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
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”