Developing Africa’s financial nerve centre

Developing, Africa’s, financial, nerve, centre, africa, stephen williamsAfrican review talks to Alan Boshwaen, chief executive of the International Financial Services Centre to learn more. African review talks to Alan Boshwaen, chief executive of the International Financial Services Centre to learn more

Leveraging the country’s hard won reputation for macro-economic and political stability, as well as its highly developed and efficient governance institutions, Botswana’s government has backed plans to make Gaborone a nerve centre for African and international financial services. 

Alan Boshwaen, the straight-talking chief executive of Botswana’s International Financial Services Centre (IFSC), is forthright about his organisation’s ambitions. It is to become one of Africa’s most important financial centres. “It’s something of an innovative project,” he explains. “It was motivated by the Botswana government identifying the kinds of strengths can Botswana play to in order to expand trade, and other services primarily within the SADC region. The main focus has been in the area of financial and business services provided by the IFSC to encourage a number of companies in the areas of banking, investment funds, insurance and international business companies in general, to set up their base in Botswana.

“We provide them with various incentives to do so,” he adds, “as we feel that there is a uniqueness about our business environment in Botswana that lends itself to this. Besides the low tax environment, we don’t have exchange controls, it’s been relatively stable here and our credit ratings are good, not withstanding the current problems that are being experienced all over the world. So that is the basic proposition.”

And it is a proposition that has found a resonance with many financial institutions from across the SADC region, for example with a number of Zimbabwean institutions choosing to use Botswana as a base to expand their presence. “They clearly had the manpower, the skills, the attributes to expand in the region,” Boshwaen says, “and they felt that this was a better environment, not that they were suspending Zimbabwe operations, but that this was an ideal environment to carry out their expansion plans. We are quite happy with the progress that some of these entities are making since they embarked on this approach.”

It is not just companies from Zimbabwe that are recognising the benefits of a Botswana location. Despite their large domestic market, many South African entities are becoming more focused on expansion on the African continent once they start looking at opportunities in other African countries, and there are clearly some advantages to undertaking these strategies from a Botswana base.

One important issue is the favourable tax environment created by the IFSC, although Boshwaen is quick to make it clear that the IFSC is not a tax-free zone. “We have always said that we want to create a dedicated low tax platform but there would be a provision for exchange of information between Botswana and other jurisdictions. So this is not an environment to salt away ill-gotten gains and, besides, the focus is on companies rather than individuals, companies that have a multi-country presence,” he clarifies.

“We would like them to set up substantive offices in Botswana. That is important. Other than low tax, the effect of free exchange controls in a relatively low-risk economic environment also lends itself to capital raising exercises. Furthermore, the creditability of Botswana’s legal system for international capital raising and people’s ability to carry out the due diligence that is invariably a prerequisite is crucial. We are also able to enforce contracts and we have a very long track record of proving that this is actually a great business environment, and that generates confidence.”

However, not content to simple sit on his laurels, Boshwaen and the IFSC team continue to work hard on fine-tuning the ease of accessing the centre’s advantages, providing the right legislative and regulatory environment. “I think this is something that is continuously changing, but it is important that we work hard on that aspect in conjunction with the regulators in Botswana,” he notes.

Among the many companies that have chosen to locate in the IFSC in Gaborone are the African Banking Corporation Holdings, which has its primary domicile and listing in Botswana and have successfully carried out significant capital raising, going into retail banking. And Letshego, Botswana’s primary consumer credit company, is also a member.

On the international front, ABN AMRO, the Dutch bank and a leading financier for the international diamond industry, is creating a centre for financing the diamond industry in Botswana as well as the industry in South Africa, Namibia etc. “This is a very specialised industry,” Boshwaen says, “so you need to have that team of people who know the flows between countries, that understand diamond exploration, the grading and sorting, the diamond cutting and the retail industries, indeed the whole value chain. This complements the Botswana government’s strategy of creating a diamond-trading centre and moving into certain beneficiation activities, taking these industries away from Europe and other international centres. So that complements that strategy in a good way.”

Other than these specific examples, there are groups like Aon insurance group that specialise in risk management, and Advantage Capital from South Africa. Interestingly, Boshwaen points out that many of the African entities that have joined the IFSC have received investment from the major development finance institution such as DfID, FMO and the European Investment Bank – even if the focus has had a regional complexion and underpinned expansion needs configured to Botswana’s own growth.

“As of the 31 March 2009, we had 45 companies accredited with the IFSC accounting for approximately Pula4.1 billion in capital, and approximately 21 of were already fully operational,” Boshwaen confirms.

Another significant project for the IFSC is Bourse Africa; majority owned by Financial Technology of India Ltd., who own the Multi-Commodity Exchange of India and the Dubai Golden Commodity Exchange. Festus Mogae who was the president of Botswana between 1998-2008 chairs the Bourse Africa initiative. “This is basically an ongoing project and the operational launch is imminent. It will create a multi-commodity exchange based in Botswana which will have underneath it subsidiaries in certain key markets like Nigeria, Kenya and so on,” Boshwaen says. “The track record of the promoters and the expertise they bring on board in terms of running the largest such exchange in the Indian continent and in places like Delhi, Singapore, Dubai etc., and the fact that they have the capital available to implement the project, makes this highly significant.

“Bourse Africa aims to be the first Pan-Africa Commodity exchange trading various key commodities produced on the African continent such as oil and cocoa, and they are developing new contracts, for instance in carbon trades and various agricultural commodities and so on. The difference is that they will use unique technology developed in India to lower the cost of executing such trades, using their existing platform in India but headquartered and based here in Botswana and regulated from Botswana. The majority owner is Financial Technology of India Ltd and they are targeting various pan-Africa institutions to take up maybe 30-34 per cent of their shareholding, providing that African focus.”

Clearly, in order for this project to be credible, international connectivity is absolutely crucial, and here Boshwaen says the IFSC and Botswana are prepared in terms of technological capability. “There was a liberalization of the telecoms industry in 2007 which allowed for the entry of various other technology operators and telecom companies so it is now a fully liberalized environment in terms of licensing and all that. It is not a protected industry and there are plans to privatize Botswana Telecommunications Corporation, the major state-owned telecom.

“In addition we have developed a new IT blueprint ensuring that Botswana, being a landlocked country, has reliable international connectivity, not only through South Africa – which historically has only been a connection through via Sat-3 to link to the rest of the world. Now the second link in operational through EASSy, of which Botswana is a shareholder, via South Africa, Mozambique and Zimbabwe and in addition to that, the West Africa subset cable which Botswana has also signed up to, via Namibia will supply huge broadband capabilities.

“The country has also embarked on an infrastructure project to upgrade the fibre-optic network in Botswana. It was already fairly very good; the rate of cell-phone penetration was probably one of the highest in Africa. All of these elements are crucial to technology-enabled services such as financial services.”

Closing our conversation, Boshwaen summed up: “I think I have indicated that the objective of our strategic focus is to underpin finance into Botswana, such as the example of facilitating the ABN AMRO initiative. We are making good progress there, but we are also supporting regional and continental integration. It will take a while but I think this will also gives us an opportunity to focus on other industries other than the diamond industry as there is quite a lot of investment capital in Botswana. It’s a big opportunity to make sure that we can diversify our economy.”

Stephen Williams

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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