BAFM: Integrating African Stock Exchanges for enhanced performance

Recently, the Nigerian Stock Exchange (NSE) and the African Securities Exchanges Association (ASEA) reinforced the need for further advancement of African economies through strengthening of African financial markets.
At a two day capacity building seminar with the theme “Addressing liquidity concerns in African capital markets,” organized by the NSE and the ASEA, participants from 11 countries canvassed the need to boost enabling market infrastructures such as product offerings, regulation, security of information, boosting participation of Africans in their markets, regional market integration, amongst others, stressing that these would help boost liquidity in African capital markets.
The seminar, which is the fifth edition of the Building African Financial Markets (BAFM) capacity building seminar, and the first to be held in Nigeria, outside South Africa, was enriched with topics such as, Role of securities lending in boosting liquidity in African capital markets; strengthening equity market structures in Africa to better address low liquidityand Instituting an optimal price mechanism on African stock exchanges.
Other topics were ,Capital market integration – A catalyst for boosting liquidity on African Stock Exchanges; Liquidity enabling regulation, Role and importance of CCP in a derivatives market; Trading derivatives products – How the products work, and Adhering to best global reporting standards.
Mr. Oscar Onyema, President, African Securities Exchanges Association (ASEA), and Chief Executive Officer, Nigerian Stock Exchange (NSE) said that liquidity is pertinent to the African market, which is why the market tries to attract new issues and investors.
He said that securities lending and short selling are some of the means to boost liquidity in the market, hence out of every security lending transaction, there are other transactions, which could not have been, and these transactions also reward investors.
He urged markets across the continent to exploit intrinsic and extrinsic values of global market developments to make African securities Exchanges more attractive.
The ASEA President, while not endorsing fragmentation and competition in the markets, however spoke of the need to ensure that pricing is not to the point that investors are driven from the market, adding that African capital markets are instrumental to financing the continent’s infrastructure and capital requirements yet, many African stock markets are characterized by a lack of liquidity.
Linking West Africa, East Africa and Southern African regional markets would boost African financial markets, to have deep liquidity which becomes gravitational force for the advancement of the African economy through the capital market. “The message that liquidity begets liquidity was the principal message of the conference,” Onyema said.
Onyema also lauded Geoffrey Rothchild and Zeona Jacobs from the Johannesburg Stock Exchange, JSE, who have hosted the BAFM for the last four years.
He revealed that sub-regional integration efforts such as WACMI in West Africa, CoSSE in Southern Africa, and EAC in East Africa are important initiatives that have the potential to unlock demand among issuers and boost liquidity.
“The African Exchanges Linkage Project (AELP) which is a jointly owned mandate between ASEA and the Africa Development Bank (AfDB), is also aimed at addressing the lack of liquidity in African capital markets. Thus, these initiatives are encouraged to fast-track the integration of their regional markets”
The ASEA president said that, like integration, technology has become a facilitator of liquidity, adding that historically, technology’s focus for exchanges was on execution, which today has shifted to information services, pre-trade, and post trade dimensions.
Mr. Onyema said further that liquidity is pertinent to the African market, which is why the market tries to attract new issues and investors.
Mr Aigboje Aig-Imoukhuede, President, Council of the Nigerian Stock Exchange in his address said boosting African financial markets is imperative for the development of the African economy, which could leverage on the non- oil sector to achieve the expected growth.
The NSE council president also harped on the use of technology to sustain market confidence and to be able to accommodate expected growth of African investors’ base and the inherent challenges which come with servicing the projected more than 2 billion investors in the trading engine.
He said that diversification of the African economy remains key to boosting earnings, more infrastructural developments, and increased penetration of securities exchanges for savings and raising of funds.
Aigboje said that diversification of African economies would help change the narrative on opportunities in Africa, which has been negated by sustained decline in global crude oil price.
According to him, it is not that Africa is no longer attractive to the global investment community for investment, but because most of the things people find interesting in Africa over the past ten years, such as crude oil and other commodities have experienced slump in prices and are no longer attractive.
He said that though Africa has transited from the era of dictatorship to democracy, “We haven’t achieved economic governance to the level that is required to have dividends of democracy.”
Africa, Aigboje maintained, has passed its boom period and is now into the era of commodity price decline, regretting that there were no savings for the rainy day during the boom era, hence there is now the need for economic diversification for multiple streams of income from other sectors which would reward better than the oil sector.
He emphasized that with the expected growth of the African population to 2 billion in the next 30 years, Exchanges in the continent have the challenge of boosting and protecting their technologies to service the expected growth in African investor base and deliver value to clients, addressing liquidity concerns of African markets.
Siobhan Cleary, Head of Research and Public Policy, World Federation of Exchanges (WEF) also raised the issue of meeting the IOSCO standards and other global standards , adding, however, that meeting such standards should not be to the detriment of the respective markets.
She also harped on the need for the Exchanges to strive to meet global reporting standards and keep up with changes around the world to get global investors’ attention.
Ms Zeona Jacobs, Director Marketing and Corporate Affairs JSE, in her paper titled “Liquidity enabling market regulations,” said that primary and secondary markets regulations require disclosures and transparency.
She said that the markets require government support to help drive depth, investor base and product penetration. Such government support she said comes through enabling investment climate and tax incentives for more indigenes to participate in the local markets.
According to her , disruptions of the market in South Africa, 9-12-2015, was due to the removal of the country’s minister of finance by the South African president. The market reacted negatively to it. “It was not necessarily good for the market, market was very unhappy with the new minister of finance”
Low rates, Tax waivers or incentives have been deployed by Australia, Canada, South Africa and Kenya to induce nationals to save in the capital market. “The government gave tax incentives for investors in mining stocks in Canada” while in South Africa, the government introduced tax free savings account to encourage investments of at least 30 rand on ETF.
Zeona said that such incentives to encourage savings by citizens help to increase local retail investor base in the capital market.
She said that the South African market enjoys non restriction in movement of funds from the market, stressing that“there is enough capita for all of us in the continent, but there is not enough information.”
Mr Geoffrey Odundo, Chief Executive Officer, Nairobi Securities Exchange Limited, said that the country’s securities are thriving on the innovative M-Pesa, a mobile payment system and M-Akiba, to boost capital market penetration by nationals.
He said that through the M-Akiba , government reduced the offer value of government bonds to 500 shillings for Kenyans to participate in government bonds, which enables citizens contribute directly to national development and still earn money, against the high interest rate on lending charged by banks.
On the whole, it was an informative and refreshing seminar that must challenge all those who attended and, indeed, all Africans to take major steps aimed at moving the continents’ stock exchanges forward.