Domestic debt is also needed for monetary policy purposes including for sterilizing inflows of foreign exchange." (Kahn, 2005) In addition bond markets assist in the provision of interest rates across the maturity spectrum and more efficient pricing of risk. By providing an alternative source of financing they reduce concentration of intermediation in banks. Because lending can be hedged in the bond market, banks have the ability to lend longer." (Kahn, 2005) Kahn notes that PECC (2004) states general requirements for bond market development which include: (1) the simultaneous development of market width, market depth and market infrastructure; (2) effective coordination among government agencies; (3) close public-private sector partnership; and (4) regulation focusing on maintaining and enhancing transparency and the treatment of taxation. (Kahn, 2005) Kahn concludes by stating that if bond markets are to be development in SSA or in other emerging markets, the role of the state becomes critical, as a range of policies would be required." (Khan, 2005)
The report of Jimnah Mbaru, Chairman of Dyer and Blair Investment Bank Ltd. entitled: "Mobilizing Resources Through the Bond Market" states that the population of Botswana in 2003 was 1.7 million and life expectancy in the country was 38 years of age. The overall GDP was stated to be at U.S.$7.4 billion and the GDP per Cap was stated at U.S.$4,352.94 and inflation at 9.20. Foreign reserves for Botswana was stated at 5.25 billion and the growth rate at 3.5%. (Mbaru, 2005) Economic reforms reported include those of: (1) relaxation of exchange controls; (2) liberalization of interest rates (financial reforms); (3) trade liberalization; (4) privatizations; (5) pensions; (6) regional economic integration; (7) National Social Security industry; and (8) Land reforms. All of these have as their goals the engineering of faster economic development. (Mbaru, 2005) Stated as reasons that African capital markets are weak are those of: (1) lack of over-the-counter market (OTC); (2) unstable macro-economic environment; (3) bond market under-development; (4) absence of competitive financial markets; (5) non-existent or small government bond market; (6) absence of bid indigenous business group; (7) commercial banks dominate financial system; and (8) proliferation of family owned companies. (Mbaru, 2005)
The potential role of bond markets in Africa are stated to include: (1) mobilization of long-term funds for infrastructure and housing development; (2) the provision of competition to commercial banks; (3) tapping of international capital markets; and (4) facilitation of monetary policy management. (Mbaru, 2005) Mbaru states that the reasons that the bond markets in African are underdeveloped are the: (1) under-development of the government bond market; (2) the role of the IMF in funding African balance of payment deficits and fiscal budget deficits; (3) the role of donor/aid agencies; and (4) the lack of big business groups. (2005) Stated as prerequisites for bond market development are factors of: (1) credible and stable government; (2) sound, stable and predictable fiscal and monetary policies; (4) effective legal, tax and regulatory infrastructure; (4) smooth and secure settlement mechanisms; (4) efficient and competitive financial system; (5) efficient and competitive financial system; (6) aggressive merchant and/or investment bank -- intermediaries; and (7) a vibrant government securities market. (Mbaru, 2005)
Mbaru states that the special role of a government bond market program includes the following: (1) starting point in capital market development; (2) provide a realistic yield curve in an economy; (3) benchmark for pricing corporate bonds; (4) facilitate integration of regional cap8ital markets: (a) through cross-border listing; (b) risk-less assets; (c) but foreign exchange risks exist. (Mbaru, 2005) The role of the African Development Bank in bond market development includes aspects of: (1) issuing bonds in domestic currencies to lend to domestic corporations; (2) to provide genuine competition to oligopolistic banking system; (3) invigoration of domestic capital and bond markets; (4) injection of more discipline in international banks; (5) eventual securitization of current loans required; and (6) facilitation of the emergence of a 'continental yield curve'. (Mbaru, 2005)
The work of Adelegan and Radzewicz-Bak (2009) entitled: "What Determines Bond Market Development in Sub-Saharan Africa?" reports an empirically study that analyzes the "determinants of bond market development in a cross section of 23 sub-Saharan African (SSA) countries between 1990 and 2008" and reports that "the savings constraint is a key impediment to bond market development as well as financial market deepening, as it results in a low level of financial intermediation by the banks." Included as well in factors that are important for the development of domestic bond markets in SSA are: (1) the structure of the economy; (2) investment profile; (3) law and order; (4) size of the banking sector; (5) the level of economic development; and (5) various macroeconomic factors. (Adelegan and Radzewicz-Bak. 2009)
