The purpose of the BSE’s 2022 – 2026 strategy is to expand the Exchange beyond just Botswana and Africa but into the whole world. To achieve this strategy, several initiatives have been put in place, one of them being partaking in the African Exchanges Linkages Project (AELP).
The AELP is a joint initiative by the African Stock Exchanges Association (ASEA) and the African Development Bank (AfDB) aimed at unlocking pan-African investment flows, promoting innovations that support diversification for investors, and addressing depth and liquidity in the markets. It is funded by a grant from the Korea-Africa Economic Cooperation (KOAFEC) Trust Fund managed by AfDB. According to Tsheole, the AELP consists of nine of Africa’s leading securities exchanges, working together in the African Exchanges Linkage Project (AELP) to boost pan-African investment flows and bring more liquidity to African markets. It involves the design and rollout of the AELP Link technology platform for routing orders and trade confirmations between stockbrokers on the nine exchanges participating in the pilot phase of the AELP.
The BSE recently toured the USA market, chiefly – according to Tsheole – to meet potential issuers, intermediaries as well as international investors. In the US, Tsheole says they met with the International Finance Corporation (IFC), the largest global development institution focused on the private sector in developing countries. A member of the World Bank Group, the IFC advances economic development and improves lives of people by encouraging growth of the private sector in developing countries. Tsheole says with the BSE looking to enhance its securities trading activity outside Botswana, it is ideal for the Exchange to enhance its linkages with the IFC.
“The IFC will work with the BSE to structure a fund that will help mentees of the Tshipidi Mentorship Programme (TMP) and secure funds for them to invest,” he explains. The fund, he says, will also be used to advance what he calls “total impact investment”. Total Impact investing (TMP) is an investment strategy aimed at generating specific beneficial social or environmental results in addition to financial gains. Impact investments may take the form of numerous asset classes and may also result in many specific outcomes. According to Tsheole, the point of impact investing is to use money and investment capital for positive social results.
Through a fund which will be set up by the BSE through the assistance of the IFC, Tsheole believes that such impact investment will help the Tshipidi mentees. TMP that was first introduced in 2019 as a strategic initiative and means to groom companies that could potentially raise capital, improve governance and leverage from increased publicity through the stock market in the short to medium-term. The IFC, which is a AAA company, is a sister organisation of the World Bank and a member of the World Bank Group. A few years back, it invested in Botswana through its then debut Kgalagadi Bond to finance a $25 million investment in the Botswana Building Society (BBS). The IFC’s support to BBS was then aimed at promoting financial inclusion and access to housing finance in Botswana.
The long-term funding supported transformation of the Society into a full service commercial bank financing underserved clients, including small and medium enterprises. The Kgalagadi Bond, which was over-subscribed, funded the investment. It was the first local currency bond issued by a non-resident issuer in Botswana and also the first by an AAA-rated institution in the country. This was also the first amortising bond in the market and formed part of the IFC Pan-African Domestic Medium Term Note Programme.
BBS is currently a leading domestically-owned financial institution and the largest residential mortgage lender in Botswana. The underlying objective of the Programme is to provide practical training through a comprehensive and interactive programme that covers key themes necessary to prepare and position a company to list on the BSE. According to Tsheole, by this, especially with the Fund to be created by both the IFC and the BSE to support Tshipidi mentees, the BSE may just have a potential IFC listing in the pipeline.
“We also had an opportunity to meet with the Milken Institute Group which currently plays a role in providing training to the African Capital Markets,” he reveals. The Milken Institute is an independent economic think tank based in Santa Monica but with offices in Washington DC, New York and other places. It publishes research and hosts conferences that apply market-based principles and financial innovations to social issues in the US and internationally. Two capital market players in Botswana have benefitted from the Milken Institute programme, and Tsheole says more will be sent there for such training.
During the US tour, synergies were also created with embassies in Washington DC and New York because “they are the port of entry for investors”, says Tsheole. “We want information about investing in Botswana to be readily available at the embassies and for it to be easily accessible to potential investors.” According to the CEO of the BSE, the US tour also entailed creating linkages with various asset/fund managers based there, some of whom make significant investments in Botswana’s capital markets. “We met with the UN Pension Fund CEO and his CFO and discussed various things about investments in Botswana,” he notes. “They have invested over P3 million in Botswana and from our engagement, more investments are coming.
The BSE team also met a US-based company doing market making. A market maker is an individual participant or member firm of an exchange that buys and sells securities for its own account. Market makers provide the market with liquidity and depth while profiting from the difference in the bid-ask spread. According to Tsheole, the BSE will list about six Exchange Traded Funds (ETFs) between the latter part of this year and early next year through the facilitation of the market making company. The ETFs will come from all over the world.
BSE’s partnership with Nasdaq
Dating back to 2019, the BSE established a mutually beneficial relationship with Nasdaq, a global electronic marketplace for buying and selling securities. Its name was originally an acronym for National Association of Securities Dealers Automated Quotations. Nasdaq started as a subsidiary of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA). Nasdaq was launched after the Securities and Exchange Commission (SEC) urged NASD to automate the market for securities not listed on an exchange. The result was the first electronic trading system.
Nasdaq opened for business on 8 February 1971. It has a result in the form of one of the best trading technologies in the world that the BSE is currently adopting. In 2019, Nasdaq sponsored the African Stock Exchanges Association (ASEA) Conference which was hosted by the BSE in Kasane where it was also a key speaker. “We currently use some Nasdaq technology at the BSE,” says Tsheole. “They provide a learning curve on how they developed as well as how they manage their operations. We are learning and adapting their technology to also ensure efficiency in securities trading at the BSE, as well as to position the BSE as an internationally recognised trading platform.”
The BSE is currently developing depository receipts which can be traded on the Exchange. Its team met the US trading custodians who take care of investments here. The custodians usually come to Botswana annually to assess US investments here. According to data available on the BSE, US and UK investors top the list of foreign investors on the BSE.