDC, granted loans totallingR250,000 to small business entrepreneurs in commerce and industry, but hasfocussed on lending related to agriculture and housing since BDCs creation.The respective roles of NDB and BDC are de facto clearly defined; theremight be some overlap in the future when the BEDU program develops butt. cons4-dering the excellent relations between the two publicly-owned institut-ions,this is not viewed as a problem. NDB has mainly received its resources fromthe Government and from the United Kingdom. Loans are made at 8% for amaximum of 10 years.

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2.15 The structure of interest rates in Botswana is naturally dependentto a great extent on the structure in South Africa where the Central Bankdiscount rate is presently 6.5% and the commercial banks' prime rate is 8%.Interest paid on deposits is a maximum of 8% for one year deposits. InBotswana lending rates by commercial banks range between 9% and 11%, dependingon the size and duration of the loan, and the creditworthiness of theapplicant. Most loans are extended to cattlemen, on a fluctuating overdraftbasis, at 10%. BDC's interest rate for most of its loans has been 9%O untilnow. Assurances have been given to the Bank that in the future DBC's normalinterest rate would be 10%, which is compatible with prevailing market rates(see para. 3.05).

III. THE COMPANY

3.01 Following the recommendations of a feasibility study undertakenin 1969 for the Government of Botswana by British consultants and financedby British aid, the Botswana Development Corporation Limited (BDC) was in-corporated on April 15, 1970, as a wholly Government-owned limited liabilitycompany, with the general objective to "promote and facilitate the economicdevelopment of Botswana, to identify opportunities for development ofnew and existing industrial, commercial and agricultural business under-takings" and to establish and provide such undertakings with appropriateassistance including financial and managerial support. BDC differs from manyother DFCs in that, given its environment, it by necessity performs a basicentrepreneurial role in conceiving and developing projects. It is theprincipal instrument of the Government for accelerating the development ofcommercial business enterprises in a variety of sectors.

Memorandum and Articles of Association

3.02 BDC's Memorandum of Association does not define any definite limitto its field of activity and operations; it is stated that BDC "shallconduct its business affairs upon a commercial basis, and in a prompt, ef-ficient and economic manner. It shall exercise special care and give dueregard to the economic and commercial merits of any undertaking it promotes,assists, finances or manages, so that, taking one year with another, it shallriot be allowed to operate at a loss; however, though each such undertakingshoud. be evaluated strictly on its merits, nevertheless such evaluation shouldinclude consideration of the overall, long-term economic interests and bene-fits to Botswana." The Articles of Association specify that the Corporationis nanaged by a Board of seven to twelve Directors including the Chairmanand the Managing Director, all nominated by the Government. The Board maydelegate any of its power to committees consisting of Directors, or to theManaging Director.

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Share Capital

3.03 The Government contributed mainly to BDC's initial resources byentrusting to it the sugar import trade into Botswana (see para. 4.11); re-venue before taxation originating from this trade amounted to about R 2 mil-lion between BDC's establishment and June 1973, and allowed BDC to developan equity base which now totals nearly R 2.9 million. BDC's initial authorizedshare capital of R 1 million was raised to R 2.4 million in February 1973.The amount issued - R 1,945,462 in ordinary shares all belonging to the Gov-ernment - corresponds to subscription in cash (R 281,365), transfer to Gov-ernment assets mainly in tourism (R 820,002) and incorporation of reservesobtained previously from sugar revenues (R 844,095).

Policy Statement

3.04 In April 1972, BDC's Board adopted a policy statement which speci-fied a few limits to BDC's involvement. Basic features are that BDC will notnormally:

- invest more than 15% of its net worth in anysingle project;

- invest more funds in any one project than thetotal of funds invested by the other ordinaryshareholders.

The mission discussed the usefulness of a fuller statement of policy withthe Managing Director; BDC has now agreed that, prior to Loan Signing it willadopt a modified, enlarged Policy Statement (see Annex 2) which providesfor specific limits to BDC's commitments but takes into account BDC's parti-cular role and major involvement in the promotion of enterprises and itnproperty development on behalf of the Government (see para. 4.04). The salientnew provisions are:

(i) BDC will not normally invest more than 25% of its networth in the form of loans or share capital in any oneproject, and will not, except in the case of subsidiarycompanies, finance more than 50% of the project'scapital cost;

(ii) BDC will not normally manage enterprises; althoughit will take special care to ensure sound managementarrangements for the projects it finances;

(iii) BDC's aggregate equity investments will not exceedits net worth;

(iv) BDC shall protect itself against foreign exchangerisk and charge lending rates compatible with themarket rates, enabling it to earn a reasonablereturn.

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Interest Rate and Foreign Exchange Risk

3.05 To date, BDC has charged 9% interest on most of its loans. Inaccordance with its proposed Policy Statement, BDC has agreed to raise itsnormal lending rate to 10%, which is in line with the current cost of commer-cial funds in the country. On the Bank loan, assurances have been giventhat sub-borrowers will normally assume the foreign exchange risk, except forsmall loans (below $75,000) which are typically made to small businessmenwho may be reluctant to deal in foreign exchange. In such cases, theGovernment has indicated its intention to cover the exchange risk (andbenefit from any exchange gains). This does not represent a significantconcessional element in the arrangement given the strength of the Rand. Theonly exception to these principles is that BDC has established a fund, limitedto 10% of its net worth, from which it can make loans on softer terms forprojects of economic importance, but which cannot service BDC's conventionalterms.

Board of Directors

3.06 The BDC's Board comprises eleven members (see Annex 3), all selectedby the Government and nominated by the Ministry of Finance and DevelopmentPlanning. Six are Government officials representing the Ministries of Fi-nance and Development Planning (the Permanent Secretary of which is BDC'schairman), Commerce and Industry, Agriculture, Local Government and Lands,and the Office of the President. The remaining five directors include twofarmers, a South African merchant barnker, a South African businessman who9arLi.i ated in 1969 in the feasibility study which led to the creation ofBDC, and the Managing Director of BDC, who is a U.S. citizen. Since thearrival of the current Managing Director in 1972, the Board has delegatedall its operational responsibilities to an Executive Committee of fourdirectors comprising BDC's Chairman, its Managing Director, the representa-tive of the Ministry of Commerce and Industry, and the South African merchantbanker. The Executive Committee is empowered to take any decision relatedto BDC's operations and management but has to report to the Board. It metabout every two months in 1972 and 1973, whereas the Board met four timesin 1972 and three times in 1973. Both Board and Executive Committee areactive bodies and both seem to be working well.

3,07 Since 1972 BDC's Managing Director has been Mr. R. Stephens, a 37-year old American. He has held senior positions with an American corporationand ith a venture capital firm. An able manager, Mr. Stephens has been verysuccessful in recruiting young and qualified staff, developing the institu-tlon, and gaining the confidence of Botswana authorities. He was recruitedearl,- in 1972 for a two-year period and agreed recently to stay with BDC foranother two years. His responsibilities are to carry out BDC's day-to-dayoperations, to prepare the annual budget and keep the Board informed ofproject developments; he is empowered to take decisions on projects in whichBDC invests up to R 20,000 and is responsible for all personnel matters.

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Organization and Staff

3.08 As of March 1974, BDC's staff totalled 35 of whom 11 were pro-fessionals, including three young Botswana university graduates. There arenine expatriate professionals who are mainly young British and Americarn gra-duates of economics who came to Botswana as Overseas Development InstituteFellows or Peace Corps volunteers and then joined BDC on a 2 - to 3-yearcontract basis. They are highly dedicated and motivated by their interestin working with BDC rather than by salaries which are low, averaging $8,000The senior investment officer, who had 5 years' experience with Chase Man-hattan Bank, leads this team with efficiency. Most professionals wererecruited in 1972 when Mr. Stephens joined BDC; although they are young andwith little experience their performance is impressive.

