Botswana Stock Exchange (BSE) has finally demutualised to become a company incorporated under and in terms of the Botswana companies act. This signals that BSE which now changed its name to Botswana Stock Exchange Limited (BSE Ltd) divorced the statutory entity tag to take in full swing the profit making company status generating return on investment for its shareholders.
Established in 1989 and started full operation in 1994 as Botswana share market, the BSE has been governed by the Botswana Stock Exchange Act as a statutory parastatal under the Ministry of Finance. As of 2nd August 2018, the stock market now operates in the ownership setup similar to that of major exchanges such as JSE & Nairobi Stock Exchange. Botswana Stock Exchange is now a registered company under the Companies & Intellectual Property Authority (CIPA) Botswana.
Demutualisation is a process of transforming from a member owned, not-for-profit, entity to a for-profit, investor-owned corporation which involves changing the legal status, structure and governance of an entity. In the case of a stock exchange, it is the separation of the ownership of the exchange from the right to trade on the exchange. In the case of the then BSE, the Proprietary Rights of the members of the then BSE, as well as the cash injection by Government of the Republic Botswana, have been converted to shares in BSE Limited.
The man at the helm of this historic conversion Chief Executive Officer of the now BSE Limited Thapelo Tsheole briefed members of the media on Tuesday, revealing that the demutualisation of the BSE began in December 2015, when the BSE Transition Act, No. 2 of 2015 came into operation. “The Main Committee comprising of broker representatives and Government representatives, as well as the Minister of Finance and Economic Development, played a strategic role in the entire end to end process of demutualisation, along with management,” he said.
Tsheole highlighted that the transformation will significantly energise the capital market in Botswana, and the continent at large. “Looking at stock exchanges across the world, the pace of stock exchanges’ demutualisation has been rapid in developed markets and slower in emerging markets. This demonstrates the difficulty with which this process is accomplished given the diverse interests of the parties involved,” he said.
Tsheole however observed that on the part of BSE, the pace of demutualisation was exceptional and without hurdles. Botswana Stock Exchange Limited now joins the elite league of stock exchanges as seventh among twenty-eight stock exchanges in Africa to have undergone demutualisation. Thapelo Tsheole explained that to arrive at the name Botswana Stock Exchange Limited, his organization engaged stakeholders to solicit suggestions on possible names the bourse could adopt, post demutualisation.
“Through an internal process we proposed names such as Botswana Stock Exchange Limited (BSE Ltd), Botswana Securities Exchange (BSX), Botswana Securities Exchange Group (BSE) and Botswana Securities Exchange Holdings (BSE) ,and after thorough engagement with our stakeholders and even the public through several public statements we arrived at BSE Limited,” he said. Stock exchanges all over the world initiate demutualisation hoping to empower the market and to increase revenues and trading volumes.
However, the trend of stock exchange demutualisation continues to generate debate amongst experts on the impact of such transformation from mutual statutory organization to a shareholder held company. Observers note that the change in governance structure of an exchange is not important as demutualized exchanges usually still provide the same services and accrue the same benefits as in mutual exchanges.
Experts favour demutualisation on the basis that it opens up various opportunities for exchanges which include merging and consolidation among stock exchanges not only within the area they operate in but also across the borders in order to become more competitive, for example, Paris, Brussels, Amsterdam, Lisbon and LIFFE stock exchanges have combined to form Euronext Group and Euronext merged with the New York Stock Exchange .
The consolidation of stock exchanges enables them to devise new ways and strategies to make them more competitive hence impacting positively on stock exchange performance. The newly transformed bourse now forecasts exciting moves going forward. BSE Limited Executives told members of the media that it is the company’s ambition to self list .
However with the new organization and shareholder structure and form, BSE Boss said consultation with the Shareholders being government & stockbrokers will determine the approach and time for the proposed self listing. “Self-listing is an accepted practice in a lot of markets and it is a practice that we would like to adopt at the BSE. An opportunity for private investors to own shares in the BSE will become available when the BSE eventually self-lists,” he said.
This would mean shares of the demutualised BSE Limited, would be available for trading on the same stock market. The Nairobi Securities Exchange sold 38% of its shares in a $7.1 million Initial Public Offer in August 2014, and it self-listed soon afterwards. South Africa’s JSE Ltd did the same in 2006. Tsheole underscored that the demutualisation will result in transformation of the structure of the exchange and leads to an improved corporate governance structure to boost investor confidence and maximizes value creation.
‘This demutualisation and immediate corporatization of the Exchange brings forth enormous efficiencies that will enable the bourse to discharge its mandate and drive value for shareholders and stakeholders as we strive to become a world class securities exchange,” he said. The BSE is currently in the second year of its five year strategy in which it, amongst others, aims to grow the ratio of the BSE’s market capitalization to gross domestic product from 34 percent to 40 percent by 2021 as well as increase the number of domestic companies listed from 24 to 30 by 2021. In the 2016 financial year, the BSE realized revenues of P31.7 million and posted a profit of P8.4 million
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.