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Money makes money.

The Bank of Botswana, or Reserve Bank, has been the stabilising factor in Botswana's financial history because of its cautious and conservative approach. It has managed foreign exchange reserves so efficiently that it proudly states, "The Income generated from these reserves is now the second largest revenue item of the Government Budget, after diamonds." [BOB Annual Report '93].

As mineral revenues decline, so "prudent management of the reserves will become more critical". In line with this prudent and conservative approach reserves have been divided into three portfolios, a Liquidity Portfolio, a Matched Asset Liability Portfolio and the Pula Fund, a long term investment fund.

Foreign reserves are presently over P10bn, (over $4bn) sufficient to cover 28 months imports.

By introducing BOB certificates in 1991, Government has sought to achieve positivereal interest rates though money market mechanisms. The Bank emphasises that positive real interest rates, along with sound macro-economic policies, are crucial conditions for completely liberating forex controls. Such an aim is laudable but because of its conservatism by the time the BOB does this, all the surrounding Southern African countries could be way ahead.

There is growing unease in Botswana about the economy, and many economists feel that the Bank, despite its excellent history, is now overwhelmed by caution and tradition and doing insufficiently to help the overall growth of the economy. One idea suggested is that the BOB take equity in the Parastatals, thereby assisting them to pay off considerable loans, and providing stronger management. Certainly the BOB has ample staff to provide more technical help to other Government institutions, some of which are badly managed.

An example of the BOB's efficiency is the speed with which it controlled the local BCCI when the parent BCCI collapsed. Botswana had no spin off losses because of its prompt action.

The Government adopted recently a determined programme to restructure the National Development Bank which had suffered from size-able arrears by prominent politicians and officials.

By the end of 1993 it had accumulated losses of P41m and over P30m in arrears, most of which was unrecoverable.

Similarly the Botswana Building Society, which is heavily dependent upon Government funds for its lending programmes, is facing problems with defaulters. For example 485 defaulters had total arrears over two months of P3.5m.

The Botswana Co-operative Bank had an accumulated deficit of P2.8m and Vice President Festus Mogae said in his Budget Speech that the Bank was subjected to several audit investigations. Consequently BOB has a huge potential role of parastatal supervision.

The Commercial Banks in Botswana have multiplied with encouragement from Government to provide competition. Barclays and Standard Chartered reigned supreme for many years, but now they are being challenged by First National and Stanbic. Zimbank is certain not to survive the competition, and is likely to be taken over by First National leaving the country with four commercial banks.

Finally the Botswana Development Corporation remains in the forefront of the development finance institutions. It promotes private sector development, economic diversifications and employment creation. It has paid dividends to Government and secured reasonable returns. However the BDC reported a drop of 17% in before tax profits from P30m in 1992 to P25m in 1993 despite an increased turnover of 16%. Return on equity has declined from 15.2% to 10.7%.

The Financial Sector has as its stars the Bank of Botswana, the Botswana Development Corporation and the Commercial Banks, but the government sponsored Botswana Co-operative Bank, the Botswana Housing Corporation and Botswana Building Society, and other organisations need attention, expert management and possible privatisation.
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Title Annotation:Special Report: Botswana; economy
Author:James, Derek
Publication:African Business
Date:Sep 1, 1994
Words:592
Previous Article:Wealth of cultural diversity.
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