NBFIRA�s proposal stifles domestic capital markets � PwC
Brian Benza | Friday August 7, 2015 16:15
Due to a thin local capital market, regulators currently allow fund managers to invest up to 70 percent of their funds offshore. The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) however, hopes to change the law to 70% domestic and 30% offshore by 2050.
In a research report titled, Africa Asset Management 2020, accounting firm PwC said on the back of a stable political environment and a solid regulatory framework, Botswana’s financial sector seems to be well set for growth. However, the report contends that the long timeline under NBFIRA’s proposal coupled with a high wealth distribution inequality in Botswana are two factors that could frustrate the development of the local capital markets.
“Regulatory changes are also potential factors that could affect the investment industry’s future. Such is the case of the limitation of offshore investments to 30 percent by 2050. Even though it allows for more diversification and reduces dependency on trade export and market demand fluctuations, this extremely long horizon could hinder the development potential of the domestic capital market.
“The main limiting factor is the inequality of wealth distribution, which means the market for retail investment funds is small and the sector is heavily reliant on institutional investors,” reads the report, which examines the asset management industry across 12 African countries.
Apart from an inactive bond market, the local capital market is dominated by an equally illiquid stock market whose main market participants include domestic and foreign companies, commercial banks, and corporate and institutional investors. Local fund managers argue that more asset classes such as Public Private Partnerships, privatisation and listings are required to develop the local capital market and optimise earnings for pensioners from the billions held in funds.
However, the report suggests that with an ageing population, demand for pension funds will increase, further advancing the asset management industry. The pension funds industry commands the lion share of total investments funds; with nearly 95 regulated active pension funds (including five Umbrella Funds which have 205 sub- funds) in Botswana.
The retirement industry contributes substantially to the economy with investment assets of funds totaling an estimated P57.8 billion at the end of February 2015, according to the latest statistics from Bank of Botswana. From the P57 billion of Pension funds, 57 percent are invested offshore divided between equities, bonds, cash/near cash and property. According the PwC, there are 71 foreign funds approved for marketing in Botswana, managed by four major players. Total Assets under Management (AuM) of externally licensed funds marketed in Botswana, amounted to about $60bn as of year-end 2014. The biggest player is Investec Asset Management Ltd, which accounts for more than 63 percent of foreign funds distributed in Botswana.
Out of these 71 foreign funds, 45 are domiciled in Luxembourg, while the remaining fund domiciles are split between South Africa, Bermuda, Jersey and the UK. On the regional scope, PwC says the traditional asset management, in particular the mutual fund industry, is expanding aggressively across Africa.