3.09 BDC plans to localize its staff by 1982; however, in view of theshortage of Botswana university graduates and of the demand for them, par-ticularly in the administrative field where most technical positions are atpresent held by expatriate advisors, it will be difficult. BDC has es-tablished a scholarship program at the University of Botswana, Lesotho andSwaziland (UBLS) and at present is sponsoring three students.

3.10 BDC's current organizational chart is depicted in Annex 4. Theheart of the organization is the Investments department which has five in-vestment officers and is headed by a senior investment officer. It is re-sponsible for all of BDC's promotional and appraisal work. It is BDC'sintention to progressively move towards an organization with sector divi-sions (agro-industry, transport, finance, tourism and property) under thedirection of a Management Committee comprising the Managing Director, theChief Accountant, the Administration Officer and two senior InvestmentOfficers. The first sector division to be established is the PropertyDevelopment and Management Department which was created recently to takeinto account BDC's particular role in the commercial property developmentin Selebi-Pikwe (see para. 4.04). Its head is an Englishman who has ex-perience in property management. This projected sector organization maysuit BDC when its business has developed, but it appears too elaborate forBDC's current level of activity, although it might have merits in termsof deconcentration and delegation of responsibilities. The InvestmentManagement Department will be responsible for supervision when BDC's port-folio has developed. At present this Department is operated on a part-time basis by the Head of the Investments Department, given BDC's limitedportfolio.

3.11 The Accounting Department is headed by a former Peace Corps volunteerwith 14 years' experience in accounting, who will leave BBC soon and bereplaced by another experienced accountant. Accounting procedures areadequate. BDC has its and its subsidiaries' accounts audited by Coopers andLybrand, a well-established and reputable firm. Audits are of high quality.BDC agreed to make the few improvements necessary to conform to the Bank'srequirements regarding audits for DFCs. A procedure of systematic quarterlyreporting to the Bank was discussed with BDC and agreed upon.

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Operating Procedures

3.12 Given BDC's promotional nature, its project processing proceduresare as follows. BDC usually has feasibility studies made by experts - mostof whom are paid under foreign technical assistance - or by foreign sponsoringfirms. It then reviews the feasibility studies and prepares for the ExecutiveCommittee memoranda scrutinizing the alternatives and the financial andeconomic merits of project proposals and stating the developments as the projectsprogress, so that the Executive Committee is informed of the evolution of eachproject and takes decisions on how and when to make the next step.

3.13 BDC's financial analysis of projects is well done; the economicanalysis has been less developed. BDC's Board therefore decided in 1973that all projects should be the subject of a thorough cost benefit analysis,including economic rate of return analysis. It is thus BDC's intention todevelop its economic assessment of projects, and during the appraisal mis-sion discussions were held with BDC staff on the Bank's techniques and methodsrelated to the economic justification of projects. On the technical side,BDC has relied on foreign consultants, either to make feasibility studiesor to check technical studies submitted by the foreign sponsors BDC associateswith. Given BDC's size and prominent role in promotion, this procedureappears appropriate for BDC's present activity. BDC has been informed thatthe Bank would need full appraisal reports on each project to be financed outof our loan, and it has agreed to prepare such reports.

3.14 Legal, Procurement and Disbursement Procedures. Most BDC loans areloans on demand made to subsidiary companies, with no formal contract. Thesearrangements are now being formalized. BDC made only three loans for a totalof R 46,500 to non-subsidiary companies, and has special loan agreements foreach loan. BDC has given assurances that, prior to its first submission of aproject to the Bank, it will submit for approval a draft standard loan agree-ment. BDC's procurement policies, which also apply to its subsidiaries,require that its clients submit quotations from several suppliers for theequipment to be financed, and invite bids from several constructors forconstruction works. Disbursements are made on the basis of invoices or ofarchitects' certificates. Procurement and disbursement procedures areappropriate and administered satisfactoary.

IV. OPERATIONS AND FINANCE

Past erations

4.01 Most of BDC's efforts, particularly since the arrival in early1972 of its Managing Director, have been devoted to building up and organizingthe institution; however, BDC also achieved significant progress in three mainfields:

- t1 -

(i) it has identified several major investment opportuni-ties in industry, conducted the basic studies and con-tacted foreign sponsors for some projects now ready tobe implemented;

(ii) it became deeply involved in tourism development, withGovernment passing to BDC its shareholdings in severalhotels, and

(iii) at the request of the Government in 1972 it took chargeof the development of the commercial center of the newtown of Selebi-Pikwe.

Since BDC is a young institution and since the country's modern sector isvery small indeed, the results of BDC's actions must be seen in terms ofinstitution-building and promotional activity more than of volume of financeextended; the total portfolio of BDC, as of March 1974, was only R 2.3 million.

4.02 Activity in the industrial sector. Due to the lack of entrepreneursin Botswana, BDC is acting mainly as a promoter of new projects, although itendeavors not to take a majority voting control in projects it identifies,but instead tries to bring in foreign investors with managerial capacity. Todate, it has a 26% participation in a tyre retreading company in Francistown,and a 55% share in a company which will start in 1974 the sorting of diamondsextracted at Orapa. BDC also conducted the studies related to three sizeableprojects: a beverage project which will be implemented soon, a ceramicsproject for which laboratory tests are being performed, and a tannery basedon cattle hides produced by the Botswana Meat Commission Abattoir in Lobatse.Further summarized data on these projects are given in Annex 5.

4.03 Tourism. During the fiscal year 1972-73, BDC took over the Govern-ment's assets in this sector, consisting of 20% of the share capital ofHoliday Inn in Gaborone (a profitable hotel/casino with 2s6 beds which 1.as

been in business since August 1972), 100% of the share capital of the PresidentHotel (which owns the only other Ist class hotel in Gaborone with 48 beds),and 20% of the share capital of a company operating the Chobe game lodge inNorthern Botswana. BDC's other involvements in the tourism sector include(i) the study and design of a 44-bed hotel in Selebi-Pikwe, the building ofwhich has just begun (see Annex 5), (ii) the preliminary studies for estab-lishing a hotel in Francistown, and (iii) the commissioning of a study onpossible tourism developments in Botswana by a British consulting firm.Regarding hotel projects, BDC endeavors to have joint ventures with experiencedpartners; otherwise, it will build the hotel, as in Selebi-Pikwe, and leaseit to an operating company managed by an experienced firm.

4.04 Development of the commercial center of Selebi-Pikwe. Primarilyto avoid having foreign investors controlling the commercial development ofSelebi-Pikwe and getting excessive returns from high rents, the Governmentmade BDC responsible in 1972 for the commercial development of the centerof this new town built close to the copper nickel mines and which has now

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become Botswana's major town with about 22,000 residents. A sumnary of thiscommercial development is given in Annex 5. BDC, through a subsidiaryestablished for the purpose, Commercial Holdings Limited, which has a tokenshare capital and receives funds from BDC, will build the shops and officesand rent them. The initial phase of the project up to the end of 1975 includesthe construction of five large blocks containing shops and offices, two bankbuildings and a petrol station. The Government made available to BDC inAugust 1973 a loan of R 2.5 million to be utilized mainly for this operation.The loan would be for 25 years with an interest rate of 8% (2 years graceperiod of principal and interest).

