Archive for the 'Bonds' Category

Mobile phone app for trading on Zimbabwe securities exchanges

Investors can check their portfolios and send orders to their stockbrokers on their smartphones in Zimbabwe with an app called C-Trade from today (4 July). C-Trade is an online and mobile trading platform for shares on the Zimbabwe Stock Exchange (ZSE) and the second licensed exchange, the Financial Securities Exchange (FINSEC).

According to an article in the Herald newspaper, C-Trade is for financial inclusion in Africa: “The platform will enable investors, both local and foreign to purchase securities from anywhere in the world anytime, using mobile devices. The initiative is being led by capital markets regulator, Securities Exchange Commission of Zimbabwe (SECZ), and seeks to promote financial inclusion by encouraging participation by the smallest retail investor.”

The Herald newspaper reported SECZ chief executive Tafadzwa Chinamo saying that President Emmerson Mnangagwa had agreed to launch the programme. “After that what you will be seeing more of is our campaign as SECZ to educate the public on what investing on the capital markets is about.”

“We have taken the issue of deepening and broadening the capital markets very seriously, to the extent that we added a new committee to our board of investor education.” In July 2017 Chinamo said SECZ had committed $300,000 to a campaign to get more people engaged in the capital market.

Escrow Systems headquartered in Zimbabwe has created the C-Trade programme to trade bonds and shares, using the same technology as Kenya’s world-first M-Akiba mobile Government bond sold on mobile phones to small investors in Kenya, from minimum denomination of $30. Here is our post on M-Akiba from October 2015 and a Reuters story on the eventual M-Akiba launch in March 2017.

According to a report in Newsday, Escrow Group chief executive officer Collen Tapfumaneyi said: “C-Trade is a mobile trading platform and is combination of a number of systems that enable investors to access the securities market or capital markets popularly known as the stock to enable people buy shares and all that. It comes in three forms, USSD application which can be utilised by mobile network subscribers. We have Econet and Telecel, but we are about to finalise with NetOne as well so within a few days all three will be on board,” It is not restricted to local mobile operators to enable foreign investors, including those in Diaspora.

Trading is still through a stockbroker, as before, says Chinamo of SECZ: ”This application is essentially sold to a stock broker to give the brokers clients access to the market. Rules of the exchange are still valid. For your trade to go through, it needs the authenticity of your broker so the broker is still liable for your trade, settlement, clearing and feed.”

The platform allows easier access for smart-phone users to manage their portfolios when they are away from a desktop/laptop.

Escrow is offering it on revenue-sharing basis to users with “minimal or no costs to market participants” according to an older news story in Financial Gazette.

According to an article today in Newsday, there are 13 licensed stock-broking firms in Zimbabwe, of which 3 signed up to use C-Trade. Escrow’s Tapfumaneyi said they were still talking about sharing fees: “C-Trade acts as an agent for the broker. The broker will still earn his full revenue according to the fee charged. However, the brokers pay a fee to use the platform which is negotiable.

“What we are basically doing is get business for them and they keep their traditional business. But, if we get people registering online and placing orders online, all that traffic is being channelled through to the brokers which then gets channelled to the exchange. So we are basically an extension of the brokers,” he said.

“These orders, when they come to the brokers, is also the issue of evaluation and trading is not just picking an order from a client and sending it through. You have got to analyse the market and advise the client what the pricing should be and all that. So we still have that interface.”

The target for C_Trade is about 20,000 individual participants by year-end and an ultimate goal of 2 million people.

London Stock Exchange financing African growth

African companies listed or trading on the London Stock Exchange have a total market capitalization of over $200 billion ($271bn), and in the last 10 years have raised more than $16 bn on London’s markets. The 108 African companies is more than any other international market, according to a press release from the LSE.

There are 9 African sovereign bonds listed in London, from: Gabon, Ghana, Namibia, Nigeria and Zambia

According to Tom Attenborough, Head of International Business Development, London Stock Exchange, in an LSE press release: “The success of Vivo Energy’s IPO is a strong statement of international investor interest in building exposure to Africa. As a London-listed company, Vivo Energy, will gain access to the world’s most international market, as well as an unrivalled source of deep liquidity and new investors.

“London is a strong partner to African companies seeking to attract international investment.”

