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© Bourse Africa 2010 – 20100630 – Bourse Africa: Botswana Resource Conference

How the Introduction of Exchange Trading can Boost Botswana’s Resource Sector

Chris GoromonziBotswana Resource Conference30 June 2010


Introducing Bourse Africa

Africa and her minerals

What about Botswana

How will the Exchange help?

Presentation Structure

© Bourse Africa 2009 – 20091109 – African Export Import Bank – Lusaka Seminar






Pan-African exchange, depository and central counterparty clearinghouse, operating on a hub and spoke model across the Continent

Initially, a commodity spot & futures exchange – agri, metals, energy – before expanding rapidly into currencies and then other asset classes

Africa’s 1st derivatives and central counterparty clearinghouse (ex-SA)

Delivering price discovery, procurement, trade, risk management, arbitrage and investment to African and global market participants

US$100+ million initiative, promoted by Financial Technologies Group in partnership with prominent African institutions


Pan-African Level: A public-private partnership blending the best of Africa and Asia Financial Technologies (FT) Group– among the world’s major promoters of

exchanges in emerging markets Leading African Institutions – bringing the knowledge, experience, contacts and

profile across the African continent

Botswana Hub: Company registered in September 2007, licensed by NBFIRA and Bank of Botswana, accredited by the Botswana International Financial Services Centre

African National/Regional Level: Joint ventures with prominent institutions in each country of presence across the continent

Pan-African Advisory Board: Chaired by former President Mogae of Botswana; includes former presidents of AfDB and Afreximbank

Directors and Management Team: Bring extensive experience of establishing and operating exchanges in emerging markets

A fully commercial, for-profit venture representing a significant foreign direct investment into Botswana and multiple African countries across the Continent

A new pan-African institution, based in Botswana



As Botswana we are small, but as Africa we are big

All Commodities - Annual Exports ($ Billions), 2006 Source: International Trade Centre (ITC)

Nigeria is Africa’s single largest commodity

exporter, but only the 18th largest in the world

Africa exports nearly 30% more than the largest

single commodity exporter

• Most African countries are too small in global terms to realistically support a world class exchange

• Exchange-trading for Africa’s commodity base therefore requires a pan-African approach

Botswana is the 83rd largest, with approx 1.3%

of total African commodity exports



Pan-African Hub and Spoke Structure

• Network of exchanges set up across the continent• Combines country focus with continental scale• Aggregates liquidity, reduces transaction costs

Initial country presence:• Botswana• Cote d’ Ivoire• Egypt• Ghana• Kenya• Nigeria• South Africa• Tanzania• Uganda• Zambia



Stable, transparent political governance

Robust, open, growth-oriented economy

Progressive international relations

Free, open and tolerant society

Rule of law

Significant commodity base

Strategic vision for development of financial services

Friendly, welcoming and attractive destination

Why Botswana?



Spot contracts:

Buy, sell and trade the physical commodity

Delivery versus Payment

Designated quantity, quality & delivery points

Derivatives contracts (futures, options):

Manage price risk through ‘hedging’

Perform investment and arbitrage

Make or take delivery in the future (optional)

What instruments are traded?



Guarantee of financial performance:

All counterparties are guaranteed fulfilment of obligations (profits, losses, payments)

Quality and quantity guarantee:

The buyer is guaranteed to get the commodity they ordered

Under Guarantee

Underpinned by a Central Counterparty Clearinghouse (CCP), and backed by a Settlement Guarantee Fund (SGF)


Fully Electronic Screen-Based Trading and Settlement system

Multi-Mode Market Connectivity (leased line, satellite, internet, mobile/handheld)

Efficient Risk Management

Central counterparty clearing house

Multilayered margining system

Settlement Guarantee Fund

Transparency/Full Audit Trail

Real Time Trade Information

Efficient Price Discovery

T+1 Settlement Cycle

Regulated in line with International Standards

Bourse Africa as a Self-Regulatory Organisation

Licensed and regulated by Non-Bank Financial Institutions Regulatory Authority (Botswana) under the NBFIRA Act

Recognised by the Bank of Botswana under the National Clearance and Settlement Systems (NCSS) Act

Key Operational Features



Africa and Her Minerals



Mineral Deposits of Africa

Source: Business Books International



Africa’s Share of Production: Key Minerals

Source: US Geological Survey



Africa has more than 8 000 known mineral deposits of various kinds

Minerals are a major source of income for most African countries

26 out of 53 African countries rely on commodities for more than 90% of export revenues

42 African countries rely on commodities for more than 50% of export revenues

Minerals contribute significantly to economic growth in most African Countries

GDP /capita growth was -0.2 percent in 1980-95, accelerated to 2.90 percent in 2006-07; World Bank forecasts 4.5% GDP growth for 2010, rising to >5% in each of 2011 and 2012

Evidence suggests that the growth push observed after 1995 was driven mainly by the commodity boom

With the commodity boom, investors were attracted to Africa to take advantage of Africa’s huge commodity potential.

