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BSE innovates to get more liquidity

The Botswana Stock Exchange (BSE) is on a quest to grow. This growth will be evident in its market capitalization as well as the liquidity of shares listed on the bourse.

BSE deputy chief executive officer, Thapelo Tsheole, at a meeting of the Afena Capital Press Club last week, said that the top five listed companies on BSE, which represent 20 percent of the companies on the board, contribute 70 percent of total turnover of stocks, a situation that is not ideal.

“Ideally, liquidity should be broad based and should be across all the sectors,” said Tsheole.

Letshego, which has led the BSE for three years running, is in the company of Choppies, Sechaba, Sefalana, Botswana insurance Holdings Limited in the top five.

In total, P1,637 billion has been traded on the exchange, from beginning of the year up to July, with a daily turnover of P11,6 million, a big improvement from 2014 and 2013, with P8,8 million and P9,3 million, respectively, in daily trading.

“We are going to approach fund managers such to help us to attract foreign companies to list on the BSE,” said Tsheole. “Unlike the New York Stock Exchange, because of our structure, we have to go out and look for investors.”

The BSE, in relation to a mega stock exchange like the Johannesburg Stock Exchange, with a trillion US dollar market capitalization, is very small but has the potential to development the foreign investor appetite for the country, according to Tsheole. The BSE market cap as of 2012 stood at about US $ 4,587,518,585 as of 2012.

He said that Botswana’s lack of exchange controls was an advantage for investors who would want to move their profits out of the country and that advantage would be harnessed in attracting companies to lies on the BSE.

Botswana abolished all exchange controls in 1999, after having removed all controls on current account transactions, and controls on capital account further liberalised, in 1995.

Other countries like Zambia and Mauritius have followed suit while others like South Africa still have them in place, arguably to their own detriment, according to some observers.

With regards to privatization, Tsheole said that the privatization was still born, with the Policy having been introduced s far back as “We have never had as many calls and enquiries as when the BTC (Botswana Telecommunications Corporation) was supposed to list,” said Tsheole.  

He said that companies are reluctant to but the effect of them listing could only be exponential growth, citing Choppies Group and Sefalana, who are both growing phenomenally.

The BSE has started the process of introducing market makers, as a way to improve the liquidity of its securities. It will be only the second on the continent after Nigeria, to make this move.

Market making is described as the act of simultaneously submitting bid and offer prices into the Automated Trading System (ATS) with the intention of infusing liquidity in securities that are not frequently traded on the stock exchange.

Tsheole said the implementation of market making on the local exchange involves the appointment of institutions that would have applied to be registered as market makers, “to unlock liquidity, leading to better price discovery and an increase in the depth of the market.”

Market is also said to create ease entry and exit of investors, which will lead to, enhanced portfolio diversification, management and development of other securities.

Market makers are typically banks and brokerages, which stand by all hours of the trading day, with a firm, ask and bid price on a stock.

The BSE Transition Act and the Securities Act finally were promulgated in 2014, after being mooted more than ten years ago. The new laws await drafting of Regulations by the Ministry of Finance and Development, and will see the BSE being demutualised, becoming a company and ultimately also listing on its own stock exchange.

The BSE was established in 1989, when it was known as the Botswana Share Market (BSM). Then, there were only 5 (five) listed entities, with a single broking firm in the market which was also charged with facilitating trading on the exchange via matching orders. As the years passed, it was becoming clear that there is a need to separate the running of the exchange from the broking firm and this set in motion preparation for the establishment of an independent exchange. The authorities only established the Botswana stock exchange (BSE) as a separate legal entity in November 1995 following the passing of the BSE Act of 1994.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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