4.05 Other activities. BDC's activities in other sectors are numerousbut in many cases its investments are still very small. In the transportsector BDC was responsible for the reorganization of Botswana's small airtransport industry; it subcontracted the flight operations of Air Botswana(a 100% subsidiary of BDC) to established companies while maintaining thegeneral sales agency and ground handling operations. It also has a 42% interestin a small plane maintenance company. In the cormercial agriculture sectorBDC purchased in September 1973, with the Government's funds, four adjoiningfarms on the Limpopo River totalling 1,500 acres suitable for cultivation.These farms had been largely unused for several years. Cotton, wheat andgroundnut are presently cultivated. BDC hired an experienced farmer to managethe estate, on a renewable 3 year contract. BDC- has also taken over thegovernment's share holdings in a company owning irrigable land and water rightswest of Gaborone. It is associated with two experienced farmers to develophosticulture plantings in the area. BDC has set up a subsidiary to build houses(20% at present) rented to it and its subsidiary's personnel, and took 20% ofthe share capital of a small secretarial company. It also erected in Gaboronethrough a 100%o subsidiary a four-story office building of wnich BDC occupies3,000 sq. ft., with the other premises rented to various Government agenciesand embassies. BDC has taken a 20% option on the shares of the constructioncompany which woQn the tender for the first two commercial blocks in Selebi-Pikwe, and has a 51% share in a small engineering and construction companyrecently established in Gaborone and which started operations recently.

4.06 In the financial sector BDC created a 100% subsidiary which handlessmall equipment leasing operations and associated with an international firmof insurance brokers in a small local insurance brokerage company. Moreimportant is tee proposed creation by BDC of a financial company in associa-Lion with the two commercial banks, the National Development Bank and theGreek group established in Zambia (Saradanis). This company, of which eachpartner will hold 20%, would take over the leasing activities of BDC'scurrent subsidiary, and also provide hire purchase and loan finance. Thecommercial banks - Standard and Barclays - would make loan finance availableto the projected company whose total resources are expected to initiallyamount to R. 1 to R 1.5 million. This project has merits, since it wouldassociate the two commercial banks with the development of Botswana 's economy,and keep within the country financial resources which now are used outside.However, it is not expected that this new institution will rapidly develop; at

- 13 -

the start, it will focus on hire purchase schemes for vehicles and provideloans for construction of houses and buildings. There is, thus, no projectedoverlapping between BDC and this new institution, at least for the near future.

Portfolio

4.07 As can be seen from the above, BDC's investments are spread over avariety of sectors. However, most of its interests are small with theexception of tourism and commercial property developments. As of March 1974,BDC had invested in 21 companies (see Annex 6) which it either managesdirectly or supervises closely. The high number of subsidiaries is a directconsequence of BDC's basic promotional role in numerous sectors of the economy,and of its desire to progressively give these subsidiaries more autonomy asthey develop, with BDC performing as a holding company. This structure -untypical for a DFC - results in a fairly heavy administrative burden becomemore difficult on BDC, which is well met at the moment, but might become moredifficult later if the portfolio develops rapidly. Many subsidiaries,in particular those for property developments, have been set up with a tokenshare capital and a disproportionate amount of loan on demand from BDC. BDChas confirmed its intention to provide its subsidiaries - except for residentialproperty - with a reasonable level of equity and with loans having a fixedamortization schedule. BDC has also given assurances that all projects submittedto the Bank would be capitalized with an appropriate share capital and fixedterm loans.

4.08 As of March 31, 1974, BDC's portfolio totalled R 2.35 millionconsisting of the following:

Loans Outstanding Equity InvestmentsNo. Amount No Amount

Subsidiaries 7 R 2,061,828 13 R 92,724Other Companies 5 R 67,450 8 R 130 20i

12 R 2,129,278 21 R 222,925

Operations for property developments (commercial, residential, office andhotel property) account for about R 2 million, as follows:

commercial property R 564,929residential property R 300,505office building R 585,000President Hotelbuilding R 500,000

R 1,950,434

4.09 BDC had no arrears on its loan portfolio as of March 31, I97< Allthe companies in which BDC has an interest are performing well, with tineexception of Hotel Developments, which owns the President Hotel in Gaborone.

- 14 -

Because of the small size of this hotel (24 rooms), it operates at a loss;BDC intends to transform the hotel into an office building.

Profitability

4.10 BDC's income statements and balance sheets are summarized in Annexes7 and 8. The consolidated statements for BDC and its subsidiaries are givenin Annexes 9 and 10.

4.11 BDC's income until now has come mainly from the revenues related toimports of sugar into Botswana; these revenues accounted for about R 2 millionduring the past three fiscal years, i.e. 88% of BDC's total revenues. Thedecision by Government in 1969 to negotiate with a single supplier a termcontract for the total sugar needs of Botswana and to select BDC as its agencywas a sensible one, since it resulted in reducing from R 100 to R 70 per tonthe import price for sugar, as well as allowing BDC, which received the pricedifferential, to develop a strong equity basis, in the absence of contribu-tions by Government to its share capital. The first contract expired at theend of 1973 and, BDC negotiated a new one. Because of the increasein the world price of sugar between 1969 and 1973, it is expected that BDC'srevenue will substantially decrease from R 703,000 in FY1973 to aboutR 130,000 in 1974 on. These revenues are equivalent to an annual grant fromthe Government, the necessity of which will disappear in the future afterBDC's operations have expanded (see para. 5.07).

4.12 As can be seen from Annex 7, the income from financial operationsdid not cover BDCts administrative expenses until FY73 when dividends receivedfrom Holiday Inn and Air Botswana contributed 30% to revenues. The coverageof administrative expenses, which represented 7% of average total assets inFY73, will improve gradually due to BDC's increased level of operations.

Financial Position

4.13 As of March 31, 1974, BDC showed a strong financial situation witha net worth amounting to R 2.9 million, term debts totalling R 2.9 million,and an investment portfolio of R 2.3 million. Term debts included theGovernment loan of R 2.5 million (25 years, 8%), and a loan received fromCommonwealth Development Corporation of i 265,000 (R 430,000, 9%, 12 years)to help finance BDC its office building. Liquidities are invested in termdeposits in a building society, granting BDC a tax-free interest of 8%. BDCcan borrow from the building society up to 90% of the amount of deposits at9%. The Government also made available a loan for this building of R 160,000at 8% for 25 years (see Annex 10 - Consolidated Balance Sheets for BDC and itsSubsidiaries).

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V. PROSPECTS

Operational Forecasts

5.01 Apart from BDC's investments in the commercial development of Selebi-Pikwe and the few large projects that are ready to be implemented, projectingBDC's activity over the next few years is difficult; the country is in a veryearly stage of development and, as explained in para. 2.08, opportunities forinvestment are not numerous.

5.02 The projections of operations in Annex 11 are thus very tentative.They are based more on assumptions of BDC's future involvement in varioussectors than on identification of specific projects. These assumptions are:

(i) BDC will continue being heavily involved in the commercialdevelopment sector; however, the R 3.6 million investmentprojected over the next five years, even if it is belowBDC's own estimates, might still be on the high side, sincethe Government's policy to allocate space in commercialbuildings only to nationals might slow down BDC's activityin that sector.

(ii) Investments in the industrial sector are assumed to amountto R 3.9 million during the next five years, i.e. 30%of total projected investments. This forecast is based onthe pipeline of identified projects for the period 1974-76,and takes into account BDC's intention to offer in thefuture industrial premises to potential investors, startingin FY75 with an industrial estate close to Gaborone providinggeneral-purpose factory buildings of medium size (3,000 sq.ft.)for lease or purchase.

(iii) although the Government clearly expressed its intentionto have BDC assume an active role in tourism development,BDC's investment in this sector have been assumed todecrease after the implementation of the two projectsidentified in Selebi-Pikwe and Francistown. There is noindication that Botswana is yet in a position to engagein a large program of developing mass tourist accommodationfacilities. On the contrary, it intends to concentrate onthe expansion of high-cost safari operations in the northernpart of the country, with tourist bases in Maun and Kasane.The 1973-78 Plan forecasts R 3.5 million investments inthe sector over the five-year period to provide 500 addi-tional beds. It has been assumed that BDC, which is theGovernment's agency for tourism development would duringthe same period invest R 1.7 million (50%), perhaps anunderestimate, but reasonable when it is consideredthat (a) a specific plan has not yet been developed for

- 16 -

the sector, (b) it is necessary to improve infrastruc-ture, particularly roads, and (c) the proper legisla-tion and institutional arrangements have yet to beestablished.

