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ANNUAL REPORT

BANK OF

BOTSWANA

2005

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BANK OF BOTSWANA ANNUAL REPORT 2005

BOARD MEMBERSas at December 31, 2005

B K MolosiwaBoard Member

G K CunliffeBoard Member

L K MohohloGovernor and Chairman of the Board

O A MotshidisiDeputy Governor

B MoeletsiBoard Member

C S Botlhole-MmopiBoard Member

B BoleleBoard Member

S S G TumeloBoard Member

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BANK OF BOTSWANA ANNUAL REPORT 2005

BOARD MEMBERSas at December 31, 2005

L K MohohloGovernor and Chairman of the Board

S S G TumeloBoard Member

G K CunliffeBoard Member

B BoleleBoard Member

B MoeletsiBoard Member

B K MolosiwaBoard Member

C S Botlhole-MmopiBoard Member

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BANK OF BOTSWANA ANNUAL REPORT 2005

CONTENTS – PART A

Statutory Report on the Operations and Financial Statements of the Bank in 2005

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1. An Overview of the Bank 15

Objectives of the Bank 15

Functions of the Bank 15

Structure of the Bank 16

Strategies 17

2. Report on the Bank’s Operations 19

Introduction 19

External Relations 20

Management and Administration of the Bank 20

Monetary Policy Implementation 21

Reserve Management 22

Banking and Currency 22

Banking Supervision 22

Technical Services 23

Protective Services 23

3. Annual Financial Statements 25

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BANK OF BOTSWANA ANNUAL REPORT 2005

CONTENTS – PART B

1. The Botswana Economy in 2005 53

Output, Employment and Prices 53

Public Finance and the 2006 Budget Speech 58

Exchange Rates, Balance of Payments and International Investment Position 64

Money and Capital Markets 69

2. The Role of Capital Markets in Economic Development – Botswana’s Experience 77

Introduction 77

Botswana’s Financial Sector Development Strategy 78

The Role of Capital Markets in Economic Development 82

The Evolution of Capital Markets in Botswana: an Overview 89

Comparison with other Developing Capital Markets 99

Capital Market Development and Macroeconomic Management 105

Conclusion 108

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BANK OF BOTSWANA ANNUAL REPORT 2005

CHARTS AND TABLES

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Charts

Chart 1.1 Growth in Real Gross Domestic Product 53

Chart 1.2: Diamond Production 53

Chart 1.3: Economic Growth by Sector 54

Chart 1.4: Botswana Infl ation 57

Chart 1.5: CPI Infl ation by Tradeability 57

Chart 1.6: International Infl ation 57

Chart 1.7: Development Spending by Economic Sector (2005/06 – 2006/07) 61

Chart 1.8: Nominal and Real Effective Exchange Rates and Relative Prices 64

Chart 1.9: Real and Nominal Effective Exchange Rates 65

Chart 1.10: Outstanding Bank of Botswana Certifi cates (BoBCs) 70

Chart 1.11: Yield to Maturity on BoBCs and Government Bonds 71

Chart 1.12: Real Interest Rates – International 72

Chart 1.13: Annual Growth Rates of Credit 72

Chart 2.1: BSE Listed Securities by Category (Percent) 90

Chart 2.2: Botswana Stock Exchange: Annual Transactions (Number of Trades) 92

Tables

Table 1.1: Government Budget 2004/05 – 2006/07 (P million) 61

Table 1.2: Pula Exchange Rates Against Selected Currencies 65

Table 1.3: Balance of Payments: 2000–2005 (P million) 66

Table 1.4: Imports in 2005 (P million) 67

Table 1.5: Levels of Foreign Investment in Botswana by Industry (P million as at December 31, 2004) 68

Table 1.6: Levels of Foreign Investment in Botswana by Country (P million as at December 31, 2004) 69

Table 2.1: Primary Assets and Liabilities of Financial Intermediaries 84

Table 2.2: Botswana Financial Sector – 1995 to 2005 (Year end, P million) 94

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BANK OF BOTSWANA ANNUAL REPORT 2005

Table 2.3: Holdings of Government Bonds: end year 2004-2005 (P million – Percent in brackets) 96

Table 2.4: Issue of DPCF Bonds – June 2004 98

Table 2.5: Comparative Statistics – Selected Stock Exchanges in Africa and Other Emerging Countries 101

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BANK OF BOTSWANA ANNUAL REPORT 2005

ABBREVIATIONS USED IN THE REPORT

ABCB African Banking Corporation Botswana

AGOA Africa Growth and Opportunity Act

AIDS Acquired Immunodefi ciency Syndrome

ASEA African Stock Exchange Association

BAB Bankers Association of Botswana

BBS Botswana Building Society

BDC Botswana Development Corporation

BDF Botswana Defence Force

BEAC Business and Economic Advisory Council

BoB Bank of Botswana

BoBCs Bank of Botswana Certifi cates

BOCCIM Botswana Confederation of Commerce Industry and Manpower

BRVM Bourse Regionale des Valeurs Mobilieres

BSB Botswana Savings Bank

BSE Botswana Stock Exchange

BSM Botswana Share Market

BURS Botswana Unifi ed Revenue Service

CEDA Citizen Entrepreneurial Development Agency

CPI Consumer Price Index

CSO Central Statistics Offi ce

DCI Domestic Company Index

DFIs Development Finance Institutions

DPCF Debt Participation Capital Funding

FCAs Foreign Currency Accounts

FDI Foreign Direct Investment

FNBB First National Bank Botswana Limited

GDP Gross Domestic Product

HIV Human Immunodefi ciency Virus

HSBC Hong Kong and Shangai Banking Corporation

ICT Information and Communications Technology

IFC International Finance Corporation

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BANK OF BOTSWANA ANNUAL REPORT 2005

IFSC International Financial Services Centre

IIP International Investment Position

IMF International Monetary Fund

IPOs Initial Public Offerings

JSE Johannesburg Stock Exchange

KBAL Kingdom Bank Africa Limited

MFDP Ministry of Finance and Development Planning

MPC Monetary Policy Committee

MPS Monetary Policy Statement

MTR Mid-Term Review

NBFIs Non-Bank Financial Institutions

NDB National Development Bank

NDP National Development Plan

NEER Nominal Effective Exchange Rate

NEMIC National Employment, Manpower and Incomes Council

OTC Over the Counter

OPEC Organisation of Petroleum Exporting Countries

PDSF Public Debt Service Fund

POPF Public Offi cers Pension Fund

PPADB Public Procurement and Asset Disposal Board

REER Real Effective Exchange Rate

RSF Revenue Stabilisation Fund

SACU Southern African Customs Union

SADC Southern African Development Community

SDR Special Drawing Right

SIT Sechaba Investment Trust

USA United States of America

USD United States Dollar

VAT Value Added Tax

VCB Venture Capital Board

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