Botswana Stock Exchange (BSE) intends to optimise Botswana’s competitive advantages by establishing Botswana as a regional financial hub, BSE Chief Executive Officer, Hiran Mendis revealed this week.
Mendis who will be departing end of this year as his contract comes to an end said, “The strategic intent is to position the BSE as a gateway to regional and international financial markets given its many competitive advantages.” According to BSE boss, the strategy underscores the need to utilise the BSE as a platform for the trading of international financial instruments. Following the main committee’s approval in January 2015 to explore this initiative, BG Business understands that BSE has commenced discussions with institutions that could assist in this venture.
“This initiative will assist local fund managers optimise risk and returns given that Botswana presently exports 60-70 percent of contractual savings without creating value locally,” said Mendis. Currently the local bourse is faced with challenges mainly lower levels of liquidity, fragmented bond market as well as low levels of financial literacy and awareness about the stock market.
Although liquidity is low at the domestic bourse, Mendis noted that it has however tremendously improved in the last three years. Much of the improvement is primarily attributed to the introduction of automated trading system in 2012. BSE has developed strategies aimed at improving and sustaining high levels of liquidity such as market education, attracting companies to list and introduction of new instruments to invest in. As for the bond market, trading of bonds is fragmented resulting in inefficiencies in pricing and access. The BSE’s initiative will centralise the trading of bonds and provide a means for deepening the capital market.
Moreover, retail investors will be provided an opportunity of accessing the stock market for the purchase of bonds. “Retailers have shown much appetite in investing in the capital market,” Mendis highlighed. Much like the impact that the automated system had on the development of the equity market, centralising the trading of bonds using the infrastructure of the BSE and Central Securities Depository Botswana will result in improving the liquidity in the bond market and make bonds accessible to retail investors. It would be possible to introduce repurchase agreements as a future development in order to enhance liquidity of the bond market.