A key market development is the new ATS and CSD system
ESG asset issuance improves Botswana’s score
The Absa Africa Financial Markets index has ranked Botswana sixth in 2023, out of 28 countries which is an improvement from position eight recorded in 2022. New incentives for Environmental, Social, and Governance (ESG) asset issuance lifted Botswana’s score from 58 in 2022 to 59 in 2023.
Absa Africa Financial Markets index has become a benchmark for the investment community to gauge African countries’ market infrastructure and is used by policymakers and investors to learn from developments across the continent. The index assesses countries according to six fundamental pillars, being, market depth; access to foreign exchange; market transparency, tax, and regulatory environment; capacity of local investors; macroeconomic opportunity; and enforceability of financial contracts.
Botswana’s Pillar 3 (Market transparency, tax and regulatory environment) score rose by 9 points this year as it implemented new measures on this front. The Botswana Stock Exchange (BSE) approved a 25% discount on initial listing fees for sustainable bonds in July 2023. The bourse also launched a new Central Securities Depository (CSD) system alongside an automated trading system in September 2022. Absa index indicates that a local survey respondent mentioned this has ‘improved settlement efficiency and compliance with the International Organization of Securities Commission’s Principles for Financial Markets Infrastructures’.
The best performance for Botswana remains pillar 5; macroeconomic environment and transparency. Botswana scored 87 reflecting transparent fiscal and monetary policy decisions, as well as timely data releases for key macroeconomic variables. Absa notes that the country also has relatively low ratios for non-performing loans and external debt, where external debt is just 10% of gross domestic product. Botswana’s inflation outlook has improved in the 12 months to June. While inflation had been in double-digit territory in 2022, it has since fallen below 5% – within the central bank targets. Recent communications from the Bank of Botswana pin this decrease on lower food and fuel inflation and, in the latter, on recent policy tightening.
Botswana also scored highly for its relatively relaxed capital controls. According to the report, the country’s worst performance remains at pillar 6, legal standards and enforceability. This pillar considers the countries’ alignment with international legal and contractual standards for financial markets, centered around the enforceability of standard master agreements (GMRA).
Moemedi Phetwe, Deputy Director, Financial Markets Department at the Bank of Botswana (BoB) notes however that the assessment was carried out against the old Banking Act. “The new revised Banking Act, which is still to come into effect, has gone some way in addressing some of the key concerns, particularly netting arrangements,” Phetwe said when giving a market update at the Bond Market Conference. “Our preliminary assessment shows that commercial banks are happy with the new Act, but this is still being looked at by their Treasurers and legal teams.”
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