(iv) BDC's assistance to the commercial agricultural sectorhas been projected at R 300,000 per year. BDC recentlyentered this field at the request of the Government.The assumption that BDC will invest R 1.5 million inthat sector over the five-year period is thus basedmore on Governmentt s and BDC's intentions to play arole in agriculture, particularly for the developmentof commercial farming in irrigable areas, than onspecific projects.

(v) BDC's investments in the transport sector are projectedto be low (R 50,000/year). A first attempt by BDCto develop the bus service along the railway line failed.BDC plans to develop a national truck company which would,in particular, be used for cattle transportation.

(vi) Regarding the residential sector, it has been assumedthat as of 1975, BDC's activity in this sector, whichis limited to building houses for its personnel, and forits subsidiaries staff, would be passed on to theBotswana Housing Corporation, a public institutioncreated in 1971 to take charge of housing development.

5.03 The mission's projections for BDC's investments through FY 1976are siumarized below.

FY74 FY75 FY76 Total

Property development 1,000 1,000 1,100 3,100Productive enterprises 650 1,850 1_,550 4,050

Total Investments 1,650 2,850 2,650 7,150

The import component of building costs in Botswana is estimated at 70%,a high figure, since even building materials have to be imported, and alsobecause a substantial part of skilled construction labor has to be broughtinto Botswana from outside. Since BDC will not normally, except in the caseof subsidiary companies (property development in particular), finance morethan 50% of the projectt s total capital cost, the import component of itsinvestments in productive enterprises will normally be 100%. BDC's investmentsare estimated to consist of 70% loans and 30% equity.

- 17 -

Resource Requirements

5.04 For the first phase of the Selebi-Pikwe commercial center, BDC'sproperty subsidiary has obtained commitments for financing the bank build-ings and the petrol station from the proposed tenants. The first office/shop block is nearing completion and is being financed with a Governmentloan. BDC requested the Bank to finance the foreign component of the newoffice - block shops to be built in Selebi-Pikwe. Given BDC's particular rolein the development of the commercial center of this new town, it is recommendedthat the Bank finance the foreign component of the three next buildings - i.e.$800,000. Including this, the foreign component of BDC's forecast investmentsthrough FY 1976 would amount to about R 4.0 million. A Bank loan of $4 millionwould finance about 70% of this import component. This would provide BDC withthe foreign resources to finance mainly its three major projects that are readyto be implemented, namely the tannery, the beverage project and the hotelin Selebi-Pikwe, in addition to three commercial buildings in Selebi-Pikwe.Other requirements would be met by the Government which recently made availableto BDC a loan of R 2.5 million at 8% for 25 years, including a two-year graceperiod of principal and interest.

5.05 Since a substantial part of the loan would finance projects that BDCis actively promoting, the mission reviewed these projects and found that theyare expected to have satisfactory economic rates of return. It is proposedthat BDC disbursements for expenditures incurred after February 1,1974, beeligible for Bank reimbursement. The related projects would be subject to theprior approval of the Bank, and the amount of retroactive financing would belimited to $300,000.

Financial Projections

5.06 Projected income statements, balance sheets and cash-flow state-ments for the period FY74 to FY78 are given in Annexes 12 to 14. BDC'sincome from sugar imports is forecast to be reduced from R 700,000 in FY73to R 130,000/year. BDC is expected to obtain 9.33% on its loans outstand-ing, and dividends are estimated at 10% on the average portfolio. Administra-tive expenses are projected to increase by about 10% each year, and the averagecost of borrowings is projected at 8%. On the basis of this projection, profitswould represent 2.5% of average net worth in FY75, slowly increasing to 6.3%in FY78, whereas administrative expenses would slowly decrease to 2.2% ofaverage total assets in FY78.

5.07 As noted earlier (para. 4.12), BDC had for the first time in FY73met its recurrent administrative expenses through its operating revenues.The revenues that BDC will get from sugar imports will in the future stilladd to its profits, but their contribution will progressively decrease.Sugar revenues will represent in FY76 16% of total income against 79% inFY73.

- 18 -

5.08 According to these projections, BDC's portfolio would increaseto R 6.3 million in 1975 and R 11.3 million in 1978, as against R 1.8 mil-lion in 1973. About 40% of this increase would result from BDC's involvementin property development. To finance its investments, BDC or its subsidiarieswould have to borrow R 3 million over the period in addition to the Bank loanof $2 million, raising its consolidated debt/equity ratio from nil in 1973 to1:3:1 in 1975 and 2.3:1 in 1978. BDC has agreed on a maximum debt-equity ratioof 3:1 as a borrowing limit.

VI. CONCLUSIONS AND RECOMEDATIONS

6.01 Conceived as the key instrument of Botswana's tourism and indus-trial development, BDC has been successful in identifying investment oppor-tunities and promoting several projects now ready to be implemented. At theGovernment's request, it has also started playing a major role in the com-mercial development of Selebi-Pikwe. BDC has developed a professional staffthat is competent and highly dedicated, although its heavy reliance on ex-patriate personnel on short contracts causes the potential dauger of a rapidchange in its staff position.

6.02 BDC's financial situation is sound; through revenues originatingfrom imports of sugar the institution has during its first three years ofactivity developed a strong equity basis amounting now to R 2.9 million.

6.03 Botswana is at a very early stage of development, and prospectsfor BDC's activity in the industrial sector are limited, due to the smallsize of the domestic market. BDC has, however, identified some projects,which are now ready to be implemented. Including BDC's involvement in thecommercial property sector, investments in FY75 and FY76 should amount toR 5.5 million. The Government recently made available to BDC a loan ofR 2.5 million, and a Bank loan of $4 million would meet about 70% of BDC'sforeign resource requirements through FY76.

6.04 The terms and conditions of the proposed loan should be those uormalfor lirnes of credit to development finance companies. However, since BDC isa young institution, it is recommended that BDC be granted concessionaltreatment regarding the comnitment charge, i.e. 3/4% on the Bank funds onlyfrom the date projects are approved or authorized by the Bank. It is recom-meaded that the Bank require prior approval of each project using $75,000 ormre of the proceeds of the proposed credit. An appropriate aggregate free1i1it would be $800,000 (20% of the loan). The proposed Bank loan wouldfinance the c.i.f. cost (i.e. the price at Botswana's border) of importedgoods, the foreign exchange cost of ancillary services, and the foreign exchangecomponent of imported goods purchased locally through normal trade channelsand of civil works. It is proposed that the Bank agree to finance retroactivelyfrom February 1, 1974, expenditures up to $300,000 made for the projectssubmitted to the Bank by BDC.

ANNEX 1Page 1

BOTSWANA DEVELOPMENT CORPORATION

The Customs Agreement

Under the terms of the 1969 Agreement, Botswana, Swaziland, Lesotho andSouth Africa agreed that legislation relating to customs, excise and sales dutysimilar in all respects would be enacted in each country. South Africa acts asthe custodian of the common revenue pool which consists of the gross amounts ofcustoms, excise, sales and additional duties levied and collected on goods importedinto or produced in the common customs area. Botswana, Lesotho and Swaziland re-ceive each a share of the common revenue pool calculated as follows:

share= i + p (C + E + S) x 1.42I + P

where i = total value at border price of goods imported into each countryp = of dutiable goods produced and consumed in each countryI = 1 at CIF price of all imports into the Customs AreaP = " of dutiable goods produced and consumed in the Customs AreaC = total collection of customs duties within the Customs AreaE = t" It of excise if "I t"S = It it I sales t "t "

(i, I, p, P are valued inclusive of duties)

Because of the unavoidable delay in finalising imports statistics, the revenuetransfer payment in any one year is based on total value of imports and of thelocal production of dutiable goods relating to the year two years previous tothat year. The effect on Botswana ofthe operation of the formula has been thatabout 20% of the value of goods imported into Botswana has been received as theBotswana share of the common pool. Equipment and machinery are imported duty freeinto the Customs Area.