Paternoster Square with London Stock Exchange at right (credit: Wikipedia)

  • Also this month, May 2018, Angola launched a $3bn Eurobond on LSE, the country’s biggest international bond and the first international issuance since 2015.
  • In April the LSE Group, the Nairobi Securities Exchange and non-governmental organization FSD Africa signed a memorandum of understanding to explore the launch of LSEG’s business support and capital-raising programme, ELITE. In May, the first Kenyan company, Olsuswa Energy, joined the programme. So far 850 companies have joined the ELITE programme.
  • In November 2017, the LSE, Casablanca Stock Exchange and the Bourse Régionale des Valeurs Mobilières (BRVM) signed an agreement to roll out ELITE across West African markets, in a signing ceremony presided by Amadou Gon Coulibaly, Prime Minister of Côte d’Ivoire.
  • In June 2017, Nigeria raised $300m through its first Diaspora Bond on LSE, a retail bond aimed at Nigeria’s global expatriate community seeking to invest in their home country’s development. It was the first bond of its kind from sub-Saharan Africa.
  • In March 2017, LSE published its first “Companies to Inspire Africa” report, identifying hundreds of the fastest-growing and most dynamic private businesses across Africa. Vivo Energy is the first company in that report to follow up by listing on LSE.
  • In March 2016, LSEG established an Africa Advisory Group, bringing together 12 distinguished business leaders, policymakers and investors from across Africa, to discuss the challenges and opportunities presented by the development of the continent’s capital markets.
  • In November 2014, London Stock Exchange Group and The Nigerian Stock Exchange signed a capital markets agreement to support African companies seeking dual listings in London and Lagos. The agreement followed the implementation earlier in 2014 of a unique new cross-border settlement process between the UK and Nigeria.
  • In June 2014, LSEG signed a strategic agreement with Casablanca Stock Exchange to share its expertise on the full exchange business chain, from listing to trading, and from clearing to settlement and custody with a commitment to position Casablanca’s capital markets and financial infrastructure as a regional hub.
  • In April 2014, Nigerian oil and gas group Seplat was the first Nigerian company to simultaneously dual list equity shares in London and Nigeria and raised $500m in an IPO.

LSEG market infrastructure technology, supplied by Millennium IT of Sri Lanka, is deployed in more 12 African markets, including Botswana, Casablanca, Namibia and Johannesburg stock exchanges.

Sub-Saharan Africa investment banking deals in Q1

Mergers and acquisitions (M&A) in sub-Saharan Africa in Q1 of 2018 at $4.7 billion were 63% down on a year earlier, according to investment banking analysis for sub-Saharan Africa by Thomson Reuters, but there were $2.7bn in equity follow-on issues and $13bn in debt issues. Rand Merchant Bank topped the ranking of investment banking earnings, gaining $10.3 million, 9.3% of the total $117.6m earned during the quarter.

Completed M&A generated 20% and equity capital markets 37% of the total fee pool. Thomson Reuters says equity and related issuance was at its highest since 2007.

Fees from completed M&A totaled $23.4m, a 57% decrease year-on-year, while equity capital markets underwriting reached $43.1m, the best start since 2007. Domestic and inter-SSA M&A totaled $483m, down 81% year-on-year and the lowest annual start since 2006. Inbound M&A is down 73%, driven by the lowest number of deals since 2004, while outbound M&A is on a six-year high, up 91% to $1.6bn. Most (93%) of the outbound M&A was by South African companies, while acquisitions by companies headquartered in Mauritius accounted for 6% and in Seychelles for 1% respectively. Citi topped the financial advisor table for Q1 2018 for announced M&A with “any sub-Saharan Africa involvement” with 7% market share.

The biggest deal of Q1, according to Thomson Reuters, was Milost Global Inc’s US$1.1bn leveraged buyout transaction to acquire the entire share capital of Primewaterview Holdings Nigeria through its African subsidiary Isilo Capital Partners, announced on 10 January.

All the equity capital markets activity in the region was follow-on offerings, with 14 transactions. It is the first time there were no primary equity issues since 2012. The biggest was a follow-on offering by PSG Group, followed by offers from Sanlam and Lafarge Africa. Standard Bank Group tops the SSA equity capital markets league table in Q1 2018 with a 26% share of the market, followed by Investec at 12% and PSG Capital Ltd at 11%.

Sneha Shah, Managing Director for Africa at Thomson Reuters, said: “The most active Sub-Saharan Africa equity capital markets sectors for Q1 2018 were financials followed by materials, real estate, industrials, retail, and consumer staples.”

