Development finance institutions important for growth

In June, we had the pleasure of being part of a panel discussion organised during the African Hospitality Investment Forum (AHIF) in Windhoek.

Our fellow panellists were experts in hospitality and finance, bringing different perspectives and opinions to the fore when it comes to investing in the tourism and hospitality sector.

Some assume that commercial financial institutions and the Development Bank of Namibia (DBN) fulfil the same role, but we do not. We are also not in competition with commercial banks. Development finance institutions (DFIs) are partners in development and collaborate with organisations that understand how critical development is to Namibia and Africa. Tourism and hospitality are among the essential sectors in which DBN is active.

Namibia is not unique in having established a development finance institution. In most countries across the world, development banks, in one form or another, have played a vital role in the development of economies, uplifting and modernising nations. The World Bank was created in 1944 to provide loans and grants to the governments of low- and middle-income countries and fund capital projects. It helped rebuild economies and countries after the devastation of World War II. Germany's KFW, established in Germany in 1948, does much the same as the World Bank and other development banks. DBN works to improve livelihoods across Namibia by investing in capital projects in different economic sectors.

'Patient capital'

DFIs across Africa emulate this, but very much within an African context. These are specialised institutions that provide medium- and long-term credit lending facilities. Their main objective is to serve the public interest instead of earning profits. For instance, they provide financial assistance to both public and private sector institutions and are crucial to Namibia's growth. The finance that DBs provide is sometimes called 'lazy capital,' which is capital that can take its time to produce a return on investment. However, we prefer to think of it as 'patient capital'. DFIs provide long-term finance as we look to the long-term development and impact and growth of the projects we invest in.

It may come as a surprise, but we often work with commercial financial institutions to ensure that a project such as a lodge, hotel or tour operator gets the relevant funding in the short, medium and long term. DBN is not a for-profit institution, but we do need to keep a close eye on our loan book. If we do not get a return on our investment at some point on the projects we finance, we will cease to be able to continue to fund projects in the future. DBs differ from commercial banks, as banks facilitate short-term financing. The structure of DFIs means they avoid extending short-term loans because development is a long-term process.

Value chains

During the AHIF panel discussion, it became clear that the difference between commercial and development banks lies in the fact that DFIs don't look at projects in isolation because they cannot be derisked. In short, DBN would be reckless if it were to fund a project in isolation without understanding the ecosystem. We believe that understanding the tourism and hospitality ecosystem is vital for successful project funding and development. It represents a whole value chain of companies and businesses, where each link plays a vital role in the tourism experience of a country.

Every link in the hospitality chain must be developed, which is critical for the whole sector to thrive and offer job and revenue security to those employed and operating in the sector. Developing an ecosystem is not done in a vacuum and the partnerships that DBs have with local and international commercial financial institutions form the bedrock of a nation's long-term socio-economic growth and development. It certainly does so in Namibia.

*John Steytler is the CEO of the Development Bank of Namibia while Hellen Amupolo is its chief investment officer.