It is expected that revenues from the common pool will amount toR 99.6 million during the next five years, i.e. 42.6 % of the projected Governmentfecurrent Revenue. The table below shows this relationship to imports; decreasesin 1975/76 and 1976/77 reflect the termination of imports for the constructionphase of the Shashe project.

Al=1

(R million)

1/ExDorts Imports ?venues from

Livestocl Minerals Other Total the Conmon Pool

Actual Products*

1971/72 17.0 11.7 2.3 31.0 62.7 n.a.

1972/73 21.0 19.0 2.7 42.7 85.1 n.a.projected

1973/74 23.0 38.0 3.5 65.5 83.4 20.9

1974/75 24.4 85.0 4.1 113.5 85.9 22.8

1975/76 26.0 90.0 5.0 121.0 96.1 16.9

1976/77 27.4 95.0 7.1 129.5 lo6.5 17.3

1977/78 29.0 100.0 10.0 139.0 119.6 21.7

1/ at border prices, inclusive of customs, excise and sales duties

* at current prices

** at constant prices

Source: National Development Plan .1973-1978

DFCDNovember 20, 1973

ANNTEX 2

Page 1THE BOTSWANA DEVELOPMNT CORPORATION LMITED

INVESTKENT POLICY

Adopted by the Board on _

A. The Botswana Development Corporationts objectives are:(1) to create and/or(2) to promote, in Botswana, comercially and economically

viable businesses which either:(i) because of the nature of their products or services or(ii) because of the manner in which they are operated will

contribute to national goals as stated in the NationalDevelopment Plan.

The National Development Plan favours the establishment of enterpriseswhich will have potential for:

(1) Generating significant employment(2) Adding to the skills of Botswana nationals(3) Producing products which can be substituted for imports(4) Generating additional business opportunities(5) Creating local entrepreneurs(6) Contributing to the rural economy(7) Upgrading natural resources(8) Creating new national assets(9) Diversifying the base of the economy, and

(10) Contributing to the creation of a nationally owned conmercialand industrial sector.

B. Applicants for assistance from the Botswana Development Corporationwill be asked to demonstrate how their projects will contribute to nationaleconomic development including the effect that import substitution projectswill have on revenues accruing to Botswana, and will specifically be calledupon to present plans for training Botswana nationals to occupy, in due course,posts at all levels in the proposed enterprise.

C. The Botswana Development Corporation will provide lease or loanfinance to, or participate as an investor in, an enterprise when:

(1) Either its financial and managerial assistance is necessaryfor the enterprise to be viable;

(2) The Botswana Development Corporation's active presence at apolicymaking level will constructively influence the enterprise withrespect to national goals; or

(3) 'When an investment is likely to generate additional resourcesfor reinvestment by the Corporation in accordance with its objectives.

D. When investing its funds the Botswana Development Corporation willseek to:

(1) secure its principal(2) structure its investment in such a way that the financial strength

of each assisted enterprise is increased, and(3) arrange the terms of its investments so that when each assisted

enterprise is successful, the Botswana Development Corporation will havethe opportunity to realize a capital profit.

-2-ANNEX 2

Page 2

For this purpose, the Botswana Development Corporation will seekto retain the right to dispose of its shareholdings in an assistedenterprise to third parties at commercial prices free of other shareholderrights of first refusal. When disposing of an investment, the BotswanaDevelopment Corporation will firstly seek Botswana nationals as buyers.

E. The Botawana Development Corporation will not normally:(1) Invest more than 15% of its net worth in the share capital

of any one project;(2) Invest more than 25% of its net worth in the form of loans

and/or share capital in any one project;(3) Eccept in the case of subsidiary companies, finance more than

50% of the project's total capital cost, including permanent workingcapital;

(4i) Invest any funds in any project prior to signing agreementswhich will provide the Botswana Development Corporation with the abilityto take remedial action should the value of its investmet becomeendangered; and

(S) Invest any funds in any project prior to the completion of athrough feasibility study.

F. Applicants for assistance from the Botsan Development Corporationwill be asked to cooperate with, and assist in, the preparation of afeasibility study, the undertaking of which will normally follow thesatisfactory completion of a preliminary questionnaire.

G. The Botswana Development Corporation normally will seek to financeor otherwise assist enterprises only where new productive assets are tobe created.

H. The Botswana Development Corporation's operations will be guided bysound commercial principles. The Botswana Development Corporation'sinvestment decisions will be based on sound appraisal methods, and willparticularly take into account the total financial requirements of theproject and the soundness of the resulting financial structure for theenterprise.

I. The Bets ma Development Corporation will finance only economicallysotuud, financiiLLy viable, technically-feasible projects and those whichhave or wil have competen management.

J. The Botswana Development Corporation will not normally manageenterprises, although it will use its beat endeavours to ensure theacquisition of competent management. It will, hoever, notwithstandingthese lmimtations, take such action as it considers appropriate when, incase a project supported by it is in jeopardy, it has to protect itsinvestment.

K. In consideriAg -whether or not to take a controlling interest in thevoting securities of the projects in which it invests, the BotswanaDevelopment Corporation will base its decision on relevant Governmentpolicies, and; where no specific Government policy directives areapplicable, the Botsana Development Corporation Will seek to maximizeits commrcial advantage.

-3- ANNEX 2Page 3

L. The Botswana Development Corporationts aggregate investmants inshare capital will not be allowed to exceed the Corporation's own networth.

M. The Botswana Development Corporation will seek to protect itselfagainst the exchange risks of foreign borrovings.

N. The Botswana Development Corporation will seek to diversify itsinvestments both geographically and by industrial sectors.

0. The Botswana Development Corporation shall charge, except in thecase of fUnds loaned or invested by its "Special Projects Fund", forits funds or services, interest rates, fees, or comissions which arecompatible with the prevailing market rates and/or which enable it toearn a reasonable return on its operations.

P. The Botswana Development Corporation will recruit qualifiedpersonnel for its operations.

Q. The Botswana Development Corporation will supervise its investmentsto protect its interests and to enable it to assist its projects to the

-acimum extent possible.

DFCDMay 26, 1974

ANNEX 3

BOTSWANA DEVELOPMENT CORPORATION

Board of Directors

(as of March 31, 1974)

Chairman: Mr. H,C,L. HERMANS (Botswana), Permanent Secretary,Minister of Finance and Development Planning

Directors: Messrs. A.JoL. CLARK (South Africa),Managing Director Outwich Ltd0 (Merchant Bank)

MAKOBOLE (Botswana),Permanent Secretary, Ministry of Local Government and Lands

S;To KHAMA (Botswana), Cattle FarmerJ . LISLE (British), Financial and Legal Consultant,

Ministry of Finance and Development PlanningR.No XANNATHOKO (Botswana),

Permanent Secretary, Ministry of Commerce and IndustryH.M. MacGREGOR (South Africa),

Chairman, Delta Metals CorporationMADISA (Botswana),

Permanent Secretary, Ministry of AgricultureP.1M. SEBOTHO (Botswana), FarmerP.L. STEBNKAMP (Botswana),Administrative Secretary of the Office of the President

Managing Director: Mro 1.0. STEPHENS (U.S.)

