MTN Nigeria shares soaring after $5bn listing

Telecommunications firm MTN Nigeria has had strong days of trading since it joined the Nigerian Stock Exchange in a listing by introduction on 16 May. As it moves closer to what the company may feel is “fair value”, chances of a future initial public offering (IPO) increase.

The $5.1bn listing of 20.4 billion (20,354,513,050) ordinary shares of MTN Nigeria Communications Plc (MTNN) at N90 per share on the Premium Board makes it the second biggest stock on the NSE after Dangote Cement plc and ahead of Nestle Nigeria plc, according to Bloomberg. It is the Nigerian unit of MTN Group Ltd, Africa’s biggest mobile-phone company.

Journalist Shola Lawal writing in Mail and Guardian newspaper described the scene: “At exactly 2.30pm, when the stock market closed on Thursday, MTN Nigeria’s chairperson Pascal Dozie and Ferdi Moolman, MTN Nigeria’s CEO, excitedly clanged metal sticks on a gong on the crowded trade floor at the Nigerian Stock Exchange (NSE) building. The room, filled with brokers in their maroon jackets, erupted in celebration.”

The shares were priced at N90 and have since climbed some 10% a day to reach N119.75 by close of business on 20 May. The main shareholders are only letting a few shares go until the share gets a higher price, according to an interesting interview by Kayode Omosebi, Team Lead, Financial Advisory at ARM Securities on CNBC. He estimates the stock will keep moving until it gets past N130 when more stock could become available, but his firm estimates “fair value” at N149.

Omesebi adds that interest has been wide including retail investors, and could spark a revival of interest in other equities. It will also widen liquidity across telecom stocks in Africa as investors will have a wider range of shares in South Africa, Kenya, Ghana and other markets.

The NSE listing is part of a settlement with the Federal Government of Nigeria after a $5.2bn fine was imposed for failing to meet at 2016 deadline to register SIM cards. In September 2018 there was a $2bn bill for back taxes, and the Central Bank of Nigeria said it has illegally repatriated $8.1bn between 2007 and 2015.

The initial plan was for a share offer or IPO, and MTN Chairman Dozie was not giving any timetable for when that will come: “We were to have an IPO but due to unforeseen circumstances we couldn’t. Half bread is better than none.”

Oscar Onyema, Chief Executive Officer of NSE, said in a press release: “Having MTN Nigeria listed in our market is a testament of the exchange’s commitment to building a dynamic and inclusive market and creating channels for sustainable investment. This listing will promote liquidity for MTN Nigeria, enhance its value and increase transparency, as our platform remains one of the best avenues for raising capital and enabling sustainable growth for national development”.

Analysts also hope that the listing will encourage international oil companies and two other key telecoms firms, Airtel and Globacom.

Mail and Guardian quotes Ugo Obi-Chukwu, founder of leading financial literacy website, Nairametrics: “The last time we had any major listings was in the early 2000s and it was the Government that stimulated those listings… This will open the floodgates for more listings and possibly renew an interest in the stock market.”

The premium board is “a listing segment for the elite group of issuers that meet The Exchange’s most stringent corporate governance and listing standards. This Board features Dangote Cement Plc, FBN Holdings Plc, Zenith International Bank Plc, Access Bank Plc, Lafarge Africa Plc, Seplat Petroleum Development Company Plc and United Bank for Africa Plc,” according to the NSE.

Work starts on African exchanges linkage project

Africa’s stock exchanges, regulators, central banks, stockbrokers and clearing systems are working together on the African Exchanges Linkage Project (AELP), set to create trading and information links between the 7 leading securities exchanges.

Participating exchanges at the first capital markets stakeholders’ roundtable were the West African regional exchange Bourse Regionale Valeures Mobilieres (BRVM), Casablanca Stock Exchange, The Egyptian Exchange, Johannesburg Stock Exchange, Nairobi Securities Exchange, The Nigerian Stock Exchange and the Stock Exchange of Mauritius.

The linkage project is a joint initiative by African Development Bank and African Securities Exchanges Association. It aims to facilitate cross-border trading and settlement of securities, unlock pan-African investment flows, promote innovations and diverse investments, and address lack of depth and liquidity in Africa’s financial markets. For more background, see our recent article.

The project is backed by $980,000 grant through the African Development Bank Korea-Africa Economic Cooperation Trust Fund (KOAFEC).

Karim Hajji, ASEA President and chief executive of the Casablanca Stock Exchange, said according to the press release: “Regional integration is a high-priority continental agenda. By organically linking 7 exchanges in Africa which collectively have a market capitalization of over US$1.4 trillion, the AELP will stimulate intra-African flows and provide opportunities for investors and trading participants in over fourteen African countries.

“With the expected outcome of boosting liquidity in African capital markets, the AELP will unlock the powerful potential of African markets to access and redistribute domestic capital for economic development.”

Pierre Guislain, African Development Bank’s Vice-President, Private Sector, Infrastructure and Industrialization, said: “The partnership between us and ASEA complements the Bank’s interventions towards deep and resilient capital markets in Africa. The African Exchanges Linkage Project will contribute to a wider financing pool for African corporates and SMEs and help close Africa’s infrastructure deficit, estimated at US$67–107 billion annually. Indeed, the continent needs deep, liquid and linked capital markets that will enable accelerated mobilization of domestic resources and incentivize private financing of infrastructure”.

