Business News of 2014-01-07

China EXIM holds back US$150m from Venture Capital Trust

The China Exim Bank has held back US$150 million it approved for the Venture Capital Trust Fund to deepen its operations.
This follows the inability of the Ministry of Finance to offer approval for the loan.
Although the executives of China Exim approved the loan, it needed the Government of Ghana, through the Ministry of Finance, to offer an assent to the loan documentation (a form of government guarantee) for disbursement to be effected.
This was contained in the annual report of the VCTF for 2012, a copy of which was made available to the GRAPHIC BUSINESS.
Securing the China EXIM loan would have significantly bolstered the operations of the country’s only Venture Capital financier, which has so far leveraged its initial GH¢24 million seed money three-fold.
This means that VCTF could easily have created a portfolio of about US$1 billion equity financing for small-scale enterprises in its second round of to spur economic growth.
Sources from the Finance Ministry told this paper on condition of anonymity that the government’s inability to offer a guarantee for the loan was because of the rising public debt and fiscal deficit about which concerns had been raised internally and by development partners.
Checks by the GRAPHIC BUSINESS indicates that China Exim withdrew the loan somewhere in August 2013, which means Venture Capital has to start afresh, should it decide to pursue it.
The Minister of Finance, Mr Seth Terkper, announced in the 2014 Budget that the government would, going forward, wean some government agencies to borrow their own funds on the strength of their balance sheets.
According to the annual report of the Fund, it disbursed a total of GH¢1.26 million in the 2012 financial year to Venture Capital Finance Companies (VCFCs), in response to capital calls.
The 2012 disbursement brought to 59.5 per cent the total committed capital and amount total disbursements since inception to US$10.11 million.
The Chief Executive of the Trust Fund, Mr Daniel Duku, said the government released GH¢10 million during the year under review, bringing the government’s total endowment since 2006 to 32.4 million.
However, the VCTF estimates that the minimum expected return for funds under management amounted to $2.9 million.
The Chairman of the board of directors, Mr Joseph Owusu Acheampong, said although the fund had initiated a number of programmes, they could not be implemented in full because of the lack of funding and resources.
“The government of Ghana continues to be our only source of fund through the National Reconstruction Levy and an additional budgetary allocation of GH¢10 million which was disbursed in 2012,” he said and added that expansion efforts to rope in more small-scale enterprises (SMEs) had been hampered by the lack of funds.
However, since the repeal of the National Reconstruction Levy in 2006, the only reliable source of capital inflow for the Trust Fund has been curtailed, with no replacement to warrant the sustainability of one of Ghana’s most creative and innovative approaches to solving the perennial dearth of long-term and low-cost financing for SMEs.
The Trust Fund is now expecting new inflows from the government so that it can make new commitments to viable businesses which require their support.
Already, the Trust Fund has attracted matching funds from the Dutch entrepreneurial development bank, FMO; the French development bank, PROPARCO, the Swiss Investment Fund for Emerging Markets (SIFEM), Social Venture Capital (SOVEC), the Finnfund of Finland, and Oasis Capital.
Partners drawn from among local financial institutions include the HFC Bank, the National Investment Bank, the Agricultural Development Bank, the Ghana Commercial Bank; trusts and insurance companies such as the Social Security and National Insurance Trust (SSNIT), Gold Coast Securities; Ghana Union assurance; SIC Insurance Company Ltd and Fidelity Capital Partners.
With unavailability of long-term capital for SMEs in the country, Venture Capital has become the surest way of delivering patient capital to businesses to enable them to grow. It is a well-known fact that venture capital investing has spurred the development of major economies in Europe and North America.
The Venture Capital Trust Fund (VCTF) was established by ACT 680, 2004 by the Government of Ghana to provide financial resources to Small and Medium Scale Enterprises (SMEs).