ABSA’s Head of Markets Africa, George Asante, says Botswana has an astonishing potential to turn into the continent’s financial services hub based on its growing foreign investment interest and its growing market depth.
Asante echoed this during the 2nd launch of Absa Africa Financial Markets Index. The Index is a survey meant to rank the maturity, openness and accessibility of 20 financial markets in Africa inclusive of Botswana based on six fundamental pillars, covering market depth, openness, transparency, legal environment and macro opportunity.
He said Botswana ranked 5th in the market depth component and has the potential to improve on the market size and liquidity and diversity of products in different markets. Asante indicated that Botswana stand in a good position to be investment destination based on its relaxed foreign exchange controls.
However he pointed out that the country has to improve more on the capacity of local investors’ criteria as Botswana ranks 4th with scale of 64 out of 100 and therefore said more financial literacy awareness should be done.
The report findings revealed that countries are progressing with policies that support the development of financial markets across the continent with South Africa continuing to lead the index due to its strong financial market infrastructure and a robust legal framework. Asante noted that Botswana this year rose to the second place from third last year.
With regards to the aspect of Market transparency, tax and regulatory environment the index report placed Botswana fifth behind Nigeria, South Africa, and new strong emerging economies and markets of Rwanda and Mauritius respectively.
Consequently, there should plans afoot to review and relax tax and regulatory environment which is vital in attracting foreign investment, encouraging domestic participation and aiding market development.
The Governor of Bank of Botswana Moses Pelaelo when delivering key note address said Africa is the best and open attractive investment destination of choice in the financial markets which wealth and investor confidence can be drawn from.
“For Botswana to be ranking second just behind South Africa indicates that there is potential to compete against the best regionally. For Africa at large there is a need for good auditing and accounting standards, independent judicial frameworks and stable source of funding from governments to invest in good infrastructural development, then Africa will turn into a competitive trading Centre,” he said.
The Managing Director of Barclays Bank of Botswana Reinette van der Merwe said the index provides countries with valuable insights and tools to improve the state of the financial markets by broadening and deepening their understanding of the requirements of local and international investors with African leaders developing robust markets and prime condition for sustainable and inclusive growth.
Liquidity Challenge
Financial market experts said African financial market sector due to the relative small size. The Director of Capital Markets at NBFIRA, Juliana White, said there is need to increase more listings in the local bourse to address the liquidity challenge.
Botswana Stock Exchange Limited (BSEL) CEO, Thapelo Tsheole, said the foreign exchange liquidity remains low across African markets and as such no enough foreign exchange turn-over is generated. On the other hand, the index report showed that the overall liquidity is generally low, with 15 countries having equity market turnover of less than 10% of market capitalization. South Africa’s open and highly liquid foreign exchange market has exposed it to capital outflows which other countries can follow suit in.
Regional integration
Dr Keith Jefferies, Managing Director of Econsult, pointed out that the variation between the high and low performers in the report is based on the fact that some countries have closed financial sector and are not allowing foreign investment to occur. He said it is very important for countries to look into the weaknesses and improve in terms of policy setting agenda in the financial market sector.
The index report revealed that many national exchanges in Africa are small, liquid and inefficient and as such local investor capacity is limited and therefore fostering closer integration according to the experts is an important area of focus.