Participating partners at the workshop on 24 April at African Development Bank’s headquarters included:
• Regulators Le Conseil Régional de l’Epargne Publique et des Marchés Financiers, Autorité Marocaine du Marché des Capitaux, Securities and Exchanges Commission of Nigeria, and the Capital Markets Authority of Kenya.
• Central bank – Banque Centrale des Etats de l’Afrique de l’Ouest,
• Stockbrokers and exchanges associations – Association Professionnelle des Sociétés de Bourse, Association of Stockbroking Houses of Nigeria, Kenya Association of Stockbrokers and Investment Bankers
• Clearing systems – Association Professionnelle des Banques Teneurs de Compte Conservateurs, Maroclear, Central Securities Clearing System – Nigeria, Central Depository and Settlement Corporation Ltd. – Kenya
• Investment banking – Afrinvest West Africa.

Pierre Guislain of African Development Bank and Karim Hajji of African Securities Exchanges Association and Casablanca Stock Exchange

AFSIC conference – 2 weeks to go

AFSIC – Investing in Africa is in its 7th year and takes place in 2 weeks’ time.
Europe’s biggest annual conference on inward investment to Africa will be 8-10 May 2019 in London.

For registration go to the AFSIC conference website.

AFSIC is a highly focused investment event and one of the most important Africa investor events globally. Over 200 of Africa’s most important investors and business leaders are confirmed as speakers.

1000+ Expected to attend in 2019

Business leaders from around 40 African countries are expected to attend in 2019; over 250 speakers and participants in country-focused sessions; expected 1000+ delegates; 100 sessions dedicated to uncovering Africa’s most profitable investments; and dynamic networking events providing opportunities for African business leaders, investors and deal-makers to meet.

A sophisticated event and meeting app allows delegates to prepare up to a month ahead for critical investment meetings allowing real deals to be concluded during the course of AFSIC.

Many of Africa’s most important investment funds are confirmed as speakers including:

