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‘Develop Botswana’s capital market’

Publishing Date : 02 July, 2019

Author : ALFRED MASOKOLA

Botswana has been urged to increase its internal borrowings and further develop its domestic capital market to prepare for rainy days. This was reiterated at the Bond Market Conference hosted by Botswana Bond Market Association in Gaborone recently.


Giving key note address at the conference Dr. Michael Atingi-Ego, Director of Macroeconomic & Financial Management Institute of Eastern & Southern Africa said Botswana has strong macroeconomic environment attributed by low inflation and strong fiscal balances and thus the country should have a strong capital market. Dr Ego noted that the country however currently has a number of issues contributing to lack of liquidity in secondary market. “Botswana needs to develop capital market for future needs when government surpluses decline,” he said.


Ego told the audience that Botswana needs clearly defined and prioritized debt management objectives that balance between sovereign debt, running down banking system balances and bond market development. He noted that developing Secondary markets and corporate bond market was a cumbersome process by nature, that comprised of various challenges and requires planning and various stakeholder commitment to achieve. “Improving liquidity is key and it requires enhancing market infrastructure through legal and regulatory framework, clearing and settlement system,” he said.


He highlighted that capital market development requires proper information dissemination mechanisms to facilitate trading and protect investor interests. “If you are to improve liquidity in the market you will also need coordinated stakeholder approach to identify country specific impediments to reform sequence for bond market development, legal, regulatory, accounting and tax issues,” said Dr Ego.


According to speakers at the conference corporate bond market development depends on company financing patterns and requires well developed yield curve to facilitate the pricing of corporate bonds. Botswana was also advised to work with International Organizations to develop LCBM –CwA, WB and Joint Capital Market Development for country specific intervention on developing liquid, diverse and long-term financing.


African Development Bank was noted as a key stakeholder that Botswana could engage to promote bond market data transparency. The Macroeconomic & Financial Management Institute of Eastern & Southern Africa (MEFMI) Director offered assistance in the areas of organizational framework, debt data management and domestic debt management.

Evolution of Botswana’s Capital Market

Botswana has been internationally recognized among the fastest growing economies in the world. Botswana’s development has been particularly shown through the exponential growth in the Gross Domestic Product (GDP) in the decades following independence, infrastructure development, improved standards of living, and reduction in poverty, and impressive socio-economic performance ratings by multiple international organizations, among other indicators.


While the mining sector has for a long time remained the back bone of the economy, the country has made significant strides in developing its financial services sector and increasing the sector’s contribution to GDP. In the same token, the local capital markets have registered impressive growth over the years and have been an important avenue for capitalizing broad-based economic growth, economic empowerment as well as economic diversification.


According to the research undertaken and published by the Botswana Stock Exchange, and Botswana Bond Market Association the development of the bond market in Botswana Commenced in 1997 with the issuance of a BWP 50 million bond by Botswana Development Corporation (BDC). By 1999, three more bonds were floated on the BSE and these were floated by Botswana Telecommunications Corporation (BTC), Investec South Africa, and Botswana Building Society (BBS).


During these years and leading to 2003 there was no risk-free yield curve, the only reference points were the Bank of Botswana Certificate (BoBC) rate, the Bank rate and the Prime rate. In an effort to increase the competitiveness and lure lenders away from investing in BoBCs on a recurring basis, most bonds at that time were priced with reference to the BoBC rate. Furthermore BSE says there seemed to be no incentive for neither the public sector nor the private sector to consistently issue debt instruments due to consecutive years of fiscal surplus.


The private sector could conveniently borrow needed funds from commercial banks and as a result, the growth of the bond market was slow in the early stages of its establishment. The noticeable growth in the size of the bond market in 2003 was largely attributable to the issuance of the first 3 Government bonds (BW001, BW002 and BW003) under a Note Issuance Program which ran until 2008. The BW001, BW002 and BW003 were 2-year, 5-year and 12-year bonds of BWP 750 million, BWP 850 million and BWP 900 million respectively.


The issuance of these bonds was a momentous step as it triggered a host of other issuances by parastatals, banks and larger corporate bodies. This also broadened the diversity of issuances from the private sector by retail, financial services, and property and banking entities.

African Markets

On the larger Africa space experts at the conference noted that yield curves in African capital markets do not go beyond 5 years for most countries. Albin Kakou, Executive at the African Development Bank noted that there are no Government benchmark-basis for pricing corporate bonds in most African countries.  “African Capital Markets are facing the challenge of shallow and illiquid markets which are made of undeveloped market Infrastructure (CSD’s) as well as irregular benchmark auctions and undiversified investor base,” he said.


Mr Kakou advised that primary dealer’s frameworks be revised. The African based lender says the continent needs to develop a comprehensive data base to provide updated, reliable and complete information on African domestic bond markets. According to Albin Kakou this would help in improving the availability and transparency of African fixed income markets-related data as well as assisting in reconciling and standardizing data produced by several institutions, using different concepts and methods and enhancing the quality of financial statistics on the continent.

Botswana currently has 40 constituent bonds, of which 33 are corporate bonds with 24 fixed being rate bonds. Government has 7 bonds on issue. Total nominal amount of Bonds on issue adds up to over P15 billion. To further develop Botswana‘s capital market this week Botswana Stock Exchange (BSE) CEO, Mr. Thapelo Tsheole, was part of a distinguished panel discussion that deliberated on, 'Building Strong Capital Markets: Focus on Good Governance and Transparency' at the Bloomberg Emerging & Frontier Forum 2019 held at the new Bloomberg Headquarters in London earlier today.

Hosted by multi billionaire and one of the world wealthiest businessman Michael Bloomberg in collaboration with Aberdeen Standard Investments, Fitch Ratings and the Institute of International Finance. This flagship event was able to bring together heads of state, ministers, central bank governors and top executives to share their insights into the opportunities, risks, and growth potential of emerging and frontier markets.

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