DFCDMay 26, 1974

ANNEx 4

BOTSWANA DEVELOPMENT CORPORATION

Organization Chart(as o' May 1973)

|BOARD l

EXECUTIVE COMMITTEE

MANAGING DIRECTOR(Mr. R, Stephens)

Investments Investments Property Development Accounting Administration(Studies, Management andAppraisals,_ ManagementPromotion)

1 Senior 1 Manager 1 General Manager 1 Chief 1 AdministrativeInvestment (Mr. Hinchey)* (Mr0 Bridgeland)* Accountant* Officer (B)Officer

(Mr. Hinchey)*

5 Investment 1 Accounts Clerk 1 Accounts 1 AssistantOfficers 1 Supervisor Clerk (B) Administrative(1 B; 4*) in Selebi-Pikwe Officer (B)

21 Non-Professional

* = expatriateB Botswana national

DFCDM4ay 26, 1974

ANNEX 5Page 1

BOTSWANA DEVELOPMENT CORPORATION

Projects ready to be implemented or under Consideration

A. The Commercial Development of the Center of Selebi-Pikwe

The population of this town, established two years ago in thevicinity of the copper nickel mines of Selebi-Pikwe, is estimated to increasefrom about 22,000 at present to 35,000 in the early 1980's,

On the basis of the projected population, employment and distri-bution of income and expenditures on food and commodities, it has beenestimated that by 1980, the commercial area located in the center of the cityshould extend over about 5 ha. It will include retail shops, offices, banks,service stations, etc. BDC was made responsible for its development by Govern-ment in 1972.

The current project envisages in the first stage (before the end of1975) the initial construction of five large blocks containing shops andoffices, two bank buildings and a petrol station, for a total cost of aboutR 2.5 million. Four other blocks and another petrol station are projected tobe added by 1978, raising the total cost to R 5 million. The first blockhas been completed in early 1974, and has been financed by a Government loan.Construction of the second block started recently. The petrol station and thetwo bank buildings (Standard Bank and Barclays Bank) should be built during1974, and be directly financed by their occupants. The cost of-blocks 2, 3 and4 is estimated at R 800,000 (foreign component about R 550,000). Rents chargedby BDC on the blocks have been projected at R 0.32 per-sq 0 foot, giving aninternal rate of return of about 15% on the investment. Shops are to beprimarily offered to Botswana nationals who will get licenses from the Ministryof Industry and Commerce.

B. The Beverage Project

Total capital cost = R 2,000,000Foreign exchange component = R 1,450,000BDC1 s projected investment = R 450,000

The beverage project consists of setting-up a company to producemalt beer and soft drinks, currently totally imported. The initial annualproduction capacity-would be 35,000 hl of beer, and 20.,000 hl. of soft drinks,in bottles and cans.

BDC had contacted a number of brewers,including UNIBRA (Belgium), TheOetker Group (Germany), South African Brewers, Carlsberg and Allied Breweries (UK)which submitted feasibility studies. After discussion, proposals from South

ANNEX 5Page 2

Africa Breweries and the Oetker Group were considered the best alternatives.Both companies had incorporated in Botswana a subsidiary for the projectand the Oetker Group was recently selected as BDC's partner to implementthe project. The total capital cost of the project is estimated at R 2.0million. The proposed selling price of beer (excise duty included) is R 49/hl.,as compared to a current wholesale price of R 53/hl.

The capital cost is expected to be financed by R 750,000 of sharecapital and a R 1,200,000 loan, BDC would hold 60% of the capital in theform of 10% participating cumulative preferred shares which have one voteeach, and the Oetker Group hold 40% in ordinary shares with two votes eachand no dividend guaranteed. Comnercial banks would make two loans ofR 600,000 each (7 years-10%): the first loan would be guaranteed by BDCand the Oetker Group, proportionately to their shares. The secured loanwould be secured by a mortgage on the companyWs assets. Employment createdtotals 100. The preliminary financial projections indicated a return ofabout 25% on share capital. The project will, in addition, have a positiveeffect on Government's receipts under the terms of the South AfricanCustoms Union Agreement.

C. The Selebi-Pikwe Hotel

Total capital cost = R 875,000Foreign exchange component = R 600,oooBDC's projected investment = R 875,000

The project is to build an hotel/restaurant (22 double rooms) with,as usual in the hotel industry in Botswana, a bottle store. No accommodationis presently available in Selebi-Piwe.

The total capital cost of the project is estimated at R 875,oooincluding a central unit designed to permit the extension of the hotel to 44 and 66rooms in years 3 and 6, at a cost of R 230,000 and R 350,000 respectively.

on the basis of a 60% occupancy rate, income statement is projectedas follows (RtOOO):

Revenue Hotel Bottle Store Total

Accommodation 48Bar 55Restalurant 54Bottle Store -

Cost of sales 44Gross margin 113 80 193Departmental expenses 32 10 42Administrative expenses - - 45Earnings before interest,

taxes and depreciation 106

ANNEX 5Page 3

The economic rate of return is estimated at about 15%.

3DC will build the hotel and lease it to an operating company inwhich the manager will take the majority; 1DC has contacted several hotelcompanies for the management.

De Other Projects

In the Industrial Sector

Tannery. The tannery project consists of establishing a tannery based onthecattle hides produced by the Botswana Meat Commission slaughter house inLobatse. The project is planned in three or four stages. During the firststage - a pilot phase of one year - the company would tan 50,000 hides tothe "wet blue"? stage. In stage 2, the tannery would go into full production,taking up to 200,000 hides/year. In stages 3 and 4, unscheduled, the tanningprocess would go further to "crust" and leather. Production would be exportedto South Africa and Europe.

The cost of stage 1 is estimated at about R 1,000,000. BDC willassociate with an experienced tanner to implement the project; it has alreadycontacted several possible foreign partners.

Ceramics. The project envisages production of glazed floor tiles from localclay, primarily for export. Total cost would be R 2.5 million, for an annualoutput of 375,000 sq. meters. BDC has contacted several promoters and inparticular a British group with interests in clay products in East Africa.Tests are being performed to determine the exact suitability of the claydeposits. A decision will be taken in 1975.

Cement plant.

- Consumption of cement in Botswana is about 70,000 tons/yearpresently. The project, which is at an early stage, consists of implementinga cement plant with an annual production capacity of about 15Q0,000 tons.British cement companies have shown interest in associating with EDC in thisventure. There is, however, little expectation that a decision be takenbefore the end of 1975, since trends for consumption of cement in Botswanaand possibilities of exports have to be studied carefully.

Bicycle Assembly Plant.

As a result of a promotional effort by BDC, two companies haveapplied for a license to assemble bicyles in Botswana; BDC will probablynot be initially an investor in the project but may take an option topurchase shares.

ANE SPage 4

Tapestry Weaving. 3DC will lend R 30,000 for this small projectconsisting ofestablishing a tapestry weaving village industry which is alsosponsored by aid agencies.

The Botswana Tire Corporation. Intends to extend its operations torubber religning, and BDC plans to Invest R 60,000 in the project presentlyunder study.

In the Agro-Industrial Sector

Mogobame Dam Project. The Government has asked BDC to take over itsshareholc3iig 3n the Mogobamue Irrigation Co., a joint venture between theGovernment and the Bamalete Tribe which has title-to over 100 ha. of irrigableland and water rights of 300 million gallons/ear. The project is to introducehorticulture plantings in this area, offering employment to a minimum of 200workers. BDC might invest R 100,000 through 1976.

,Talana Farm. At the* request of the Government BDC purchased fourfarms in he soutEh-eastern part of the country, on the Impopo River. Theproject-vis to develop cultivation of cotton, wheat and ground nut and cattlecearing.- BDC has hired the services of an experienced farmer, under a 3-yearcontract. BDC's invesments are projected at about R 450000 through FY 76.

Mochudi Tool Carrier. A small prodect, consisting of the establishmentof a compiny t manEtcure a multipurpose tool-carrier for farmers, inventedby a Canadian serving as a volunteer in Mochudi.

In the Tourism Sector

Francistown Hotel. A shortage of reasonable accommodation in thistown led SC to invest1gate the feasibility of a new hotel. Suitable partnersare being sought acid itJ is expected that final designs will be-prepared by theend of 1974, so that the hotel (4O rooms) can open during 1976.