  • Jussi Ahonen, Investment Manager, Finnfund
  • Magdi Amin, Investment Partner, Omidyar Network
  • Diana Amoa, Portfolio Manager, JP Morgan Asset Management
  • Franklin Olakunle Amoo, Managing Partner, Baylis Emerging Markets LLC
  • George Asante, Head: Markets ex SA, CIB, Absa Bank
  • Souleymane Ba, Partner, Helios Investment Partners LLP
  • Christopher Balliet Bleziri, Principal Investment Officer, BOAD
  • Craig Batsi Bandason, Portfolio Manager, Imara Asset Management
  • Peter Bartlett, Partner, GML Capital LLP
  • George Bodo, Head of SSA Banking Research, Ecobank Capital
  • Ben Botes, Group CEO, SeedsLife Caban Impact Investment LLP
  • Chantelé Carrington, COO, Africa Business Group, PwC
  • Emilio Cattaneo, Executive Director, EAIF – Part of The Private Infrastructure Development Group
  • Anne-Marie Chidzero, Chief Investment Officer, FSD Africa Investments
  • Johann Choux, Head Of Equity Investments – Financial Institutions & Innovation, Proparco
  • Paul Clark, Portfolio Manager, Ashburton Investments
  • Grant Cullens, CEO Asset Management, African Alliance Asset Management
  • Edwin Dande, Chief Executive Officer, Cytonn Investments
  • Andreas Davidsen, Senior Investment Manager, Norfund
  • Jonathan De La Pasture, Portfolio Manager, Stanlib Credit Alternatives
  • Arnaud De Lavalette, Senior Project Manager, ADA Microfinance
  • James Doree, Managing Director, Lion’s Head Global Partners
  • Kunal Doshi, Investment Professional, Capricorn Investment Group
  • Steven Duchatelle, CEO, Advans Group
  • Olivier Edelman, Head of Unit, European Investment Bank
  • Karim El Hnot, CEO, Sogecapital Gestion
  • John Esther, NE AFRICA Coverage Executive, TDB
  • Michael Fabbroni, Head Financial Institutions Debt Financing – Africa, responsAbility Investments AG
  • Michael Fischer, Director – Financial Institutions Africa, DEG mbH
  • Wieger Fokke, Senior Investment Officer – Financial Institutions Africa, FMO – The Dutch development bank
  • Juan Jose Garcia, Principal and Regional Syndications Lead, Sub-Saharan Africa & Latin America, International Finance Corporation, IFC
  • Jarred Glansbeek, Chief Investment Officer, RisCura Holdings (Pty) Ltd
  • Cathy Goddard, CEO, Firebird Fund Managers
  • David Grayson, Chief Executive Officer, Auerbach Grayson & Company
  • Yann Groeger, Regional Manager Africa, BlueOrchard Finance
  • Sanjeev Gupta, Executive Director & Head of Financial Services, Africa Finance Corporation
  • Thomas Heinig, Senior Project Manager, KfW Development Bank
  • Ed Higenbottam, Managing Director, Verdant Capital
  • Steve Hollingworth, President, Grameen Foundation
  • Philip Hopkins, Director of Investments, Equator Capital Partners
  • Thomas Hougaard, Vice President, IFU – Investment Fund for Developing Countries
  • Nick Hughes, Co Founder and Chief Product Officer, M-KOPA LLC
  • Will Hunnam, Co-Founder, Orbitt
  • Ulla Huotari, Investment Manager, Finnfund
  • Jimoh Ibrahim, President Infastructural Development in Africa, Africa infrastructural Development Funding Dubai
  • Ioto Iotov, Manager, AfricInvest
  • Robert Jenkins, Senior Partner and Chief Investment Officer, Phatisa
  • Afsane Jetha, CEO & Managing Partner, Alta Semper Capital
  • Jarri Jung, Regional Manager Africa & Middle East, Triple Jump
  • Dr Jens Koeke, Chief Investment Officer, Allianz Africa
  • Laureen Kouassi-Olsson, Financial Institutions Head and West Africa Office Head, Amethis Finance
  • Jonathan Kruger, Portfolio Manager, Director, Adventis
  • Arun Kumar, Principal Investment Officer, African Development Bank Group
  • Brenton Lalu, Specialist: Africa, Public Investment Corporation
  • David Lashbrook, Head of Africa Real Estate, Momentum Africa Real Estate Fund
  • Gregoire Lecomte, Group Head of Investor Relations & Funding, Baobab Group
  • Peter Leger, Head of Global Frontier Markets, Coronation Fund Managers
  • Alexis Losseau, Investment Officer, BIO – Belgian Investment Company for Developing Countries
  • Steven Loubser, Fund Manager, Investec Asset Management
  • Albert Maasland, Group CEO, Crown Agents Bank
  • Johan Marnewick, Head of Credit Alternatives, Stanlib
  • Asha Mehta, Lead Portfolio Manager, Acadian Asset Management
  • Cédric Mezui, Coordinator of African Financial Markets Initiative, African Development Bank
  • The Rt Hon Penny Mordaunt MP, Secretary of State, Department for International Development
  • Kurt Morriesen, Senior Advisor of Impact Investments, UNDP
  • Hoda Atia Moustafa, Africa Regional Head, Multilateral Investment Guarantee Agency (MIGA)
  • Rufaro Mucheka, Head of Strategy & Rest of Africa, Nedbank Limited
  • Kaan Nazli, Senior Economist, Neuberger Berman
  • Nothando Ndebele, Head: Financial Institutional Group, Absa Bank
  • Erica Nell, Head of Credit, Sanlam Investment Management
  • Lexi Novitske, Principal Investment Officer, Singularity Investments
  • Temi Ofong, Head: CIB, Absa Bank
  • Adesuwa Okunbo, Partner & Managing Director, Syntaxis Capital Africa
  • Lanre Oloniniyi, Co-Founder, Orbitt
  • Ope Onibokun, Investment Specialist, Investec Asset Management
  • Yann Pambou, Head of Africa, Principal Investments and Private Equity, Swiss Re direct Investment Ltd
  • Lasitha Perera, CEO, GuarantCo – Part of The Private Infrastructure Development Group
  • James Polan, Vice President, Small & Medium Enterprise Finance, Overseas Private Investment Corporation
  • Martijn Proos, Director, Investec Asset Management
  • Brandon Quinn, Co-Founder and CEO, Saffron Wealth
  • Charles Robertson, Global Chief Economist, Renaissance Capital
  • Erik Sandersen, Executive Vice President – Financial Institutions, Norfund
  • Robert Schofield, Head of Division, European Investment Bank
  • Andrew Schultz, Head of Africa Sales, Investec
  • Nimit Shah, Partner, Helios Investment Partners
  • Frank Streppel, Global Head of Investments, Emerging Markets Department, Triodos Investment Management B.V.
  • Jean-Philippe Syed, Principal, DPI – Development Partners International
  • Wasim Tahir, Sector Strategist – Financial Institutions, CDC Group
  • Roland Tatnall, Senior Investment Director, Mubadala Infrastructure Partners
  • Ameya Upadhyay, Principal, Investments, Omidyar Network
  • Antti Urvas, Associate Director Financial Institutions, Finnfund
  • Cobus Visagie, Group CEO, Africa Merchant Capital
  • Emma Wade-Smith, Her Majesty’s Trade Commissioner for Africa, Department for International Trade
  • David Webb, Managing Partner & CIO, Emerging Markets Development Partners
  • Graham Wrigley, Chairman, CDC Group

Guest post: Institutions funding infrastructure

By Gerald Gondo, Business Development Executive, RisCura

Never before has the need for infrastructure felt so immediate and acute. This became apparent to me as I travelled to Nairobi, Lagos, Lusaka and Gaborone during the first 3 months of this year.

RisCura has partnered with Africa Investor to launch Africa’s first infrastructure performance benchmark. The first results are expected in mid-2019 and will provide much-needed insight. This should facilitate increased investment into African infrastructure projects

A commonality I saw across all these African cities — the yellow metal equipment either excavating, tilling, scooping or pouring inputs — could result in an improved outcome for Africa’s infrastructure. According to the World Bank, closing Africa’s infrastructure quantity and quality gap has the potential to increase GDP per capita by as much as 2.6% per annum.

Historically, governments have borne the responsibility for infrastructure development as infrastructure is typically considered a “public good”. However, in most African States, governments are struggling to keep up with the level of development required.

To combat the continent’s infrastructure deficit, alternative sources of funding are needed, and institutional investors are increasingly seen as natural funding partners, given their long-dated liabilities that seek inflation-linked assets.