The most active debt issuer nation was Côte d’Ivoire with US$4.6bn in bond proceeds, 36% of market activity, followed by Nigeria and Senegal. Citi took the top spot in the SSA bond ranking for Q1 2018 with 24% market share. Syndicated lending fees declined, falling to $12.7m down 66% from Q1 2017. ING ranked first for syndicated loans.

Fees from underwriting in debt capital markets were $38.4m, the top value since Thomson Reuters started keeping these records in 2000, and up from $19.4m during Q1 2017.

AfDB and stock exchanges group ASEA sign MoU for capital markets projects

Africa’s leading financial institution, the African Development Bank (AfDB), is pairing with the African Securities Exchanges Association (ASEA) to deepen and connect Africa’s financial markets. The partnership aims to help mobilize more resources to drive growth.
The two will work on projects of mutual interest such as developing financial-markets infrastructure, introducing new products, improving market liquidity and participation, information-sharing and capacity-building. AfDB and ASEA signed a 5-year memorandum of understanding on 11 July. This provides “a collaborative framework for harmonizing and coordinating the efforts”, according to an AfDB press release.
The Bank and ASEA have already started successfully collaborating on the African Exchanges Linkage Project, which they co-initiated to improve liquidity and foster greater investments and trading across markets. This aims to link key regional markets and has proposed Casablanca, Johannesburg, Nairobi and Nigerian stock exchanges as regional hubs, according to project documents.

AfDB and ASEA Executive Committee delegation. (From left to right) Stefan Nalletamby (Vice-President for infrastructure, regional integration and private sector, AfDB), Geoffrey Odundo (CEO of Nairobi Securities Exchange), Oscar Onyema OON (CEO of Nigerian Stock Exchange), Akinwumi A. Adesina (President of AfDB), Karim Hajji (CEO of Casablanca Stock Exchange), Edoh Kossi Amenounve (CEO of BRVM) Photo: AfDB

AfDB and ASEA Executive Committee delegation. (From left to right) Stefan Nalletamby (Vice-President for infrastructure, regional integration and private sector AfDB), Geoffrey Odundo (CEO of Nairobi Securities Exchange), Oscar Onyema OON (CEO of Nigerian Stock Exchange), Akinwumi A. Adesina (President of AfDB), Karim Hajji (CEO of Casablanca Stock Exchange), Edoh Kossi Amenounve (CEO of BRVM) Photo: AfDB

AfDB President, Akinwumi A. Adesina says deepening and integrating Africa’s financial markets to mobilize domestic resources to fund African economies is very important to deliver the Bank’s “High 5s” priorities: Light up and Power Africa, Feed Africa, Industrialize Africa, Integrate Africa and Improve the Quality of Life of Africans (all part of the bank’s 2030 agenda for attaining the global Sustainable Development Goals – SDGs).
He says there are huge pools of capital available in sovereign-wealth, pensions and insurance funds and these can be used for developing Africa through appropriate intermediation and capital-markets products. He called for “increased mobilization of domestic pools of savings and support for small and medium enterprises (SMEs), as they constitute the bulk of Africa’s private sector.”
Adesina pointed to the bank’s progress in financial markets development through issuing and listing local-currency bonds in Uganda, Nigeria and South Africa. The bank has also created African Financial Markets Initiative (AFMI) to support domestic bond markets through the African Financial Markets Database. The bank will soon launch an African Domestic Bond Fund building on the success of the AFDB Bloomberg® African Bond Index, which started in February 2015 to combine the Bloomberg South Africa, Egypt, Nigeria and Kenya local-currency sovereign indices and was expanded in October 2015 by Botswana and Namibia..
ASEA President, Oscar N. Onyema, CEO of the Nigerian Stock Exchange, says the MoU will frame projects focused on the development of exchanges, deepening the stock markets and ultimately fueling African economic growth.

IFC raises N$180m bond in Namibia

Photo credit: Namibian Sun www.namibiansun.com

Photo credit: Namibian Sun www.namibiansun.com

The International Finance Corporation, part of the World Bank Group, has continued its programme of helping develop African debt markets by launching the first bond by a non-resident issuer in Namibia. It raised NAD 180 million (about $12m) which it will use for private sector development in the country. The bond yield is 9.812% per annum.

