QUESTION: What does integration mean for the Botswana Stock Exchange (BSE) and how would it help grow the market? SYNOPSIS ON THE PRESENTATION Botswana is a land locked country in Southern Africa which is slightly smaller in size than Texas with a population of 1.8m people. Botswana is rich in minerals and is the largest producer of diamonds in the world with a global market share of 20%. It also has massive coal reserves, copper, nickel, natural gas, soda ash, potash and small amounts of gold. Botswana also exports Beef to the EU. Botswana is perhaps best known for its rich wildlife resources and the famed Okavango delta referred to as the “last Eden”. Botswana is the richest non oil producing country in Africa with a GDP per capital of $16,400 (in PPP terms) and $5400 in current terms. Botswana gained independence from the British in 1966 and has been commended for its democratic government, political stability and economic stability. The World Bank has listed Botswana (the only African country to be so listed) amongst 13 countries identified for sustained high growth. Botswana’s credit rating is similar to that of Japan and its foreign reserves exceed 26 months of import cover. The Pula is a stable currency and 60% to 70% of Botswana’s savings are exported. At present diamonds contribute significantly to Botswana’s economy and account for 33% of GDP, 70% of exports and 50% of government revenue. The cost of mining diamonds is expected to increase after 2020. In order not to succumb to the “resource curse” and sustain growth Botswana has to reduce its dependence on diamonds, encourage exports and transit from a government dominated to a private sector lead economy. The development of financial markets to ensure that the wealth realized from diamonds work for the benefit of Botswana is as important. This will include branding Botswana’s capital and creating a sovereign wealth fund. At present Botswana’s economy is dominated by government. A privatization master plan has been prepared wherein state owned institutions to be privatized have been identified. Privatization of state owned enterprises provides the means for accelerated capital market development. The BSE has had several meetings with PEEPA, the government’s privatization agency to discuss the need to list entities that will be privatized. The key institutions in transforming Botswana’s economy from mineral resources to financial services include the BSE and International Financial Services Centre. These institutions will be expected to work closely with each other in promoting the development of the capital market in Botswana. In the above context, Botswana cannot afford to have an internal focus and is committed to develop its markets based on international standards. Integration with the international financial community will assist Botswana in its endeavours. Many models of integrating markets in Africa have been discussed, starting with establishing a Pan African Exchange to that of establishing a Southern African Exchange. CoSSE’s proposed alternative is to promote cross trading of securities with the objective of unifying Southern African Exchanges through a “hub and spoke” type architecture. BSE is in the process of acquiring the infrastructure that would help Botswana integrate with other Southern African Exchanges and with the international financial community. A CSD was implemented in May 2008 and trading will be automated in mid 2009. The regulatory structure of the BSE is being reviewed and extensive changes will be made to the structure of the BSE which will transit from that of a parastatal to a company. BSE’s listing rules and member regulations are also being revamped. The regulation of capital markets which was earlier carried out by the Ministry of Finance and Development Planning has now been transferred to the newly established Non Bank Financial Institutions Regulatory Authority. The BSE has undertaken many market development initiatives which has resulted in turnover and liquidity significantly increasing over the past 2 years. Campaigns to attract foreign investors will commence with the implementation of infrastructure to service investors. Privatizations offer attractive possibilities of growing listings on the BSE. Plans are also underway to widen and deepen the instruments being traded. Development of debt instruments, introducing securities denominated in foreign currencies and listing ETFs are being pursued. The transition of Botswana’s economy from its dependence on mineral resources to financial markets affords many opportunities for international financial services providers and companies with an interest in developing business in Southern Africa. Integration of Financial Markets would help Botswana to attract investment and provide local companies access to foreign investment. It would also provide the basis for creating value to the savings that are exported.