Archive for the 'Integration' Category

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

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

Recent Africa share listings news

London and South Africa
Old Mutual Limited, an insurance company founded 173 years ago, moved its main listing back to Johannesburg on 26 June and has dual-listings in Namibia, Malawi, Zimbabwe and London, as reported by Bloomberg and Moneyweb. Old Mutual plc terminated its listing on the London Stock Exchange on 25 June, and spun off UK wealth manager Quilter plc which was listed separately on the LSE (and dual listed on the JSE) the same day with a market capitalization of £2.75bn based on a £1.45 share price. It also sold its US asset manager and Latin American units as it believed each unit would be worth more separately. The “home-coming” was marked with a parade in Sandton and events in Malawi, Namibia and Zimbabwe. Old Mutual had moved its head office and primary listing to London in 1999, according to Reuters, but now its prominent riverside London head office is being wound down, with staff down from 120 to 40 in 2018.
The stock was listed in Johannesburg at ZAR28.50, valuing the company at some ZAR140bn ($10.7bn). According to Sanlam analyst Renier de Bruyn, quoted by Bloomberg, the share price did not reflect the hoped-for “value unlock” and Old Mutual was at an “attractive” price-earnings ratio of 7.5x, compared to 13x for its biggest South African rival, Sanlam. Bloomberg quotes Brad Preston, chief investment officer at Mergence Investment Managers Ltd: “Old Mutual’s strategy of trying to build a completely global business I think clearly has failed. We’ve seen them reverse that completely.” It bought United Asset Management Corp in USA for $1.4 billion in 2000 and Skandia AB in Sweden for $8bn in 2006. Between mid-1999 and June 2018 Old Mutual’s shares in Johannesburg returned 480% while Sanlam’s returned almost 2,000%. Sanlam had focused on African markets and reached 34 countries, including buying out remaining shares in Morocco’s Saham Finances SA earlier in 2018 for $1.1bn. Old Mutual is only in 13 countries.
Next step will be the unbundling of shares in Nedbank Group by about December 2018. Old Mutual owns 53% since it bought in under apartheid capital controls in 1986 and it is expected to reduce that to 19.9%.

London
Microfinance firm ASA International listed on the London Stock Exchange on 13 July. Its 85% shareholder Catalyst Microfinance Investment had partially sold half its stake by offering 40m shares at GBP2.24 each. ASA International was set up in 2007 and is one of the larges and most profitable international microfinance institutions, with 1.8m clients, particularly low-income and underserved women entrepreneurs. It operates in Asia (7)%) and in Africa (30% of clients, including in Tanzania, Uganda, Kenya, Rwanda, Nigeria, Ghana and Sierra Leone. It has 1,387 branches and employs 9,000 staff.

Mauritius and London
Grit Real Estate Income Group, a pan-African real estate company based in Mauritius and investing in 7 countries Botswana, Kenya, Mauritius, Morocco, Mozambique, Ghana and Zambia with plans for Senegal and the Seychelles, raised $132.1m through selling 92.4m shares at $1.43 each, before listing on the London Stock Exchange main board on 31 July. The new funds are for more investments in Mozambique and Ghana. Previously there were 214m shares listed in Johannesburg Stock Exchange and Stock Exchange of Mauritius. Bronwyn Corbett and Sandile Nomvete built the Delta International Property Fund from R2.2bn to R11.8bn. It became Mara Delta Property Holdings and was then rebranded Grit and the company headquarters moved to Mauritius, according to this 2017 interview in Finweek magazine.
Corbett commented in a press release: “”We are delighted to have successfully completed our Listing on London Stock Exchange and we are proud to be the first London listed pan-African real estate group”. Earlier she was quoted saying the African real estate sector “offers some of the best returns in the global property market. We have a proven track record of generating income from our selective and diversified range of assets, built through our close and detailed understanding of the region’s property investment environment. The listing will support our aim to grow our portfolio further and become the leading real estate owner on the African continent outside South Africa.” The share price was set at net asset value and the aim is to yield 12% a year in US dollars.

Nigeria
The Federal Government of Nigeria listed a NGN10.7 billion ($29.5m) FGN Green Bond 2022 on the Nigerian Stock Exchange on 21 July. It offered a coupon of 13.48% and aims to finance initiatives including solar plants and hydropower.

South Africa
Anchor Capital became the 9th listing on the A2X Markets on 19 July through a secondary listing. It was listed on the Johannesburg Stock Exchange’s AltX platform in September 2016 after raising ZAR60m ($5.4m) through an IPO.

BRVM investment open days – 14 March Johannesburg

BRVM in Abidjan (photo Tom Minney African Capital Markets News)

One of the world’s most successful regional stock exchanges, linking eight West African countries with a stable currency and fast growth, will come to South Africa to outline investment opportunities. The Bourse Régionale des Valeurs Mobilières (BRVM), headquartered in investment destination Côte d’Ivoire, will meet South African fund managers and market experts on March 14 at “BRVM Investment Days in Johannesburg”. This exclusive investor forum is part of a global 2018 BRVM roadshow.