The 5-year bond is named “Namib” after the world’s oldest desert. The bond is part of a medium-term note programme registered with the Namibian Stock Exchange that allows IFC to issue up to NAD 10 billion (approximately $650m) in bonds in the domestic market. Standard Bank and IJG Securities (Pty) Ltd are lead managers for the bond issuance. IJG Securities is also the sponsoring broker on the transaction, while Standard Bank and Transfer Secretaries (Pty) Ltd are fiscal agents.

The bond is issued under IFC’s Pan-African Domestic Medium Term Note Programme, which was launched in May 2012 to support capital-market development in the region. The IFC has already issued local-currency bonds in Rwanda and Zambia, and 9 countries are part of the programme.

Jingdong Hua, IFC Vice President and Treasurer, said: “Deep, vibrant capital markets create access to long-term, local-currency finance for the private companies so they can get tailor-made financing for growth and expansion. The IFC Namib bond is an integral part of IFC’s strategy to support Africa’s capital market development and create access to finance for the region’s private sector.”

IFC supports local capital market development in Africa by working with governments, regulators and market authorities to put in place frameworks that encourage market entry by domestic and international issuers. IFC also supports African companies looking to access capital markets.

More recently, IFC launched a new capacity-building programme for African capital market regulators and practitioners. This is a partnership with the Milken Institute and George Washington University and will create a network of experts and advocates to support the region’s capital markets.

Ipumbu Shiimi, Governor of the Bank of Namibia, said: “Developing Namibia’s capital markets will be critical for long-term economic development, and especially for the expansion of the infrastructure and banking sectors. We hope that other international and domestic issuers will follow IFC and connect savings to Namibia’s private sector investment needs.”

IFC issues bonds denominated in local currencies in emerging markets as part of its regular programme of raising funds for private-sector development, and to support the development of domestic capital markets. In many cases IFC is the first, or among the first, non-resident issuer in a domestic market. IFC bonds are rated triple-A by Moody’s Investors Service and Standard & Poor’s.

Exchange trends from World Exchange Congress 2016

A couple of interesting statements from speakers at the excellent World Exchange Congress 2016, happening 22-23 March at Bishopsgate in London.

Exchanges – back to the information coffee house
Stu Taylor, CEO of Algomi: Fixed-income trading was dominated by banks who use voice trading and support it with their balance sheets. Most banks and their clients prefer this way and are not naturally going to switch to putting limit orders through the exchanges. We try to see how we can help with parts of the transactions, we worked first with the regulated Swiss exchange to put technology components at banks and that can help them sometimes with their trades, the exchange can help them find different counterparts, or with missed trades or, when they are struggling to complete a deal, the exchange can make suggestions. We suggest actions into the existing workflow, rather than trying to change the workflow. Exchanges can connect information sources so the exchange is the place to see what’s going, it can offer “bond dating”, trying to match buyers and sellers into a transaction.

Historically the technology focus for exchanges has been on execution, but now the innovation is that the exchange is about the information itself. Technology is shrinking the world, we used to talk about 6 degrees of separation in the world. Technology such as Facebook has made that number closer to 3 degrees of separation. Exchanges are back to the origins of exchanges as the coffee shops, finding a place to know someone who knows someone. Information and pre-trade are where the next waves of innovation for exchanges are going to come from.

Exchanges role in banks' bilateral bond trading, source www.algomi.com

Exchanges role in banks’ bilateral bond trading, source www.algomi.com

Can technology create liquidity?
Ganesh Iyer, Director of Global Product Marketing at IPC Systems: “Technology has become a facilitator of liquidity. Uber has no taxis but it provides taxi “liquidity”, Airbnb has no rooms but provides accommodation “liquidity”. Technology does not create liquidity on its own but it brings together market participants and that leads to liquidity. In the capital markets it can bring very diverse market participants together, for instance a mutual fund seller with a diverse “buy-side” community including hedge funds, retail, etc.

Move over-the-counter (OTC) trading onto exchanges
April Day, Director, Equities, Association for Financial Markets in Europe: “There is always a need for keep some balance, some trades are not suitable for exchange trading, there is still a time when investors choose to trade off exchange for reasons such as not wanting to share market information, reduce costs, less disclosure, etc.

