BSE Deepens Botswana&#8217;s Capital Markets

As tight global financial conditions create tough challenges for the depth of African capital markets, the Botswana Stock Exchange (BSE) continues to make progress in improving product diversity and expanding options available to investors. Kopano Bolokwe, Head of Product Development at the BSE, made these comments last week at the launch of the Absa African Financial Market Report. According to Bolokwe, over the years, the BSE has made significant progress not just in terms of products but also in respect of technology or market infrastructure – the Central Securities Depository (CSD) system that moved the BSE from paper certificates to electronic accounts. He also mentioned the Automated Trading System (ATS) that moved the BSE from an open outcry method of trading to electronic trading, strengthening investor confidence with safeguards such as the Investor Compensation Fund, and risk minimisation and stability with the commissioning of the Settlement Guarantee Fund. Bolokwe said all these are important facets and cornerstones of a well-functioning capital market and are inescapable, non-negotiable if one wants to be a world-class securities exchange. Regarding product diversity, the question of whether the offerings are enough requires careful consideration. Bolokwe stated that the first Fixed Income Instruments or Bonds were listed on the BSE in 1997, just over a decade since its inception. "Until around 2004, we didn't have Securitised Products – Asset-Based Securities," he said. In 2010, Absa, the host and trendsetter, listed the first Exchange Traded Funds on the BSE – the NewGold ETF. He revealed that in 2017, the BSE listed a Supranational Bond and a Eurobond. Until 2021, the domestic bourse did not have Commercial Paper (a subset of Fixed Income). In 2004, BTCL listed Commercial Paper, but that was it – the product went quiet, and 2021 saw a resuscitation, to the point that this is now a flagship product. In 2023 alone, the BSE listed 34 CPs. Moreover, the BSE in 2023 listed the first Sustainable Bond (also a subset of Fixed Income, and again pioneered by Absa). Until 2023, the BSE did not have Actively Managed ETFs – quite important and historic, as they became the second exchange after JSE to do this – important in that ETFs are typically passive. "Also, until 2023, we didn't have Preference Shares – then came the GAIA Climate Fund Pref Shares," Bolokwe added. Over and above this, the BSE has developed frameworks and regulations for listing Depository Receipts, Special Acquisition Companies, Investment Funds, and various other products. However, he noted that it is not enough to just have products – it is essential to commercialise them, democratise them, and see activity in them, addressing the needs of the people for whom they are made. Bolokwe gave an example that when Absa listed the inaugural Sustainable Bond, only one asset manager invested. He continued that the uptake of ETFs by institutional investors is below par. "It took us over a decade for trades in ETFs to reach P2 billion. ETFs are a passive product, and asset managers are active investors," he said. Further, Bolokwe said despite the impressive returns in Gold (+75 percent) and Platinum ETFs (+125 percent), the volumes are still low relative to equities. He is worried that the bond market is illiquid and convincingly elitist, looking at the spread of investors. INVESTMENT CULTURE STILL IN ITS INFANCY Bolokwe stated that the culture of investment banking in Botswana is in its infant stage, with Absa as an exception, given the products they have brought to the market. He added that this is even though parent companies of Botswana's local banks have investment banking capabilities, and it could be a matter of passporting products and skills into Botswana. According to Bolokwe, the banking sector is not adequately exposing customers to capital markets offerings – and, in his judgment, to a point where the entry barriers are so high, especially with respect to Government Bonds – the minimum investment ranges from P10,000 to around P50,000. BUILDING LONG-TERM INVESTOR CONFIDENCE IN BOTSWANA'S CAPITAL MARKETS Bolokwe submitted that capital markets need to be better attuned to individual countries' goals. He explained that there is a need to help more people become investors. With most of the reforms and developments across the world, Bolokwe said it is clear that countries are awakening to the realisation that, for decades, markets primarily served the wealthiest, the elite, and large institutions. "Now, there is an imperative and fundamental undertaking to democratise markets, make them accessible, make them simpler to understand and participate in, and make them speak to the ordinary and the marginalised," he said. As an example, he cited lawmakers in the US considering Baby Bonds – an investment account for every American at birth. Countries are offering tax-incentivised investments to lure investors and increase capital formation, mobilisation, and allocation. However, he said, creating more investors is only half of the battle. Every market has two sides: the people who invest and the places where capital gets put to work. To build long-term investor confidence in Botswana's capital markets, Bolokwe said the key is to empower the investor by democratising capital markets and expanding the universe of opportunities for locals to fund economic growth, with gains flowing back to them – that's empowerment. He said it's the sort of empowerment anchored on accelerating private sector-led economic diversification. Policy Reforms are quick wins. "In this regard, the BSE is at the forefront of advocacy on certain reforms that could spur SME listings and truly transition Botswana into a private sector-led economy," he revealed. The BSE has lobbied with the Government for companies applying to be listed or listed on the BSE to be treated as citizens and exempted from PPRA Regulations requiring entities involved in Government Procurement to be 100 percent citizen-owned. The PPRA Act is being amended. Another reform is moving away from a Government-led model to one that fosters competition, reduces state enterprise (SOE) ownership and dominance, and encourages private sector participation. Part of this includes listing SOEs on the Exchange following their revitalisation to make them attractive to investors. Bolokwe further said there are many other ways, such as leveraging fintech innovations by introducing digital trading platforms – something the BSE is finalising for launch this year.

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