Botswana - Regional Financial Services Hub

Dr. Thapelo Matsheka

Botswana Conference & Exhibition Centre20 November 2013

Times are changing…

Phase 1: 1970’s – 1980’s: poor growth; Cold War Client States, poor governance, weak economic policies, structural adjustment and liberalisation programmes.

Phase 2: 1990’s: economic recovery starts and escalates; economic growth in Sub Sahara Africa was 7% in 2007, 5.5% in 2008 and 4.5% in 2009

Phase 3: 2010’s: impact of global economic crisis is less dramatic, global race for commodities, improved macroeconomic conditions & political stability. GROWTH: 5.5% in 2010, 7% in 2011, 5.8% in 2012, 1/3rd have growth rates of more than 6%

2

2010

5.5%5.8%

1970-1980

1990

Times are changing…

May 2000

December 2011

“After decades of slow growth, Africa has a real

chance to follow in the footsteps of Asia”

March 2013

“… the world’s fastest-growing continent”

Barclays:“Africa now represents

20% of Group profits (£ 1,3bn pounds)”

November 2013

$400B$2T

1B54

20%$93B

5.9%

500M

Africa Beauty in Numbers54 Sovereign states

1B People living in Africa, a ninth of the world’s population 1 (Nigeria 164M, nr.7 globally)

$2T Africa’s collective GDP (more than India, less than Brazil) 2 being just 1.1% of global GDP 1

~85% Of total global chromium/platinum reserves held in Africa (40% gold, 15% oil)

20% Compound growth in FDI projects 2007 to 2011 2

7 Number of African countries among the fastest growing economies in the world 2010 to 2015

$400B Value of South Africa’s infrastructure program 2

$93B Funds required p.a. from 2010-2020 to close the infrastructure gap with other developing regions

5.9% Average real GDP growth p.a. from 2000 to 2011 1

500M People in Africa with one or more cell phone (and rapidly increasing)

>50% Of the total population living in cities by 2030

Sources:1 Swiss Re; Insurance in Sub Saharan Africa: Gearing Up for Strong Growth; 20122 Ernst & Young; 2012 attractiveness survey – Africa3 Deloitte; Deloitte on Africa, The Rise and Rise of the African Middleclass

FDI into Africa Total value slightly decreasing but number of (smaller) projects increasing, mostly in manufacturing, extraction & infrastructure

5

Source: FDi Intelligence, data as of 3 February 2012; Ernst & Young

Growingdiversificati

on

Botswana has, uniquely in Africa, all the essential ingredients for a thriving financial services sector. These include:

Botswana in Numbers

Core activities:

• Banking and financing operations transacted in foreign currency;• The broking and trading of securities denominated in foreign currency;• Investment advice;• Management and custodial functions in relation to collective investment

schemes• Insurance and related activities (captive insurance and administration

thereof); e.g. Aon Risk Management which has done work in Mali, Ghana, Uganda

• Registrar and transfer agency services;• Exploitation of intellectual property;• Development and supply of computer software for use in the services

described above;• Cross border leasing;• Capital raising

Botswana IFSC…

Through the Botswana IFSC,

accredited Companies have

access to Botswana’s expanding Double

Taxation Treaty network

Source: http://www.botswanaifsc.com/index.php

The Botswana IFSC

Criteria Description Regional perspectiveHuman Capital The availability of good personnel

Flexibility of the labour market Business Education Development of employment pool

Currently a big challenge Some areas have access to

a larger pool

Business Environment

Regulation Taxes Levels of corruption Economic freedom Ease of doing business

Single regulator Economic freedom might

be a key differentiator

Market Access Levels of securitisation Volume and value of trading in

equities and bonds Clustering effect

JSE, BSE, etc.

Infrastructure Cost and availability of office space Transportation Communications

Capacity issues Bandwidth

General Competitiveness

Price levels Economic sentiment Perceived quality of life

Impact of inflation, cost of living

Living in different area offer very different lifestyles

Requirements for Regional Role

 • The country should increase its importance as a ‘gateway’ from South

Africa to continental African markets.

• Creating closer ties with South Africa will create synergies and opportunities for both nations and will allow Botswana to benefit from South Africa’s position in the region. Both of these can lead to foreign firms increasing their presence in Botswana thereby creating a regional financial hub. Once a regional hub is established, individual companies will have greater relevance to compete throughout the African continent.

• The challenge for policy is therefore how best to support the synergies between Gaborone and Johannesburg through co-operative cross-border governance.

• The platform created between the two countries bodes well for regionalism.

• Removal of visa requirements is a key factor given the historical ties of Botswana & RSA- from SACU in 1910.

Requirements for Regional Role…

Financial Secrecy PerceptionBotswana’s 73% secrecy score in the 2013 Financial Secrecy Index (FSI) shows that it must make major progress in offering satisfactory financial transparency.

If Botswana wishes to play a meaningful part in the modern financial community and to impede and deter illicit financial flows, including flows originating from tax evasion, aggressive tax avoidance practices, corrupt practices and criminal activities, it should take action and do away with any laws deemed as “Secrecy Bills” that regulate the classification, protection and dissemination of information.

Source: http://www.financialsecrecyindex.com/

Transparency and Investor Perceptions

• Secrecy has led to corruption in the African continent as evidenced by the Corruption Index Perception

• This African problem hinders regional approach to IFSC. A step required for clearer perceptions.

Ease of Doing Business Report presents quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies.

Botswana, currently ranked 56, continues to improve its score, but as for most of Africa, it’s a different story.

Ease of Doing Business

Botswana is less diversified than South Africa, Namibia and Morocco

Economic Diversification

IFSCs do provide opportunities to diversify the economy but historically, the are known to generate less employment opportunities.

Employment Opportunities

E-LegislationElectronic Commerce

• Data Protection- new legislation required• Electronic commerce- new legislation required• Electronic signature- new legislation required• Cybercrime and Computer Related Crimes Act – review Act• Electronic Evidence Bill – review existing Bill

These legal challenges must be addressed, hence;

The development of simple, consistent and technology-neutral legislation which recognizes all ICT processes and transactions.

Should include recognition of electronic transactions as valid and legal

transactions, with the same force and effect as paper based transactions. This will give confidence to consumers and the business community and in many ways enhance economic development of the country and a confidence builder for regionalism.

• Greater integration of physical and economic infrastructure systems (friendship bridges)

• Encourage comparative advantages to entrench synergies between JHB and GBE

• A skilled labour force and flexible labour and immigration policy• No single country possesses all the attributes for regional leadership• Address the infrastructure gap to further boost economic growth and

foster integration, not only across the region, but as well as in Africa• Liberal immigration policy to attract the best skills in the continent and

globally• As long as Africa continues to have problems of governance, the

challenge for performers like Botswana remain great. A regional hub requires a regional platform to tap into the opportunities

Conclusion

Thank you