Sergio Ricardo Liporace Gullo, Chief Representative EMEA BM&FBOVESPA; The Brazil market has reached a big harmony, we have survived many crises and we have a sophisticated system offered by the exchange which offers central clearing and makes all parties’ lives more efficient and offers better use of capital.

Keisuke Arai, Chief Representative in Europe of Japan Exchange Group: The Japaese experience is that it’s important for the exchange to strike the right balance between market efficiency and investor protection.

South Africa – politics affects the market, damaging savings and jobs

Pravin Gordhan (photo enca.com)

Pravin Gordhan (photo enca.com)

Stock exchanges act as a powerful and fast indicator of how the market and the business world view political initiatives. Many believe that the overall market has a wisdom that an individual policymaker or even a group of political leaders cannot expect to have. Of course political leaders are the ones elected and responsible to lead in the interests of the people, but the market is a very useful tool for quick feedback and possible corrective action.

Usually the signal is only given by plunging share prices or rising bond yields/falling bond prices (the same thing). However, last Sunday the Johannesburg Stock Exchange decided to spell out how policy decisions affect not just the stockbrokers, but the whole population, including hitting their savings, their jobs and their hopes. This came after President Jacob Zuma on 9 Dec appointed unknown David van Rooyen as Finance Minister in very dubious circumstances after sacking respected Nhlanhla Nene.

The revolt inside the African National Congress ANC and across the country was also strong. By Sunday night 13 Dec the National Treasury was back in what is seen as safe hands, with the reappointing of a previous minister, Pravin Gordhan. The ZAR currency gained on Monday, climbing back past ZAR15 = USD1, and reaching ZAR14.97=USD1 by this morning according to Reuters compared to ZAR14.43=USD1 before Nene was fired.

We reproduce a statement published by the Johannesburg Stock Exchange (JSE) and its CEO Nicky Newton King earlier on Sunday 13 Dec in full. It indicates how the market affects everyone’s welfare:

IT’ S NOT JUST THE NUMBERS – IT HURTS ORDINARY SOUTH AFRICANS
Says JSE CEO Nicky Newton-King

Johannesburg, 13 December 2015. South African capital markets posted significant losses and saw unprecedented activity following the announcement by President Jacob Zuma on the evening of the 9th of December to replace the Minister of Finance. Investors, ranging from individual retirees to huge pension funds, have seen the value of their holdings plummet. Businesses already under pressure now face increases coming from rising borrowing costs and a weaker Rand which devalued from R14.53 to R15.89 (9.36%) against the USD and from R15.94 to R17.45 (9.47%) against the EUR in the two subsequent days.

Thursday 10 and Friday 11 December 201 saw exceptional trading volumes across most platforms of the JSE:
• Average daily value traded in the Equity Market on those two days, at R47.8bn, was more than double the year to date average for 2015 (R19.9bn)
• Average daily number of trades in the Equity Market on those two days of 589 721 (both of which were record trading days) was more than double the year to date average of 246 338 trades
• The FTSE/JSE Financial15 Index (FINI) dropped 13.36% from 15 600 to 13 515
• The FTSE/JSE Banks Index lost 18.54% dropping from 6 556 to 5 340
• The FTSE/JSE All Share Index (ALSI) dropped 1 456 points in those two days, closing at 48 068 on Friday, down 2.94%
• The FTSE/JSE Top 40 Index shed 987 points over the same period, closing at 43 558 on Friday
• The entire market cap fell R169.6bn from R11.35tr to R11.18tr (1.49%)
• Activity in Equity Derivatives also peaked – value traded on 10 December (R51.1bn) was double that of the daily average of the year and on 11 December (R129.7bn) was 5 times the daily average of 2015
• In the bond market, the benchmark R186 started the week at a yield of 8.66% and closed on 10.40%. By contrast, on 29 January 2015 the yield was 7.055%.

Says Newton-King:

“While the JSE systems were able to handle this unprecedented activity, we should not just be concerned about the immediacy of market reaction but should be mindful of the longer term impact on the financial stability of our economy.

“Market losses put strain on credit extension and interest rates, and raise borrowing costs for companies and individuals. As cost of capital becomes more expensive, this in turn constrains the growth stimulus which we desperately need. The outlook for much needed job creation opportunities diminishes. And higher lending rates make everyday life more expensive for ordinary South Africans. Continued currency depreciation will have a profound impact on fuel prices and on inflation overall, which will hurt companies, small businesses, and individuals.

