Botswana Financial Sector Profile 2012

Botswana: Financial Sector Profile

For the past forty years, Botswana has been amongst the world’s fastest growing economies. Diamond-led growth combined with sound macroeconomic policies and good governance has moved Botswana from being one of the poorest countries in the world to the upper-middle-income range, with the highest sovereign debt ratings in Africa. Real GDP growth averaged 5 percent over the last ten years but decreased to 3 percent in 2009-10 due to the repercussion of the financial crisis. Balance of payment and fiscal surpluses have built up extensive reserves and reduced Botswana’s already low external debt burden.

Although non-mineral growth has picked up in recent years, income from diamonds is still the largest contributor to government revenue and the sector continues to account for more than 70 percent of total country’s exports. However, Botswana faces serious challenges vis-à-vis its high HIV/AIDS rates, which are among the highest in the world.

Botswana has a small but thriving financial sector that has experienced significant growth in the past decade – primarily a reflection of the substantial accumulation of national resources and the associated high degree of liquidity. An array of financial institutions populates the country’s financial system, with pension funds and commercial banks being the two most important segments by asset size. Banks remain profitable, well-capitalized, and liquid, as a result of growing national resources and high interest rates.

The Botswana Stock Exchange, a member of the African Stock Exchanges Association (ASEA), has been growing in recent years, with 20 domestic and 11 foreign companies listed as of 2008 and total assets of commercial stock markets stood at 40 percent as of 2006. Total market capitalization, however, remains low, amounting to 41.8 million USD in 2008, a sharp drop from 94.6 USD in 2007.

The government issues both bills and bonds, and has been making significant strides towards establishing a government yield curve. As of 2007, twenty-five bonds were listed on the Botswana Stock Exchange.

The recently established Non-Bank Financial Institutions Regulatory Authority (NBFIRA) is responsible for the oversight of all non-banking financial services entities in the country.

The insurance sector is relatively well developed and supervised. As of 2006, 14 insurance companies operated in Botswana, with total assets equivalent to 16 percent of GDP and insurance premiums amounting to 3.4 percent of GDP.

The pension fund system is relatively large: 115 pensions funds operate in Botswana, with total assets amounting to 60 percent of GDP. Over the past 20 years, the legal framework for the pension systems has provided a good basis for the development of the sector; however, as the sector continues to grow, authorities are considering a significant overhaul.

As of 2005, about 54 percent of Botswana’s population had access to formal or informal financial services, and 43 percent is banked (with access to at least one formal banking product). The overall access ratio is still low, especially in rural areas, where there are 3.8 branches and 73 ATMs per 100,000 people. Mobile banking services have just started to be offered.

In recent years the government and Central Bank have undertaken serious steps to modernize the country’s payment system infrastructure. These efforts included the establishment of a code-line clearing system for the exchange of cheques and electronic funds as well as a Real Time Gross Settlement (RTGS) system, including SWIFT connection. The stock exchange implemented a Central Securities Depository in 2007.

Remittance Flows for Botswana amounted to USD 117 million in 2007, a figure that is higher than the total net value of official development assistance.