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Pension Funds gear up for new law regime


The biggest ever financial scam of all times was perpetrated by a financial services firm. Bernard Madoff, shook the American regulation regime from its deep slumber.

The big ponzi scheme, which involved the staggering amount of $50 billion (P500 billion), was perpetrated by a person once a non executive director of the NASDAQ stock exchange, who was widely regarded as the epitome of clean business. Madoff used a scheme, which lures investors in by guaranteeing unusually high returns. The name originated with Charles Ponzi, who promised 50 percent returns on investments in only 90 days.

Ponzi schemes are run by a central operator, who uses the money from new, incoming investors to pay off the promised returns to older ones. This makes the operation seem profitable and legitimate, even though no actual profit is being made. Meanwhile, the person behind the scheme pockets the extra money or uses it to expand the operation. To avoid having too many investors reclaim their "profits," Ponzi schemes encourage them to stay in the game and earn even more money.

Bringing it back home, Botswana has not experienced misconduct in the pension fund sphere, “by the grace of God,” as an observer has put it.

And now the pension fund sector will be required to be more transparent, communicate better and be more explicit in laying out how it operates, because of new legislation.

Parliament last year, approved the Retirement Funds Bill of 2014 which will regulate pension funds in Botswana. The Act will repeal the Pension and Provident Funds Act and re-enact it under a new name, the Retirement Funds Act.

The latest available figures show that management companies and asset managers held total Assets Under Management of P59.7 billion as at March 31, 2014 being a 7 percent growth from P55.9 billion recorded as at March 31, 2013.

In a question and answer session with BusinessPost, the organisers of a workshop aimed at familiarizing industry stakeholders with the new Act, gave some insight on the new Act.

“The big stick here is that those who breach this Act will face punitive action,” said Jeremy Andrew, the facilitator of the workshop, who had an integral role in the drafting of the new law.

“Many will say that NBFIRA is toothless; this new law gives it the power to perform its oversight role,” Andrew said succinctly.

“What has impressed me most is that code of conduct as it has come to make the trustees to look more inwardly and ask themselves if they are doing the right thing,” explained Edna Dambe, CEO of Money Matters, the facilitators of workshop to school local service providers in the pension fund spectrum, on the ramifications of the new legislation.

“It is a service they have promised and they are going to append their signatures to this promise. If you look at how the required communications, investment and risk policy feed into each other, they really offset the possibility of making risky investments with members’ monies,” said Dambe.

Juliana White, an independent consultant said that the new Act would not only bring transparency, it will ensure that there are no perceptions of malpractice.

“Investment strategies should be laid out so that there are no questions about investments that are made; members of the funds will see for themselves that investments made are in line with the investment policy,” said Mrs White.

In the period ended December 31, 2013 there were ninety-three (93) active Standalone Pension Funds licensed in Botswana, including six (6) Umbrella Funds with two hundred and fourteen (214) sub-funds.
On the part of asset managers, Afena Capital managing director, Bakang Seretse, said that they “highly embrace new Act as it improves the whole ecosystem of retirement funds.”

Seretse said that with the law requiring service providers to be locally domiciled or having their principal offices in Botswana, it gives the regulator the power to perform its role of oversight.

“Botswana is approaching a period of transition and structural changes. So the challenge for pension funds, regulators, service providers such as ourselves, and Government is to reassess how to best achieve the investment objects of retirement fund long-term savings with a consideration for the long-term development objectives of the country,”

“Yes, pension Funds are already being used in Botswana to finance infrastructure projects, real estate development and other forms of private equity. Yet, the average asset allocation to these alternative asset classes is still relatively low for most pension funds at below 2 percent so there is definitely scope for more “new investments” to be designed to create long term, sustainable opportunities,” Seretse said.
 
However, a public servant who preferred to remain anonymous, told this publication that the reduction of the number of board members is actually a reduction in the representation of employees as the public service is a very broad constituency that needs represented well.”


“I prefer the Namibian model that sets out two boards for every fund; one that oversees governance and another that oversees investments,” said the source.


“Currently there is some semblance independence as the different committees; with the new Act, there will be no segregation of roles as the same few people will sit in the same committees and oversee themselves.”
Seretse said the new legislation goes a long way in addressing some of the risks associated with the industry.


The regulator, NBFIRA (Non Bank Financial Institutions Regulatory Authority), articulated in its 2014 annual report that the pension fund landscape in Botswana are faced with risks such as:

Interest Rate Risk: The possibility that the demand for money market instruments may decline due to an increase in interest rates. Increased interest rates mean less borrowing by consumers;

Concentration Risk: Of the twelve (12) registered asset managers; seven (7) handle pension funds, six (6) of which are mandated to manage the government pension funds.

This exposes the Asset Managers to concentration risk as they are largely dependent on the one client;

Valuation Risk: The local market faces risk in the companies’ valuation processes and abilities, arising from the fact that the processes are carried out by the group companies in South Africa while local staff is not fully equipped with knowledge of the processes and consequently, are unable detect marginal errors as only reasonability tests are performed;

Over Reliance on Group or Foreign Counterparties: Asset Managers and Management Companies that are part of a group or have foreign counterparties tend to adopt groups policies and fail to align them to the specific businesses they are undertaking, resulting in policies that do not capture the essence of their operations.

Regulatory Challenges: The key challenge for the Investment Institutions section is the process that is undertaken in the promulgation of legislation, this process has delayed the section’s efforts to issue licenses to CMIs (asset managers).

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Business

China’s GDP expands 3% in 2022 despite various pressures

2nd February 2023
China’s Gross Domestic Product (GDP) expanded by 3% year-on-year to 121.02 trillion yuan ($17.93 trillion) in 2022 despite being mired in various growth pressures, according to data from the National Bureau Statistics.

The annual growth rate beat a median economist forecast of 2.8% as polled by Reuters. The country’s fourth-quarter GDP growth of 2.9% also surpassed expectations for a 1.8% increase.

In 2022, the Chinese economy encountered more difficulties and challenges than was expected amid a complex domestic and international situation. However, NBS said economic growth stabilized after various measures were taken to shore up growth.

Industrial output rose 3.6% in 2022 over the previous year, while retail sales slightly shrank by 0.2% data show that fixed-asset investment increased 5.1% over 2021, with a 9.1% hike in manufacturing investment but a 10% fall in property investment.

China created 12.06 million new jobs in urban regions throughout the year, surpassing its annual target of 11 million, and officials have stressed the importance of continuing an employment-first policy in 2023.

Meanwhile, China tourism market is a step closer to robust recovery. Tourism operators are in high spirits because the market saw a good chance of a robust recovery during the Spring Festival holiday amid relaxed COVID-19 travel policies.

On January 27, the last day of the seven-day break, the Ministry of Culture and Tourism published an encouraging performance report of the tourism market. It said that domestic destinations and attractions received 308 million visits, up 23.1% year-on-year. The number is roughly 88.6% of that in 2019, they year before the pandemic hit.

According to the report, tourism-related revenue generated during the seven-day period was about 375.8 billion yuan ($55.41 billion), a year-on-year rise of 30%. The revenue was about 73% of that in 2019, the Ministry said.

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Business

Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Business

Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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