But, not all infrastructure assets offer the virtues of
hedging inflation. It is important for investors to understand the different categories of infrastructure assets, as well as the different life-stages of their development, as these result in different cash-flow profiles. There are 2 main types of infrastructure investment – greenfield and brownfield.

“Greenfield infrastructure investment” refers to investments that create new infrastructure – new development and construction. For an investor, some inherent risks of these projects include construction risk, performance risk and off-taker risk. The creation of the asset primarily involves funding the project, with risk of the project not reaching a stage of being commercialized. At this stage of development, the infrastructure asset would not manifest any inflation-hedging features.

“Brownfield infrastructure investment” refers to investments in existing and ready-to-operate infrastructure assets. These assets can potentially generate revenues. Given that the infrastructure now exists and is in use, the risks of investing into this project are substantially less than in a greenfield project where the future cash generation is uncertain.

Because many infrastructure assets feature monopolistic features (e.g. a toll road that all road users must utilise to access a specific town), cash generation for such assets is easy to model. Brownfield infrastructure investments are also often scalable; by enhancing the facilities, greater output can be produced and therefore greater cash flows. These features allow for the cash flows emanating from brownfield infrastructure investments to be modelled to escalate or be linked to inflation and the cash flows can be used to match against long-dated liabilities because of the long-dated nature of the operating capacity of most infrastructure assets.

With an understanding of the fundamental merits of the asset class, it is important to appreciate how institutional investors in Africa would traditionally approach the asset class. Prudential investment requirements might preclude them from taking up exposure to a single asset (e.g. one toll road) and they could invest in a diversified portfolio of infrastructure assets. This can be achieved by investing in a fund, where the fund is able to give investors diversified exposure to the asset class. However, it is important to appreciate that most infrastructure investments would be classified as unlisted investments.

Most institutional investors are relatively risk-averse and may not have investment mandates allowing for investing in unlisted instruments. Thus, for long-term savings to be channelled towards African infrastructure assets, the investment mandates (inclusive of the regulatory thresholds) would need to be revised to accommodate investments in unlisted instruments and more specifically, infrastructure assets.

In addition to revised mandates, institutional investors would benefit from a performance index for infrastructure investments in Africa. This would improve their ability to evaluate the available investment opportunities, monitor the performance of infrastructure investments and make better informed decisions on asset allocation.

RisCura has partnered with Africa Investor to launch Africa’s first infrastructure performance benchmark. The first results are expected in mid-2019 and will provide much-needed insight into investment in this sector, which should in turn facilitate increased investment into African infrastructure projects. In time, this should contribute towards closing Africa’s infrastructure gap and help boost economies across the continent.

Africa’s jumbo stock exchanges to link in 2019?

An ambitious project to link Africa’s 7 biggest securities exchanges is moving to implementation with a call this month for a project manager for the coming year. The African Exchanges Linkage Project (AELP) aims to transform the number of trades on exchanges and investment flows across Africa by creating a platform so an investor in once country can buy or sell shares listed on an exchange in another country.

It’s a leading initiative of the African Securities Exchanges Association (ASEA) and the African Development Bank, and will feature a central linked trading platform linked to the different exchange trading systems. The roll-out was boosted last November 2018 by a grant of $980,000 through the African Development Bank Korea-Africa Economic Cooperation Trust Fund (KOAFEC).

At November 2018, the participating exchanges were listed as Johannesburg, Nigeria, Nairobi, Casablanca, Bourse Régionale des Valeurs Mobilières SA (BRVM) and the Stock Exchange of Mauritius, this year the Egyptian Exchange has been added. The initial 7 exchanges represent at least 85% of the market value of listed securities (market capitalization) across Africa. More exchanges are to join after the pilot phase.

The central platform will enable free flow of trading information between the linked exchanges, and stockbrokers will be able to access the trading platform and place orders on the member exchanges through “sponsored access”, working through a locally registered stockbroker. It will use order-routing technology to channel orders through brokers into exchange trading systems.

Oscar Onyema and Karim Hajji, previous and present Presidents of African Securities Exchanges Association

Karim Hajji, CEO of the Casablanca Stock Exchange and President of ASEA, says: “We look forward to working with AfDB more closely and fostering a more connected African capital market,” according to a Nigerian online report.

Oscar Onyema, CEO of the Nigerian Stock Exchange and former president of ASEA, told stockbrokers at a workshop last November: “The AELP will start off with the 6 markets participating in the pilot with the goal of onboarding other markets in Africa who meet the minimum requirements. The countries participating in the AELP pilot phase are strategically spread across the continent as this will become instrumental in the scaling up of the project.

“The model for the linkage will be ‘sponsored access’, meaning that the cross-border trades will be required to pass through the risk-management system of the sponsoring broker before flowing to the exchange. We believe that this model will minimize the disruption to the local market and provide confidence for all stakeholders.

“Thus we anticipate that the initiative will be welcome by all stakeholders and will support ASEA’s goal of boosting intra-Africa capital-market trading activity. ”

According to a document from ASEA: “The AELP is aimed at addressing the lack of liquidity and promoting information-sharing in the African capital markets. It is envisaged that the linkage project would allow cross-border visibility and open up markets for investors to trade in any of the linked markets.”

Anticipated benefits include: more liquidity, measured by the number of deals and the value traded; better market openness; increased participation by foreign investors; more participation by African investment institutions such as the fast-growing pension funds across the continent; African businesses and other issuers being able to raise capital and floating shares across the continent; creating a bigger financial market; convergence towards international standards; and building capacity and sharing information.