“We should remember that behind the daily statistics are the life savings of ordinary South Africans which are likely to be negatively impacted. This will put pressure on the ability of people to fund their health and housing requirements, their household budgets, their children’s education and their entrepreneurial aspirations.

“As individuals and as corporates we need to be aware of how we are impacted by the seriousness of this moment and take accountability for how we respond.”

Yesterday and today the markets started to recover. The banking index had fallen nearly 20% and on Monday climbed back 15% but then pared back gains to 8.7% by Monday evening. The yield on the benchmark 2026 ZAR186 government bond, with effects on all debt across the market, was down 101 basis points to 9.37% on Monday morning, but closed yesterday at 9.95% and this morning was at 9.87%, while the JSE’s All-Share Index was up 2% to 49,051.

Reuters reports Investec chief economist Annabel Bishop: “Finance Minister Gordhan has averted the rout, but the damage to sentiment cannot be repaired quickly, and South Africa will continue to suffer under it for quite a while.”

NOTE – PRIME EXAMPLE Markets reflect earnings prospects: It was fascinating to see how the “elephant bond” – Cote d’Ivoire’s previous Eurobond – adjusted its yields with every advance or retreat in the country’s 2010 civil war. It was eventually defaulted on in 2011 and resumed proper payments in 2012, with a very warm response given to the 2014 and 2015 editions, according to Euromoney.

Local bond markets to fore at AfDB workshop

The African Development Bank’s African Financial Markets Initiative (AFMI) is discussing local-currency bond markets this week in Johannesburg, and over 30 countries will be there according to the press release. Key topics include how to develop domestic institutional investors, with experiences shared from across Africa, and updates on gathering data and help to include more countries in an AfDB-Bloomberg bond index.
AFMI runs a helpful financial markets database, available through their website www.africanbondmarkets.org, featuring bond and money-market news and helpful capital market descriptions for different African countries as well as a data portal.
The first day of the workshop, today 30 Nov, covers the database and the African Fundamental Bond Index as well as technical assistance. It includes how to collect accurate pricing data so that more countries can be included in the African Development Bank (AfDB/AFMI-SM) Bloomberg® African Bond Index (ABABI).
Tomorrow, 1 Dec, is open to investment banks, stockbrokers, exchanges and financial institutions. This includes presentations on the ABABI index, an African Domestic Bond Fund, and perspectives from institutional investors.

To participate in the 1 Dec African bond markets workshop please contact afmi@afdb.org as soon as possible.

AfDB launched the initiative in 2008 as part of its strategy to develop Africa’s financial sector. It contributes to developing domestic bond markets through: the African Financial Markets Database (AFMD); and the African Domestic Bond Fund (ADBF).

African Financial Markets Initiative data portal

African Financial Markets Initiative data portal

Soaring trading on Nigeria’s FMDQ market for fixed income and fx

Nigeria’s booming fixed interest and currency securities exchange FMDQ OTC Plc (“over-the-counter” market) recorded market turnover of NGN93.9 trillion ($471.7 billion) for the 8 months to 31 August. This includes all products traded on the FMDQ secondary market as well as trade executed between dealing members, dealing members & clients, and dealing members & the Central Bank of Nigeria (CBN).

According to a recent report in Vanguard newspaper, treasury bills transactions accounted for NGN31.7trn (34%) of the total trading; repurchase agreement/buy backs were NGN21.354trn (23%) turnover; and foreign exchange (forex) NGN19.84trn (21%). The top 10 dealing members accounted for NGN67trn, 71% of the turnover; 3 dealing members accounted for NGN27.9trn (42%) of the broker trading.

Photo: FMDQ OTC

Photo: FMDQ OTC


Major listings in July included NGN26bn ($130m) FCMB Financing SPV PLC series 1, 7-year 14.25% fixed-rate unsecured bond under a ₦100trn debt issuance programme. This came after the listings of NGN4.8trn of bonds issued by the Federal Government of Nigeria (FGN) and quotation of NGN2.8trn of treasury bills. Other key listings have included a NGN30.5bn bond by UBA and a NGN15.54bn bond by Stanbic IBTC.

Other instruments traded in the 8 months to August:

  • Unsecured placements – NGN9.2trn
  • FGN Bonds – NGN6.1trn
  • FX Derivatives – NGN5.5trn
  • Money-market derivatives – NGN101bn
  • Eurobonds – NGN33bn
  • Other bonds – NGN18bn.