The work of Madisha (2009) entitled: "Recent Issuances in Bond Market and Likely Impact" states that developed capital markets "...can offer substantial benefits to their governments, like the ability to borrow in their own currency at the lowest possible rate. In Botswana, however, capital market development has not been a great imperative because the government has consistently run budget surpluses." Madisha additionally reports that while capital markets are "...not a prerequisite for attracting foreign capital, they do help. The development of the bond market started in 1997 with the issue of a P50 million bond by Botswana Development Corporation. In 2003 the government issued three bonds: a two-year, a 5-year and a 12-year bond of P750 million, P850 million and P900 million respectively. " (2009) Madisha states of the Botswana market that it "...to a large degree...lacks the critical number of competitive investors for long-term assets for the market to function correctly." (2009)
The "Armstrong's Guide to Investing and Doing Business in Botswana" (2008) report states that the bond market in Botswana "...has...experienced substantial growth over the past two years -- stimulated by the issue of the government bonds, the PDSF loan book (Debt Participation Capital Funding) and medium term note programs from the commercial banks. There are now 25 listed corporate bonds with a nominal value of P4.0bn (U.S.$680 million) with maturities ranging from 1 to 20 years." (Armstrong's Guide to Investing and Doing Business in Botswana, 2008)
It is additionally reported that the Government of Botswana "...supports the development of the capital market with regular bond issuances under an established program. Government has introduced six months Treasury bond and regularly issued and reissued bonds of a mix of maturity Government seeks to generate a benchmark maturity and new profile. The capital raised is intended to facilitate Government's investments in large scale development projects during NDP10 that are aimed at accelerating growth for the achievement of Vision 2016 to build-up and maintain a presence across the yield curve from six months to twelve years." (Armstrong's Guide to Investing and Doing Business in Botswana, 2008)
Summary & Findings
The bond market development in Botswana is off to a positive beginning however, there are specific policy and regulatory factors that the government of Botswana must necessarily address to support ongoing development of the bond market. There are specific requirements of the capital market in terms of its development toward supporting the bond market in the country of Botswana as well.
Recommendations arising from this brief review include the recommendation that an extensive review of literature be conducted in order to make determinations of what the government and banking system of Botswana can do to best support the development of the bond market in Botswana.
Adelegan, O. Janet and Radzewicz-Bak, Bozena (2009) What Determines Bond Market Development in sub-Saharan Africa? International Monetary Fund. IMF Working Paper. Sept 2009. Online available at: http://www.imf.org/external/pubs/ft/wp/2009/wp09213.pdf
Armstrong's Guide to Investing and Doing Business in Botswana (2008) Online available at:
Developing Government Bond Markets (2001) International Monetary Fund -- A Handbook. 2001 July. Washington, D.C.
Developing the Domestic Government Debt Market: From Diagnostics to Reform Implementation. (2008) The International Bank for Reconstruction -- The World Bank. Washington, D.C.
Jefferis, Keith (2000) The Botswana Share Market and Its Role in Financial and Economic Development. University of Botswana, Gaborone, Botswana Accepted 19 October 1994.; Available online 20 January 2000. Located at: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VC6-3YCMM8J-3W&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1092740082&_rerunOrigin=google&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=9e0fae7996db7cb4563ed7fb4ab620e7
Kahn, Brian (2005) Original Sin and Bond Market Development in Sub-Saharan Africa. The National, Regional and International Challenges Foundad, The Hague, December 2005. www.fondad.org. Online available at: http://www.fondad.org/uploaded/Africa%20in%20the%20World%20Economy/Fondad-AfricaWorld-Chapter6.pdf
Madisha, Mikgatla (2009) Recent Issuances in Bond Market and Likely Impact. 13 November 2009. MmegiMobile. Online available at: http://www.mmegi.bw/index.php?sid=4&aid=56&dir=2008/June/Tuesday24
Presentation by Jimnah Mbaru Chairman Dyer and Blair Investment Bank Ltd. On Mobilizing Resources Through the Bond Market at the Africa Growth Research Mid0Year Conference 2005 on Mobilizing Resources for Africa's Development at Kopanong Conference Centre, Benoni, Johannesburg 8-9 June 2005. Online available at: http://www.jimnahmbaru.com/Downloads/Mobilizing%20Resources%20for%20African%20Development.pdf
Technical Assistance to the Botswana Stock Exchange (2003) CARANA Corporation October 2003. A Rapid Response Assignment under the U.S. Agency for International Development (USAID) Trade Enhancement for the Services Sector (TESS) Projects Final Report
Technical Assistance to the Botswana Stock Exchange (2003) CARANA Corporation October…