In preparation for the project stockbrokers were asked to talk to clients to gauge potential interest in buying and selling securities on different exchanges, and to give their inputs into the design and rollout.

A2X exchange scores dual listing #17

Tharisa plc became the 17th company to list on South Africa’s A2X exchange in February.

Kevin Brady, CEO of A2X, said in a press release: “Tharisa is the second company from the general mining sector to list on A2X”.

It is a secondary listing for the integrated platinum group metals and chrome producer. It has a market capitalization of R4.5 billion ($312 million), which has its primary listing on the Johannesburg Stock Exchange (JSE) and also listed on London Stock Exchange.

Phoevos Pouroulis, CEO of Tharisa, said: “The secondary listing on A2X is an opportunity to improve liquidity and attract new investors through the lower trading costs offered by the A2X trading platform. There are no additional regulatory requirements or ongoing obligations. Listing on A2X will complement Tharisa’s existing listings on the JSE and LSE by providing investors with a choice of exchanges on which to transact.”

The A2X began trading in October 2017 and has 9 approved stockbrokers. Combined market capitalization on the A2X was over R2 trillion last month, with listings from mining, banking, property, fast-moving consumer goods (FMCG), financial services, media and telecommunications. The 17 dual-listed firms include leading stocks in the South African market including Naspers, Sanlam and Standard Bank.

It is a licensed stock exchange which provides a secondary listing venue and is regulated by the Financial Sector Conduct Authority and the Prudential Authority (SARB) in terms of the Financial Markets Act.

A recent article on Bloomberg claims that A2X is the most serious of South Africa’s challenger securities exchanges, taking on the 132-year old JSE which is one of the top 20 world exchanges and aiming to be the leading emerging market exchange.

According to Bloomberg news agency , Aarti Takoordeen, CFO of JSE, said in an interview: “About 60% of our revenue comes from the cash-equity market and we are keeping a close eye on specifically one of the competitors playing in that space.”

Although JSE trading prices are marginally higher than those at the rivals, according to Takoordeen: ““It’s not all about price though,” she said. “The JSE is able to provide massive liquidity for trades, we have multiple order types, and we are constantly upgrading our technology, not to mention the know-how that we offer to clients.”

Ethiopia aims for stock exchange by 2020

Ethiopia has set itself a tight timetable for economic reform, including privatization of telecoms by the end of 2019 and a domestic stock exchange by 2020. A World Bank team was due to arrive in Addis Ababa in December to provide technical help to develop the capital market.

Last week Financial Times repeated the timetable in an interview with Prime Minister Abiy Ahmed, given to FT Editor Lionel Barber and Africa Editor David Pilling, billed his first one-on-one international media interview. Prime Minister Abiy told them: “My economic model is capitalism… If you give me $100bn now, I can’t use it. There is not only money, there is talent and experience. That’s why we need the private sector.”

The Reporter newspaper in December highlighted a “one-page template issued by the Office of the Prime Minister”, which “cited poor financial infrastructure, limited financing and poor financial inclusiveness as the major impediments in the finance sector. The government plans to develop a road-map for introducing a trade financing instruments including capital market. Increasing loans to the private sector by 20 percent annually and ensure its fair disbursement and expanding credit registry to micro finance institutions are the key areas that will be addressed in 2019, according to the document.”

Reporter Kaleyesus Bekele highlighted debates at the third East Africa Finance Summit on 18-19 December, organized by I Capital Institute. Zemedeneh Negatu, Global Chairman of Fairfax Africa Fund, told the summit: “We are going to have a stock market this time. We have been on this path for 18 years. But now it is no more an academic discussion. We do need a capital market. We are part of the global economy,”

He said Ethiopia is by far the largest economy in the world today that does not have a stock market. “We are going to join the global capital market club. We have a bigger GDP than Kenya, there are only two sub-Saharan African countries which have bigger GDP than us — Nigeria and South Africa. I think it is time. We have companies ready to be listed in the stock exchange.”

He says that top priority is to set up a regulatory institution and create a government regulatory framework, and the private sector can incorporate the stock exchange. “We need to have stock brokerage firms and investment banks. Stock traders have to be trained and the local accounting and auditing firms have to build their capacity.. The financial media has to be established or the existing ones should extend their financial news coverage. Financial media is also the key component.”

Zemedeneh says that 50 to 70 local companies can be listed in the stock exchange. “All the banks and insurance companies, which are well regulated, can offer an IPO (initial public offering) the day the Addis Ababa stock market is ready for launch,” Zemedeneh said.

“The bottom line we are ready and it is timely,” he added.

Business community leader and insurance veteran Eyessuswork Zafu said that technical studies for the establishment of the Addis Ababa Stock Exchange were done by Ernst and Young 20 years ago: “Miracle is happening in this country. I can see the twinkling light at the end of the tunnel. Two years ago we were not able to discuss such matters openly.” He called for urgent action to start preparations.

