Domestic capital market buoyant

Establishing a Local Currency Bond Market (LCBM) is certain in Botswana’s resilient and dynamic financial market, which gives it a more competitive edge over other African counterparts on financial sector growth.

The buoyant financial sector also contributes vitally in boosting the promising domestic bond markets.

Financial experts made these observations on Thursday during the Bond Market Conference held in Gaborone and organised by the Botswana Bond Market Association (BBMA).

Held under the theme “Strengthening the Bond Market to support the Fiscus and Private Sector Development”, the conference focused on the growth prospects of domestic capital markets.

Sandra Leila Boumah, Hub Leader at the International Finance Corporation (IFC), said Botswana boost opportunities in the financial debt market which need to be issued in local currency.

She said with strong capital markets, the country should increase participation in attracting foreign investment.

“Domestic capital markets in this country is destined for more growth as this is buoyed by the fully recovery of the country’s domestic economy projected to grow by 4.2% in 2019. Strong domestic capital markets forms the backbone of economic growth,” she said.

Boumah further said IFC has since issued bonds two of Botswana entities in 2017 so as to stimulate Local Currency Bond Market (LCBMs). 

The IFC, a sister organisation of the World Bank, unveiled its debut Kgalagadi Bond to finance a $25 million (P250 million) investment in the Botswana Building Society (BBS).

“The IFC investment will help to strengthen BBS’s financial stability and assist the demutualised society to introduce new products and services for under-served market segments, including Small Medium Enterprises,” she indicated.

She said the Kgalagadi Bond issued by IFC, which was over-subscribed, is 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.

Harnessing efficient domestic capital markets – according to Boumah – will take a regular working relationship between local market regulators with international bond issuers. However, she said it was vital to strengthen the local bond market which yields support for the private sector development to diversify the economy.

Growth barrier

The Executive Director, at Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI), Dr Michael Antigi-Ego said improving liquidity should be priority.

He is of the view that liquidity in the capital markets impedes growth stating that if improved this will enhance access to robust capital market as well as infrastructural development.

Dr Antigi-Ego also emphasised the important role anchored by local currency bond markets (LCBMs) in improving the resilience of the domestic economy’s financial systems.

“Botswana has got more competitive edge because of its strong government excess surplus with which must be wisely injected into foreign reserves. Private sector needs to be developed as it plays a crucial part in raising the bond market too,” he charged.

He noted that high liquidity, fragmentation and size of the current bond market are important for the development of Local Currency Bond Market (LCBM).

Potential Fiscal hub

The country has been portrayed as a potential financial hub, buoyed by its favourable macroeconomic environment which boost of low inflation and interest borrowing rates.

Moreover, the 2018 Absa Africa Financial Market Index ranked the country as the 5^th in the region with large market depth component, with vast potential of improving its market size on financial service sector. Botswana is also said to be standing in a good position as investment destination of choice due to its relaxed foreign exchange controls.

However, it was bemoaned during the conference that many of the domestic capital markets in Africa are small, liquid and efficient as compared to the other advanced markets. As a result, this leads to limited local investor capacity with fostering of closer integration between regional bond market participants according to experts should be priority area of focus.