Between 2000 and 2006 foreign direct investment to the region almost tripled, and the bulk of these investments went to resource-rich countries.

Oil producers Angola, Equatorial Guinea, Nigeria and Sudan alone received 63 percent of all FDI that went to the region in 2006

Africa Minerals: Key Facts



What about Botswana?


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Mining Concessions in Botswana

Significant concentrations across the country

Source: MMEWR, Botswana Mineral Investment Promotion


Botswana Mineral Production

Source: US Geological Survey, 2008 Minerals Yearbook

Breadth of minerals produced


Contribution of Mineral Sector to Botswana

Sectoral contribution to the real economy (2009);

About 26% % of GDP ( 41% in 2008)

More than 90% of total exports (in 2006)

About 32% of FDI

Significant source of employment and taxation

Therefore, Very High Dependency on the mineral sector

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How will the Exchange help?


Challenges from Mineral Dependency

Fair Market Pricing• Marketing arrangements that allow producers to sell at a price level that

reflects the market’s supply/demand equilibrium • This translates into a fair level of profits / taxes / royalties for the companies /

government / people of Botswana.

Price Risk / Price Volatility:• Booms may not be sustainable and therefore need to be managed carefully• Sudden price declines can lead to shocks in the areas of balance of

payments, national income, employment and taxation

Currency Risk: • Exports prices in US$, a decline in US$ drives export revenue down

Governance Issues• Transparency on prices, payments and marketing• Botswana as an example of doing things the ‘right way’

Dutch Disease and associated effects• May damage competitiveness of non-mineral sectors

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Here, the exchange can help



Through price discovery, producers become price-makers rather than price-takers;

A neutral, transparent market price reference, available to all counterparties

Enabling producers to hedge exposure to key risks such as price volatility and depreciation of the US$

Creating investment options for the investors especially pension and insurance funds, wealth and asset managers, and retail investors

Stimulates the flow of financing as the exchange facilitates liquidity into markets, creates secure collateral, and helps banks manage risk to lower costs of borrowing

Facilitates moves towards regional and pan-African economic integration

Development of infrastructure

Creating a new industry: jobs, capacity-building, new cadre of skilled African professionals

Benefits from the Exchange


How do market participants access the market?

1. Direct participation, by taking membership of the exchange

2. Direct participation via exchange-accredited Broker Member

3. Indirect participation through a commercial intermediary Purchasers / Traders Banks (bundling hedging with procurement & finance solutions) Storage / Infrastructure / Input Providers

4. Indirect participation through a non-commercial intermediary Associations / Cooperatives / Microfinance Instritutions (for agri- and

smaller-scale entities) Government Agencies (as applicable)


How do market participants use the market?

1. Market Informationo Benchmarking sales – spot or forward – against a neutral

authoritative price reference o Definitive quality and delivery reference informationo Improving decision-making, based on projected future price

scenarios

2. Delivery and Procurement of the commodity Receiving a market price Securing a quality premium Convenient access to markets and to storage

3. Price Risk Management solutions (‘hedging’)

4. Finance: Accessing lower-cost bank finance on the back of hedging exposure to price risk, and/or secure warehoused commodity collateral



An emerging geography almost completely untapped at present:

1 billion people, 53 countries, 4-5% p.a. growth, emerging middle class, $320b annual commodity base, rapidly integrating with global markets

Trade a whole continent of opportunities through one exchange

Range of new commodity and currency products

Combined spot and derivative platforms

Optimal hedging location

Differentiated price dynamics

Sound legal jurisdiction and regulatory framework of Botswana

A central counterparty clearinghouse (CCP), backed by Settlement Guarantee Fund, to guarantee trades and fulfil obligations

A world class electronic trading system

Integrated ecosystem elements (e.g. warehouse receipts system (WRS), market information system (MIS), broker technology solutions, capacity-building academy)

Value Propositions to Market Participants



Thank You!

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