Ethiopia has a commodity exchange and regulator, new regulator needed for capital market

Financial analyst Abdelmenan Mohammed was reported as saying 2 years is a tight timetable to build financial and technological infrastructure, including improvements in auditing.  Although the Government enacted a proclamation that compels local businesses to adopt International Financial Reporting Standard (IFRS) and has established an Accounting and Auditing Board, Abedelmanan says progress is slow: “Not many companies are adopting IFRS and the board is not yet strong enough to oversee that. How can we have a stock exchange where there is no reliable accounting information?” However, Zemedeneh, former Managing Partner of EY Ethiopia, said that the banks and insurance companies have adopted IFRS and other companies and government entities are moving towards it. “That is a start.”

Establishing the stock exchange will require rapid boosts in capacity and understanding. According to Zemedeneh: “We need to set up the regulatory body and formulate the regulation. All the other things have not yet started except the adoption of the IFRS.” He warns there is a lotof work to be done to prepare. “I hope they would be able to roll out these things quickly. Two years is a very short period of time. It could be at the end of 2020 or slide to 2021. All the infrastructure need to be prepared.” 

Privatizations including 49% in Ethio Telecom

Other steps highlighted by the FT in a follow up news story include completing “a multibillion-dollar privatisation of its telecoms sector by the end of this year, followed by a sell-off of stakes in state energy, shipping and sugar companies”. It says the stock exchange is “part of a gradual but decisive shift towards economic liberalisation… alongside other ambitious and transformative programmes.”

“The Government is planning to sell off a 49% stake in Ethio Telecom, according to people familiar with its plans. Ethio Telecom is the biggest telecoms company in Africa in terms of customers in a single country, with more than 60m subscribers.

“But its opaque debt structure and low earnings per customer mean it might fetch less than the government expects, say bankers.

“Mr Abiy said that earning cash from a state monopoly was less important than launching services such as electronic money, e-commerce and virtual government, in which African peers such as Kenya are more advanced.

“To promote competition, Ethiopia is also likely to auction off spectrum to two additional telecoms companies, with Vodacom, Orange, MTN and others expected to bid, according to bankers.

“Miguel Azevedo, head of investment banking for Africa at Citibank, said: ‘When I speak with international investors about opportunities in Africa, the first name that pops up is Ethiopia.’

“The prime minister said he would proceed cautiously on privatisation in order to avoid any hint of corruption. ‘We do telecom, we learn something, we evaluate seriously, we continue,’ he said.”

Full interview

Read the full interview with Abiy Ahmed here: Commentary by FT: “Mr Abiy’s emergence has unleashed opportunity and danger in equal measure. Some fear that rapid liberalisation could spin out of control, leading to anarchy or violent ethnic separatism.”

Ethiopian Prime Minister Abiy Ahmed

Describing himself as “capitalist”, he nevertheless cites Meles as saying it is the government’s job to correct market failures. “The economy will grow naturally, but you have to lead it in a guided manner.”

Still, unlike Meles, Mr Abiy is less wedded to the idea that the state must control the economy’s commanding heights. He is moving swiftly towards privatisation of the telecoms sector in an exercise that should raise billions of dollars, as well as modernising a network that has fallen badly behind African peers.

Here too there are risks. “I need to realise the privatisation with zero corruption,” he says, adding that people who have stashed money abroad want to launder it back into the country.

Successful privatisation of telecoms could potentially lead to a similar exercise in energy and shipping, as well as sugar refineries and, most controversially, the successful national airline that has turned Addis Ababa into a continental hub. Mr Abiy says that, for the moment at least, he draws the line at banking.

“The biggest challenge for Abiy is not politics. It is jobs, jobs, jobs,” says Zemedeneh. With 800,000 students in university or college and 2.5m Ethiopians being born each year, lack of opportunity could quickly catalyse unrest, he adds.

The stock exchange will be a critical component of building domestic savings and capacity in Ethiopia’s private sector so that Ethiopians can take charge of their future, see previous opinion article on this blog. The World Bank has pledged $1.2bn to supporting financial sector growth in Ethiopia.

International – new IPSX exchange opens property as global asset class

A new asset class has opened for investors as the International Property Securities Exchange in London prepares for its first initial public offer (IPO) in coming weeks. The IPSX Group is also planning exchanges in Germany, North America and Asia.

The first IPO is still planned for the end of Q1, depending on market conditions, after UK regulator Financial Conduct Authority (FCA) on 9 January issued a Recognition Order in relation to wholly-owned subsidiary IPSX UK Limited to operate a Recognised Investment Exchange (RIE) in the UK.

This is the highest level of authorization and means IPSX joins London Stock Exchange Group, Euronext, Intercontinental Exchange, CME Group, CBOE Global Markets and Hong Kong Exchanges and Clearing in operating an RIE.

City of London (with my former flat almost in view across river!), photo: Sky News

The new exchange will enable investors to invest in part of a building, and will free up groups with large headquarters or other assets to realize some of that equity. According to Anthony Hilton writing in Evening Standard: “It would allow people who own property, and particularly those who saw it as ancillary to their main business, to extract some of its value by floating its shares on the exchange”.

A company owning a single building would be able to float on the market, giving investors direct sight of the underlying assets. Building owners would no longer need to sell 100% of a building, they could sell a proportion, say 25%, and then buy it back later. The bourse also has eligibility requirements on portfolio commonality to allow “multiple asset issuers” onto the regulated market.

Hilton writes: “A company like pharmaceuticals giant GlaxoSmithKline, which has huge property assets to the west of London, could get some of the value by listing its shares and using the cash to help with its drug development.

“Similarly, the Football Association might float Wembley rather than try to sell it, as it apparently wants to, and use the proceeds for grass-roots football.”