Maun Hotel. Wun is the center of the north-western part of Botswana.The proj e_ i=ibe to use Maun as the center of development for tourismin the regio-ln and progressively as a tourist and wild-life research complex,starting with an hotel. Detailed plans will be made after the results of thetourist study are available.

Gaborone Hotel, The project is to build a 50-room hotel in Gaborone,for a total-cost of about R 1.3 million. The hotel would be erected in 1976,partly to replace the President Hotel, which BDC will transform into anoffice building,

In the Financial Sector

Insurance Company. The project is to form a full line insurance

NEX 5Page 5

company in Botswana. EDC would hold 51% of the equity, and an insurancebroker the balance. Implementation of the project awaits the appropriateinsurance legislation to be adopted by the National Assembly.

Botswana Finance Company. BDC projects an association with StandardBank, Barclays Bank, the National Development Bank and the Sardanis Group(Zambia) in a financial institution which would take over the leasingactivities of BDCts current subsidiary, and also offer hire purchase andterm loan finance.

The purpose is to set up a company which would offer hire purchasesschemes and make loans for construction of buildings and houses. Totalresources of the new company are expected to initially amount to R 1 to R 1.5million. Each partner would have 20% of the share capital, and the two com-mercial banks would make loans to the new company.

DFCD

June 3, 1974

HOTSWANA DEVELOJMEFt COtOPOORAT7OInvestns,nt Portfollo .s of M-ro, 31. 1974.

(in Rnd.) I

Date of Proportiof of ConpUnn C *DC 1.... Ktority .nd RateHose Aotiuir, nost.blshent ahr. .. oitel Aount Enuitv 12!oaPlovesftt qutetodin of itotee.t Obe.rystlo.e

Tr..s portAir Bot vm~a Air t..n.port 1972 1002 3 72,090 30 S . ...otrtetod -utl" ti.s. Profitble.

Dilod.nd of R 24.000 in 7Y73.

Tourism - Hotel.Holid.y I.n. LWs and op.r.to$Ostotwna HotsllCoriso in Gohorsess 1969 207 100.000 684,000 150 I Profit.bls - Doid.od of Rt. 30.000

SouthrSn Svn Opoerst.s hotel in Chebe 1972 207 2 u.a. 70 - .tJority harshold.r South Africon. StertedC.e Lodge operations Apri1 1973.

utotl Dv-lopnents Ovno 24 bon. - hotel AuGoboros.. (pr..id.st) 1973 IOZS 3 (12) 70 467,000 Donusd 97 .. pr.fttb1.. The hotel ill b. t.ouaformad

into QUite..s

CoyrnocinI - ToduetrielBotw..no. Di.oodVotwiog Company Diotnod sorting 1972 552 37 500 50000 1s I D. ber. has 452. Will etfrt gorting op-r&tir*n.

St so 1974. Preo.*tly C.taf L. being teined L

I 141.~~~~~~~~~~~~~~~~unA and sn.

Sotv-o TrrCorporati.o Tyr rotreadig 1971 25.97. 14,389 4,000 23 24.00o 6 y~o 9- Profitable.

30.000 Ovenod 107.

C.boron - Air.raft Airoreft1ntirpriisn HOintenncO 1971 41.71 n 000 14,000 10 9,450 5 yacr. 9H. Profitoble.

booco Con.tr-otio, 1973 317 5,100 ..* 200 21,300 Dend 101 St.rted op.-tione erly 1974. Znpa.ted to ho

Hydro Plu biog 1974 S17. 5,100 n.e. . . oroCions not yot terored.xinn.toos Hoteun Con.truotion 1973 201 (opdm - 700.1000 S.heidiry of Soro..is A-nOriatos.Oodi W000.0 Topsetry .... itg 1973 0.51 10 u .. 32 2,500 8 years 8S Cott.gs indu-try. Storted operation, in 1973.

Yionot I eviC

F.elo L-sing 1972 100l 50,000 35.000 - 58,800 DS_nd n. Wtil be tr.nsforerd intt rinnnia ISerit*& ofHotroenO

minrt & Co. Issurosce brok-r 1971 257 S,000 10,000 10 . ProfitobloHRysoro b Co. E.tat* ogot 1972 36.42 4.000 9,000 3 . Profitfblo.M.rco Ltd. Socrstirial Sereica 1972 201 IBOO 0,700 3 Pr.fitabl. Dividend of R 1.600 to HDC in 1973.

Mo.gob-o Torigotion Co-eroiel TFreing 1974 60S 23 _ Will start oprti:ton. nid 1974.

TIlrne F.or , 1974 1007. I n.e. so 69 700 Deand 9n ttrted oprttion corly 1974.kg.tlo-g Tool .orrier 1974 - - 1,500 D aund 8% Strted oup . .tio .on ly 1974.

!tgPettyflOflllnsOet

Itdu.triel Zototen Sdoetrial let.tes 1974 1001 3 W Hill etart opretion end 1974.

Coosootclal Holdings Con,retotal buildinss 1973 1O01 3 - - 564,926 D..nd 97. eOn- sd tets cnetroial block. being built in0o lolb-0Piko..

Devsio-np-t too. OffMIe buildings 1971 100 5.000 30,00 580.000 nand 97 odig is ocoopi.d by .OC and other ib Leggonoise. Pro fiteble.

R..identil Holdings Hotidintisl hnuse 1972 100% 3 (11,000) 300.102 bosad 9n rrsotly own 20 hosves ooepied by DC's otr ttogobeidiaries' eteff.

Helehbi-PtikCoesrcnil 0weelo ntCorparttie 1"n 1on0 I . Dorunt coMP&p

80W'. Totat LonaSquit, zmoloyent ottasndt,td

TotaL 222.923 1398 2,129,275ef 'Aioh nubhediori..

(anoe the. 301 uDO nmnd) 02,724 1798 2,061,828

I

ANNEX 7

BOTSWANA DEVELOPNENT CORPORATION

Income Statements

(R0OO)

April 15, 1970 1/ 1/ July 1, 1973June 30 1971 FY1972 FY1973 March 31L 1974(audited) t) (audited)

INCO

Sugar trade 733 607 703 530Interest on time deposits 23 59 75 59Interest on loans 2 6 49 121Dividends - - 54 30Rent 2 4 3 2Other - - 2 -

Total Income 760 67 o2

EXPENSESInterest paid - - - 32fAdministrative expenses 78 91 125Auditors fees 1 1 4 100Directors' fees 3 10 15Depreciation 14 15 12 8Other - - 5

Total Expenses 96 117- 161 140

Profit before taxation 664 559 725 602Taxation 200 175 200 180Profit after taxation 464 384 525 422

1/ Fiscal year July 1 - June 30.

DFaCDMay 28, 1974

ANNEX 8

BOTSWANA DEVELOPMENT CORFORATION1/

Balance Sheets

(Rt 000)

March 31,1971 1972 1973 1974

(audied) (audied) (=uIted) (unau-dited

ASSETS

Current Assets

Cash and Deposits 12 3 1 62Other 61 83 186 135

Total Current Assets T73W 6 197

Time Deposits at buildingsocieties 583 1,025 890 3677

(less borrowings) _ - 352 415Net T -1o253Y

Investments

Loans 46 45 1,609 2130Equity investments 25 31 153 222

Total Investments 7i 76 1,762 7352

Fixed Assets (net) 111 129 242 240

Total Assets 838 1,316 2,729 6051

LIABILITIES AND EQUITY2

Current Liabilities 273. 173 245- 21714/

Term borrowings - - 2926

EquityShare capital 103 281 1,945 1945Reserves 462 862 539 963

Total Equity 565 1,1143 2,4b4

Total Liabilities and 838 1,316 2,729 6051Equity====-====_==

/ After allocation of profits, as of June 302/ Of which taxation due = 2003/ Of which taxation due = 180/ Of which Government loan: 2500 - CDC loan: 426