The figures exclude primary-market auctions in T-Bills, Bonds and FX.

According to CEO Bola Onadele Koko, revenue in 2014 was NGN1.75bn, compared to NGN155.65m in 2013, based on transaction income only for one month, December 2013. The bourse aims “to be No. 1 in Africa in the fixed income and currency markets by 2019”.

The FMDQ concept was promoted by the Financial Markets Dealers Association (FMDA) in 2009 and sponsored in 2010 by the Bankers’ Committee, chaired by the CBN with the Nigeria Deposit Insurance Corporation (NDIC) and all the banks and discount houses operating in Nigeria as its members. The committee resolved to set up a self-regulated organization licensed by the Securities and Exchange Commission (SEC) to operate all the over-the-counter inter-bank market activities in fixed income and currencies.

FMDQ was incorporated on January 6, 2011 with a NGN100m contribution by the CBN and equal contribution of NGN15m by each of the 25 banks and 5 discount houses to the company’s initial capital. On 6 Nov 2012, SEC registered FMDQ as an OTC securities exchange and self-regulatory organisation. It started operations a year later, 7 November, 2013.

By 31 Dec 2014 there were 26 FMDQ-licensed dealing members made up of banks and discount houses licensed to make markets in debt securities, money-market instruments and currencies on FMDQ. It was due to add specialist dealing members to deal in treasury bills and FGN Bonds. There were 13 licensed associate members, including SEC-registered inter-dealer brokers and brokers, as well as clients including institutional investors/asset managers, pension fund administrators and corporate treasurers.

From 2014 annual report

From 2014 annual report

fmdq_bannerad

IMF cuts African growth forecast

Africa’s growth is slowing dramatically, says the International Monetary Fund, and it could get worse if the global economy does not grow. The IMF says economic growth for 2015 is likely to be 3.75% and 4.25% next year, the lowest level in 6 years and down from last year’s 5% average growth.

In its October 2015 report African Economic Outlook: Dealing with the Gathering Clouds, the IMF writes: “The strong growth momentum evident in the region in recent years has dissipated. With the possibility that the external environment might turn even less favourable, risks to this outlook remain on the downside.”

There are many that are flourishing, including Cote d’Ivoire, forecast to grow at 9% this year because of an investment boom that followed the end of a brief civil war in 2012. It just had a very peaceful election and President Alassane Ouattara, a former IMF official, is widely expected to win.

In real growth terms (page 81) Ethiopia is Africa’s fastest-growing economy this year with 8.7% growth, followed by Democratic Republic of Congo (8.4%) and Cote d’Ivoire (8.2%). Ethiopia is second fastest next year with 8.1% forecast, just after Mozambique (8.2%).

The fund blames a slump in commodity prices and cheap dollars returning to the US and out of African credit markets for the lower overall growth. Hardest hit are the 8 countries that export oil from sub-Saharan Africa, where the prices are far lower. Top producers Nigeria and Angola will see revenues falling fast, while . weak minerals prices, power shortages and difficult financing conditions are slowing growth in countries such as Ghana, Zambia and South Africa. It said commodities revenues are forecast to remain depressed for several years.

According to a report by Reuters, Antoinette Sayeh, head of the IMF’s Africa department, said governments should work quickly to diversify revenue sources by improving domestic tax collection: “Mobilizing more revenues is an urgent matter – as is being more exacting in choosing expenditure. It’s a difficult patch, but we definitely think that countries can move out of the very difficult terrain and grow more robustly.”

The fund urges governments to increase productivity: “To sustain rapid growth the region will need to diversify away from commodities, increase export sophistication, and integrate into global value chains.”

Low interest rates, especially by issuing Eurobonds on international fixed income markets since 2007, has meant African governments have borrowed and public debt levels have risen. Sayeh warned governments to be “very careful” in how they managed dollar financing to ensure it is invested wisely. Some governments, such as Ghana, have been accused of frittering away Eurobond revenues on state salaries. Sayeh said Accra was doing “reasonably well” in its efforts to curb public spending under a $918 million IMF programme agreed in April.

She says that Zambia has not yet asked IMF for financial help. It is also struggling with the rising cost of servicing USD debt after the value of its currency fell 50% this year.