According to a press release, IPSX Group Limited is a market infrastructure and data products business established in 2014 and dedicated to real assets – initially real estate. A strong group of investors include British Land, M7 Real Estate, Henley Investments, Daily Mail & General Trust and top business figures are on the board.

Another press release says: “Issuers on IPSX will be companies owning single real estate assets. For the first time, investors will have a choice as to where they invest and have direct sight of the specific underlying property asset that their investment relates to, with clarity over the revenues and costs associated with it, typically also benefiting from the tax efficiency conferred by REIT status.”

IPSX founder Anthony Gahan says: “From now on every type of investor can access the returns from institutional investment grade real estate by buying and selling shares in issues through IPSX. Imagine the man in the street buying shares in the company owning the building he works in, or even the Premiership football stadium where he watches his favourite team play.”

Gahan is quoted in CityAM newspaper: “We see it as the democratisation of the property market.”

Currently investment into large real estate deals is dominated by big funds and institutions, with smaller institutions and family offices going after the medium and small deals. Individuals can buy shares through property companies and real-estate investment trusts (REITs), which decide the mix of assets and when to buy or sell.

According to Hilton, the liquidity offered by the exchange may also encourage open-ended property funds. Previously investors into funds would have to wait to get their money out and the fund might have to take months selling properties in an illiquid market to get cash out at reduced values. That happened after the 2016 UK Brexit referendum to leave Europe, when there were a queue of redemptions and property companies dropped in price.

According to Hilton, the liquidity and clearer regulation of an exchange will change this: “Institutional investors focus on equities, bonds and real estate. But real estate has always been different because investors are in the hands of chartered surveyors who were the ones who ruled on value.

“In good times that could be more than expected; in bad times it could be worse because liquidity often dwindles just when it is needed. So property assets always have that degree of uncertainty. That too should change. Shares in the IPSX will enhance liquidity, and property in time could emerge as an equal, rather than a nice-to-have, asset.”

There is a pipeline worth billions, as owners of City of London and West End blocks could list on IPSX. Commercial real estate as a global asset class is estimated to be worth $30 trillion.

Tax authority HMRC is likely to recognize the exchange as admission/trading venue for REIT tax status.

The IPSX network infrastructure is being developed by Cisilion and IPSX is outsourcing operation of the trading platform to Cinnober and has its data repository and workflow management platform at Goldensource.

According to the press releases: “Importantly, for all, IPSX connects sellers with a new, deep, international investor universe at a time when some real estate assets are so valuable that few institutions are able to buy alone and private sale processes result in only one bidder submitting an offer to buy the asset… IPSX proposes to add further exchange-based products to its offering including a professional market for closely held REITs together with new real estate indices and data products.”

“Anthony Gahan added: ‘This is game-changing news for asset owners and global investors, many of whom have helped to actively shape the IPSX proposition.’”

UK boosts African tax collection

“For every £1 spent on operating costs an additional £100 is returned in tax revenues” is the claim for results achieved on a programme to boost tax collecting in developing nations. The UK Government’ s Department for International Development (DFID) on 19 Feb announced plans to give £47 million ($61m) to boosting tax collection “aimed at helping end their reliance on aid”.

According to calculations by website Nurmara , using estimates by the Organisation for Economic Co-operation and Development (OECD), tax collection in Africa is 18% of GDP (15% in sub-Saharan Africa). OECD says tax revenues in developing countries are about 14% of GDP, far lower than the 35% average for developed countries.

Less tax revenue means less funding for public services. In a press release International Development Secretary (Minister) Penny Mordaunt said: “This new UK support will help countries collect more taxes and leave them less reliant on aid. It will turbo charge their development.

“Governments in the developing world want to move beyond aid and we want to help them get there faster. We are supporting their efforts to implement a fairer, more transparent tax system which is vital in helping our aid money go further.”

The UK Government’s £47m package is broken down:
• £10.3m to the OECD including support to Tax Inspectors Without Borders (TIWB), an initiative by OECD and United Nations Development Programme which assists developing countries to implement international tax standards by sending experts overseas.
• £7.4m to the World Bank’s Global Tax Programme to work with countries to build effective tax systems.
• £3.7m to support the Platform for Collaboration on Tax (PCT), launched in 2016 by the International Monetary Fund (IMF), the United Nations and the World Bank Group. It aims to boost cooperation on tax issues.
• £4.2m to the African Tax Administration Forum (ATAF), based in Pretoria. The website was updated last year on events and reports, but outlines strategic objectives to be achieved in 2013-2015. According to the UK Government, ATAF “provides leadership of the tax reform agenda on the African continent and represents the needs of developing countries in international forums.” HMRC (the UK tax authority) will provide up to 2 tax experts for 4 years to help ATAF’s member states build a sustainable and impactful organisation.”
• £2.25m to the Intergovernmental Forum for Mining, Minerals, Metals and Sustainable Development (IGF) to help developing countries tackle tax avoidance in mining and unlock opportunities to increase government revenues and economic activity in the sector.
• Around £1m to the IMF Tax Administration Diagnostic Assessment Tool (TADAT), designed to provide an objective assessment of the health of key components of a country’s system of tax administration.
• Around £13m to the IMF’s Africa Regional Technical Assistance Centres’ (AFRITACs), which support African countries to build capacity in tax administration, public financial management, economic and financial sector management, and national statistics. Around £2.6m will specifically support boosting tax revenue.
• Around £5m to Institute for Fiscal Studies to develop tax-policy analysis in 4 developing countries, to reduce poverty and inequality and a research fund to increase knowledge of tax collection in developing countries.

