Asset Management Company (AMC) as a Tool for Positive Towards Government Finance – Case Study of Botswana Parastatals

Abstract

Out of P6537.7 million capital employed by ten major parastatals (Public Sector Undertakings) in the total assets for the year 2000, The Government of Botswana participated in equity of P4392.7 million and outstanding loans from Public Debt Service Fund (PDSF), Revenue Stabilization Fund (RSF) and Development Fund (DF) were P2094.1 million (Bank of Botswana, 2001). The return on equity is only 3.5% (Table 1). The funds, which should have been used for other developmental purposes, are locked up and generating a meager return. As the servicing funds are given on a less rate of interest for a longer period, it is not possible for government to get the money back from the parastatals at an early date. Hence, the only alternative available to government is to get the present values of the future money by either selling these loans to private parties by means of issuing Asset Based Securities (ABS) or transferring these assets to a specially created company known as Asset Management Company (AMC) whose main objective is to float the shares both nationally and internationally backed by the assets so transferred to AMC. In this context, AMC is discussed covering the organizational set up, procedure of administration, functions, benefits to & funds contributed by AMC to government finance.

(Key words: Asset Management Company, Privatisation, Securitisation, Government Finance).

African Journal of Finance and Management Vol.12(2) 2004: 72-87