Botswana: Country and Foreign Investment
The Botswana Stock Exchange is a small but thriving exchange located in Gaborone, Botswana. The market was established in 1989 and became the Botswana Stock Exchange in 1995. It is governed by the Botswana Stock Exchange Act. All listings were initially included in the only index, the Botswana Share Market Index, which is weighted according to the volume of shares in issue and the current bid price. However, as the market developed and diversified in terms of domestic companies and dual foreign companies listed, the need for additional markets indicators arose. Three distinct indices were introduced to reflect the market diversity and these are; domestic company index (DCI), foreign company index (FCI) and the all company index (ACI). As well as equities, BDC bonds and Investec Floating Rate Notes are traded. Private investors are estimated to account for under 10% of the total market capitalisation.
The number of companies listed on the Botswana Stock Exchange increased from 16 in 2001 to 30 in 2010, market capitalization, including domestic and foreign companies, was just under USD56bn, this was a 16% increase on December 31, 2009. The number of listings stood at 30 at the end of 2010, consisting of 21 domestic listings and 9 foreign listings.
The Government has proposed to repeal the Botswana Stock Exchange Act and replace it with a Securities Act, which will provide for trading of all types of bonds in the Stock Exchange, modernise trading through the introduction of electronic clearing, settlements and record storage, streamline the governance of the Stock Exchange by defining the roles of different stakeholders, update the capital requirements for members of the Exchange, and introduce provisions to deter market manipulation and inside trading. According to the exchange's 2009 annual report, the new Securities Act was slated to be introduced during 2009 but appears to have been put on hold.
In June 2004 seven medium and long term Quasi-government bonds valued at P1 billion were listed on the stock exchange increasing the total value in the bond market four-fold to P1.8 billion.
The licensing authority for brokers in Botswana is the Ministry of Finance. Membership may be corporate or individual.
Trading occurs by the open outcry system, and settlement is on a T + 5 basis for both local and overseas clients.
As part of the BSE’s strategy to develop the capital market, a major development underway at the BSE is the implementation of a Central Securities Depository (CSD), which commenced in October 2007. This implementation of the CSD will bring prompt, efficient clearing and settlement of trades and the reduction of risks inherent in the process. The CSD was implemented in 2008.
With the introduction of the CSD, the settlement cycle was tightened and the BSE shortened it to T+3 in conforming to international standards and to reduce settlement risk. The CSD also made it possible for the BSE to record and analyze trading information more efficiently thereby assisting in the deployment of its marketing strategy more effectively.
Subsequent to implementing the CSD, the BSE hopes to commence to work on implementing an Automated Trading System (ATS). This development will support the BSE’s marketing initiatives by making it easy for both Botswana and Foreign investors to trade on the BSE. It was originally intended that the ATS would be implemented in 2009, but this was pushed back to 2010 and at the time of writing the BSE plans to complete the process by December 2011.
In addition, the BSE Act of 1994 is to be replaced by the Securities Act and was due to be put before Parliament in summer 2011 but appears to have been delayed. Once in force, the Securities Act will set up an appropriate operational and regulatory legal framework in efforts to align it with International Best Practice and cater for innovations in financial markets around the world. The exchange is also involved in the development of more instruments which are more than traditional shares (equities) to be listed in the exchange, and in July 2010 listed the Newgold ETF which had risen by 6.9% by the end of December 2010.
There is a 15% withholding tax on dividends, reduced by the 2011/2012 budget to 7.5% with effect from the 2012 tax year, although IFSC companies are exempt; Capital gains tax is 15%, but, again, IFSC companies are exempt.