Tax collection statistics 2016 by the OECD.

Useful OECD statistics and overviews on tax collection in 21 African countries can be found via this website.

ACMN OPINION – PROUD TAXPAYER OF THE YEAR AWARD
One marked difference between paying tax in UK and in some African countries is how friendly and supportive customer-facing tax officials can be in UK, projecting an image that they realize running a business is hard and competitive, and trying to make it as easy as possible for businesses to meet their obligations to pay tax.

Dealing with some African tax administrations makes you feel you are dealing with officials determined to trick or extort you into handing over more than you should. Appeal mechanisms based on “pay the demand first, query later” and it can take years to receive repayments. As tax authorities push up tax as a percentage of GDP they tend to hit companies that try to pay tax the hardest, because they are more transparent and give unscrupulous tax officials more to grab, compared to companies that seek to be as shady as possible. The result is far less transparency and tax collection. Tax putting businesses out of operation, losing future revenues including payroll tax, is not unknown when they could be doing all they can to nurture businesses into paying their tax.

By comparison, in several European countries I have been surprised to hear people say “I’m happy to pay my fair share of tax”. They feel they get value for their money such as health, education, infrastructure, and social welfare for the needy. They also see tax as a measure of their success in making money.

African tax administrations can improve skills at making tax collection easy and transparent for businesses.

African countries should start awards for taxpayer business of the year and business leaders should be proud to compete for it.

African Economic Outlook 2019: Growth acclerates

Africa’s economic growth (measured by gross domestic product, GDP) is set to accelerate to 4.0% in 2019 and 4.1% in 2020. The good news comes in the African Economic Outlook 2019, published recently by the African Development Bank.

Bank President Akinwumi Adesina says in the foreword: “The state of the continent is good. Africa’s general economic performance continues to improve.. (but) it remains insufficient to address the structural challenges of persistent current and fiscal deficits and debt vulnerability.”

Growth was 3.5% in each of 2018 and 2017, up from 2.1% in 2016.

The 2019 report focuses on three topics
• Africa’s macroeconomic performance and prospects
• Jobs, growth, and firm dynamism
• Integration for Africa’s economic prosperity.

Bank Director of Macroeconomic Policy Forecasting and Research Department, Hanan Morsy notes that, in spite of a rising national debt across Africa, “there is no systemic risk of debt crisis.”

12m jobs
Adesina says industry should lead this growth: “Macroeconomic stabilization and employment outcomes are better when industry leads growth, suggesting that industrialization is a robust path to rapid job creation. However, African economies have deindustrialized.

“Although structural change is occurring, it has been through the rise of the services sector, which has been largely dominated by informality, low productivity, and an inability to create quality jobs. To avoid the informality trap and chronic unemployment, Africa needs to industrialize and add value to its abundant agricultural, mineral, and other natural resources.

According to the report, Africa needs to create at least 12 million jobs a year to stop unemployment from rising further. Unemployment is already a key cause of instability in many African countries, particularly as the growing youth population gathers in cities, Morsy said at the launch last month: “Manufacturing-driven growth has the highest impact on job creation.”

Regional integration and the continental free trade area
The African Economic Outlook 2019 report focuses on regional integration for trade and economic cooperation and on delivery of regional public goods. It analyses gains of regional public goods, including synchronizing financial governance frameworks, opening regional aviation to competition, and facilitating the free movements of people, goods, and services through open borders.

“Borderless Africa” is a key foundation of a competitive continental market to become a global business centre. This includes developing cross-border supply chains, improving customs management and adopting simple and transparent rules of origin.

The report identifies 5 key trade policy actions that could potentially bring Africa’s total gains to 4.5 percent of its GDP, or $134 billion a year:

  1. Eliminate all applied bilateral tariffs in Africa
  2. Keep rules of origin simple, flexible, and transparent
  3. Remove all nontariff barriers on goods and services
  4. Implement the World Trade Organization’s Trade Facilitation Agreement to reduce cross border time and transaction costs tied to non-tariff measures
  5. Negotiate with other developing countries to reduce their tariffs and nontariff barriers, by 50%.

The research includes new data and analytics showing that the African Continental Free Trade Agreement (AfCFTA), signed in March 2018 by 44 African countries, offers substantial gains for all African countries. On 2 Feb Ethiopia was the 18th country to ratify the plan.

According to this article on nurmara.com “At around 15% regional trade remains the lowest globally, a major bottleneck to trade and investment. The estimate is that the AfCFTA could boost regional trade by 52% by 2022, and needs four more ratifications to come into force. The AU hopes to hit this target in February, but it might not mean much. The initiative needs to overcome a legacy of poor implementation.”

Download full report, research data
African Economic Outlook has been published annually since 2003 and is the African Development Bank’s flagship report. It provides analysis, data and also reference material on Africa’s economic development for researchers, investors, civil-society organizations and development partners.

A full set of updated growth projections will be released in May 2019, ahead of the Bank’s Annual Meetings in Malabo, Equatorial Guinea.
The full report is available online in English, French, and Portuguese at: http://www.afdb.org/aeo