DFCDMay 26, 1974

ANNEX 9

BOTSWANA DEVELOPMET CORPORATION

Consolidated Income Statements

(R'000)

April 1, 1970 -June 30, 1971(15 months) F11972 FY1973(audited - (adiuad) (audited-)

INCOME5

Sugar trade 729 607 703Interest on time deposits 23 59 75

t it loans 2 4 492~~~~ 63 ~~~~~1214

Dividends - - 54Rent 2 4 3Other _ _ 3

Total Income 756 674 887

EXPENSE3

Administrative expenses 78 91 125Auditors' fee 1 2 4Directors' fees 3 10 15Depreciation 11 15 12Other _ - 5

Total Expenses 93 118 161

Profit before taxation 663 556 726Tax 179 175 200Profit after taxation 484 381 526

DFCDJanuary 15, 1974

ANNEX 10

BOTSWANA DEVEL0P? CORPORATION

Gonsolidated Balance Sheetsas of June 30

(R'0cq)

1971 1972 1973

ASSETS

Current Assets 78 93 409Time Deposits 584 1,02%5 895

Equiit,y nv.st"nts 20 21 125Loans 30 41 47

Total Investments X T X

Fixed Assets (not) 128 309 1,976

Total Assets 840 1,489 3,452

LIABILITI]8 4N SUIT!

Current Liabilities 275 189 813Borrow1jsga - 160 16Equity:

Share capital 103 281 1,945Reserves 4~62 859 534

Total Equity 565 1,140 2,479

Total Liabilities and Eqiy840 1 ,489 345=

DFCDJ"u*47 15., 1974-

ANNEX 11

BOTSWANA DEVELOPMENT CORPORATION

Assumptions for financial projections(amounts in R'000)

1. BDC's projected investments are as follows (R'000):

F___ FY75 FY76 FY77 FY78

Sectors

Agricultural 300 300 300 300 300

Transports 50 50 50 50 50

Hotel-tourism 100 600 600 200 200

Industrial 200 600 600 600 600

Commercial property 800 800 800 600 600

Residential property 200 200 - - -

Industrial estates - 300 300 300 300

Total 1,650 2,850 2,650 2,050 2,050

(of which foreigncomponent) 1,110 2,120 1,980 1,660 1,660

2. Investments are broken down into:30% equity investment70% loan (average maturity 12 years, including a 2-year grace period)

3. Average cost of borrowings: 8%

4. Average interest on new loans: 10%

5. Return on equity investments: 10% on average portfolio

6. Sales of shares: 100, 150 and 250 in FY76 to FY78

7. Interest on deposits: 8% annually

8. Provision for losses: 2% on annual increase of loan and equity portfolio

9. Annual depreciation is offset by investment in fixed assets

ANNEX 12

BOTSWANA DEVELOPMENT CORPORATION

Projected income statements(ROO 0)

FY73 FY74 FY75 FY76 FY77 FY78

(actual)

Income

Sugar trade 703 560 130 130 130 1301/

Interest on deposit 75 101 100 - - -

Interest on loans 49 207 317 549 685 780

Dividends 54 70 107 135 244 290

Others 5 5 5 5 5 5

Total 886 943 659 819 1064 1205

Expenses

Administrative expenses 156 175 191 210 230 252

(of which depreciation) (12) (12) (12) (12) (12) (12)

Interest on termborrowings - 116 280 392 514 607

Others 5 -

Total 161 291 471 602 744 859

Profit before provisionsand taxes 725 652 188 217 320 346

Allocated to

Provision - 35 56 47 30 26

Taxes 200 196 57 62 96 105

Net profit 525 421 75 108 194 215

i net of interest paid on short term borrowings from building societies

DFCDMay 26, 1974

ANNEX 13

BOTSWANA DEVELOPWET CORPORATION

Projected balance sheets

as of June 30

(R'OOO)

1973 1974 1975 1976 1977 1978(actual)

ASSETS

Net current assets (58) 96 .92 27 210 16

Time deposits net ofborrowings 538 2000 500 - - -

Investments

Loans 1609 2864 4809 6499 7540 8475

Equity investments 153 648 1503 2198 2663 3028

1762 3512 6312 8697 10203 11503(less provision) - (35) (91) (138) (168) (194)

Net 1762 3477 6221 8559 10035 11309

Net fixed assets 242 240 240 240 240 240

Total 2484 5813 7053 8826 10485 11565

LIABILITIES AND EQUITIE

Borrowings

CDC - 408 373 338 303 268

Government/Aoans - 2500 2500 2400 2300 2200

IBRD - - 1200 2000 2600 2600

Others - - - 1000 2000 30000 290 7T 573 7203- O6

Equity

Share capital 1945 1945 1945 1945 1945 1945

Reserves 539 960 1035 1143 1377 155224b4 29 32905 30ti 32 3497

Total 2484 5813 7053 8826 10485 11565

DFCD May 26, 1974

ANNEX 14

BOTSWANA DEVELOPMENT CORPORATICN

Projected Uses and Resources

(in RIOOO)

FY 73 FY74 FY75 FY76 FY77 FY78acal) - -

Resources

Repayment of Loans - - 50 165 394 500Increase in share

capital 1/ 820 - - - - _Cash generation- 525 456 131 155 224 241Drawdown on borrowings:- IBRD - - 1,200 800 600 60- CDC - 425 - - - -- Government loans - 2,500 _- -

- Others (net) - - - 1,000 1,000 1s000Sale of shares 100 150 250

Total resources (a) l9345 3S3& 1,381 2,220 2,368 2,051

Uses

Fixed assets (net) 112 (2)Disbursements on

- Loans 1 564 s255 1,995 1,855 1,435 1,475- equity investment 127 495 855 795 615 615

Repayment ofGovernment loan - - - 100 100 100- IERD - - - - 60- CEO - 17 35 35 35 35

Total uses (b) 1,803 1,765 2,885 2,785 2,185 2s245

(a) - (b) =Valuation of netcurrent assets andtime deposits (458) 1,616 (1,509) 565 183 (194)

17 excluding depreciation

DFCD May 29, 1974

ANNEX 15

BOTSWANA DEVELOPMENT CORPORATION

Financial Ratios

(RtOOO)

FY/71 FY/2 FY/73 FY/74 FY1 5 FWt6 FY/77 FY/?8(actual) (projected)

1. Income Statement Elementsas % of Average Total Assets

Gross income 182 63 40 22.7 10.2 10.3 11.0 109

Less: Financial expenses - - - 2.7 4.4 4.9 5.3 5.5Administrativeexpenses 23 11 7 4.2 2.9 2.7 2.4 2.2

Gross profit 159 52 33 15.8 2.9 2.7 3°3 3.2

Less Provisions for loansand investments - - - 0.8 0.8 0.5 0,3 0.2Tax 48 16 9 4.7 0.8 0.7 0.9 0.9

Net Profit 111 36 24 10.0 102 1.3 2.1 2.1

2. Net Profit and Dividends

Net profit as % of year-end share capital 450 137 27 21.6 3.8 5.6 9.9 11.1

Net profit as % ofaverage equity 82 45 29 15.6 2.5 3.5 6.1 6.3

3. Debt to Equity Ratio

Long-term debt/equity - - - 1/1 1.3/1 1.8/ 2.2/1 2,3/1

4. Debt Coverage

Interest and PrincipalCoverage - - - 4.9/1 1.4/1 1.4/1 1.7/1 1.7/1

DFCDJune 4, 1974

ANNEX 16

BOTSWANA DEVELOPMET CORPORATION

Estimated Disbursement Schedule

($Oooo)

1974

Fourth quarter 800

1975

First quarter 500Second quarter 500Third quarter 300Fourth quarter 300

1976

First quarter 300Second quarter 300Third quarter 300Fourth quarter 300

1977

First quarter 200Second quarter 100Third quarter 100

DFCDMay 26, 1974