The Fund also notes that Sub-Saharan Africa has among the highest levels of inequality—both income and gender—in the world, even after accounting for the lower levels of per capita income in the region. There is growing international evidence that such inequality can impede macroeconomic stability and growth

Highlights from the report
In most low-income countries, growth is holding up, as ongoing infrastructure investment efforts continue and private consumption remains strong. The likes of Côte d’Ivoire, the Democratic Republic of the Congo, Ethiopia, Mozambique, and Tanzania are projected to register growth of 7% or more this year and next. But even within this group, some countries are feeling the pinch from lower prices for their main export commodities, even as lower oil prices ease their energy import bill. On average, activity for this group is now projected to expand by 6% in 2015, some three-quarters of a percentage point lower than foreseen a year ago.

• The region’s 8 oil-exporting countries, conversely, are being hit hard by the continued weakness in oil prices. Falling export incomes and resulting sharp fiscal adjustments are taking their toll on activity, now expected to expand by 3½% this year, down from the 7% expected before oil prices started falling. Headwinds are particularly strong in Angola and Nigeria, but also among oil exporters in the Central African Economic and Monetary Community (CEMAC).

• Several middle-income countries are also facing unfavourable conditions. A combination of supply shocks (for example, curtailed electricity production in Ghana, South Africa, and Zambia), more difficult financing conditions in a context of large domestic imbalances (Ghana and Zambia), and weaker commodity prices (Botswana, South Africa, Zambia) are set to lower growth.

Moreover, there is a risk of still lower growth if the external environment continues to weaken. Existing vulnerabilities, especially on the fiscal front, could also come to a head if the external environment were to turn even less favorable, via further declines in commodity prices, stronger growth deceleration in China, or a disorderly global asset reallocation.

Debt crunch
With gross external financing needs in excess of 10% of GDP in many of the larger economies (Ethiopia, Ghana, Kenya, Senegal, South Africa, Tanzania), it might at best become increasingly difficult and expensive to cover these needs, and at worst, impossible to do so, forcing an abrupt adjustment.

Where fiscal deficits are particularly large and external costs have already risen substantially, recourse to domestic markets is also becoming increasingly difficult, as in Ghana and Zambia. This has pushed domestic borrowing costs up— crowding out the private sector in the process and restraining the emergence of new, more diverse, domestic sources of growth.

inflation is now inching up in some of the largest sub-Saharan African economies, in contrast with the trend of recent years. Average inflation in the region is expected to reach 7% this year and 7¼% next year. In some countries, specific factors such as electricity tariff hikes (South Africa), the elimination of fuel subsidies (Angola), and rising food prices (Ethiopia, Tanzania) have also pushed inflation up. However, inflation in most other countries remains contained, particularly in the CFA franc zones, where it ranges from 1 to 3%.
some central banks have intervened in the market to contain exchange rate volatility, and others, most notably oil exporters, have drawn on their external buffers to smooth the adjustment to lower commodity prices (Figure 1.12). Some countries, including Angola and Nigeria, have also introduced administrative measures to stem the demand for foreign currency, significantly hampering the conduct of private sector activities in the process.

Banks could well see a worsening of the quality of their assets. Recent analysis suggests that financial stability indicators in natural-resource-rich countries, such as bank profitability or nonperforming loans, tend to deteriorate and the probability of systemic banking crises tends to increase in the wake of negative commodity price shocks

Power block
Infrastructure bottlenecks have long been an impediment to attracting new activities and fostering trade integration.8 These bottlenecks have come to the forefront even more acutely recently for a wide range of countries. Load shedding and electricity shortages, triggered by delays in upgrading aging power plants and filling the power generation gaps, have become a regular occurrence in Ghana and South Africa, with particularly acute effects in the manufacturing sector. Worsening conditions in electricity supply have also been severely hampering activity in a few other countries (Comoros, Madagascar, Nigeria, and Zambia).

These difficulties are in stark contrast with encouraging progress made elsewhere in the region, as past investment is now bearing fruit. In Kenya, the doubling of geothermal generation capacity in the second half of 2014 led to a 20% increase in overall capacity and a 25% decline of electricity cost (IMF 2015b). The coming onstream of new hydropower plants in Ethiopia is contributing to a further increase in electricity availability for the entire east African region, and will do so even more in the next few years—supporting the emergence of new activities. In west Africa, a new dam put in service in Guinea in the summer of 2015 will also allow electricity exports to neighbouring countries.