Edoh Kossi Amenounve, CEO of the BRVM, will outline strategic developments on the exchange, including: investor-friendly trading and disclosure, working with London and Casablanca stock exchanges to boost growth companies in the region, and a board for mining companies after big discoveries in the region.

Other speakers are:
• Dominic Bruynseels, Regional CEO West Africa for Standard Bank, which sees the potential for growth in the West African Economic and Monetary Union (WAEMU) region and opened its first branch in Côte d’Ivoire in August 2017
• Samira Mensah, Associate Director of Standard & Poor’s Global Ratings, with an overview of banks in the region as well as fixed income and other securities
• Michael Barnes, Head of Sales and Trading at stockbroker African Alliance, one of the leading South African stockbrokers for trading on the BRVM exchange.

The speakers will share insights on the economies – the IMF forecasts growth at 6.5% or 6.6% a year across the region until 2021 – and on sectors, shares and key investment themes. It is a unique opportunity for South African institutions to learn more about the potential of Africa as regional links become stronger.

WAEMU combines eight West African countries with a population of 110 million: Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal and Togo. WAEMU shares a single currency, the CFA franc, which is linked to the value of the euro (EUR), and a single central bank and capital markets regulator.

Mr Amenounve says: “South African investors are taking increasing interest in the opportunities in Africa as the world’s long-term growth story. The West African region offers fast, diversified growth and interesting lessons on regional development and economic linkages. In our countries, demographics, development, technology and increasing productivity all offer opportunities and the regulated exchange market offers liquidity and support to investors.”

The BRVM has 45 listed companies and is Africa’s sixth biggest exchange in terms of market capitalization with $12.5 billion in shares listed at end December 2017, plus 32 government and corporate bonds and five sukuk. To register online, please visit www.brvminvestmentdays.org.

Contact person for all event-related questions: Ms. Aziza Albou Traore ceo@azmediaagency.com Tel: +1 646 3772178
For any event-related or media enquiries, please contact: Ms. Glynis Loizeau: glynis@azmediaagency.com Tel: +33-6-83-48-75-85

This event is organized by AZ Media Agency www.azmediaagency.com
Twitter @BRVM_UEMOA #BRVMInvestmentDays

Top speakers for BAFM capacity-building seminar 18-19 May


Leaders and movers of African capital markets are heading to Casablanca for the 6th Building African Financial Markets (BAFM) capacity-building seminar on 18-19 May, organized by Casablanca Stock Exchange with the African Securities Exchanges Association and supported by member exchanges.
This year focuses on “Global best practices to enhance African capital markets”. The agenda features CEOs of top African exchanges and other industry leaders: Oscar Onyema CEO of Nigerian Stock Exchange and President of ASEA, Siobhan Cleary of the World Federation of Exchanges, Karim Hajji CEO of Casablanca Stock Exchange, and speakers from Bloomberg, International Finance Corporation, Ethiopian Commodity Exchange, Tanzania Capital Markets and Securities Authority, Securities and Exchange Commission (Nigeria), Safaricom, Kenya Retirement Benefits Authority, Maroclear, and many others.
Topics include: demutualization and growth, what the new US administration means for African markets, financial inclusion, pensions, liquidity, green finance, global principles on IT infrastructure, and regional integration of exchanges in East, West and Southern Africa.
It will be held at Casablanca Most Events Business Center, Anfa Place, Casablanca, Morocco. Don’t miss a great chance to meet the drivers of Africa’s capital markets development. For more, check the Casablanca Stock Exchange website page.

World Exchange Congress 2017: First step – get domestic capital markets right

Here are some key points from the panel on “Alternative exchanges and connecting the African markets: What do you need to know?” at the World Exchange Congress 2017 in Budapest. All are CEOs: Moderator: Hirander Misra, Chairman and CEO, GMEX Group; Thapelo Tsheole, Botswana Stock Exchange; Moremi Marwa, Dar Es Salaam Stock Exchange; Sunil Benimadhu, Stock Exchange of Mauritius.

Q1: How to develop frontier African stock markets? Benimadhu: “We look at what our niche products are, that we do better than others. We list those products on the exchange. Then we think: ‘How we reach out to the world and tell our story?’ We need to make sure trading on our exchange is easy, efficient and meets international standards. Then we can look beyond our borders and ask what does the region need?”

Q2: Should you offer risk mitigation for currencies? Tanzania, Botswana and Mauritius are all open for investors to take their capital out, Mauritius was one of the first African markets to drop exchange control; it was brave as it’s a small economy, but it found the capital flowing in soon became more than the capital flowing out.
Protecting against changes in value of African currencies such as KES and NGN will be very important for attracting foreign investors, for inter-African trade and for trading in derivatives linked to international currencies. Benimadhu – Mauritius (and other markets) are looking at exchange-traded linked products to mitigate currency risk “there is a strong need to come up with a very sophisticated derivatives platform for mitigating currency risk”.

Q3: Inter-African stock-market links? Marwa: “We are harmonizing our trading rules among the 4 markets in the region – Kenya, Tanzania, Uganda and Rwanda – with the help of the World Bank. We are building an infrastructure based in Tanzania combining our automated trading systems (ATS) and central securities depositories (CSDs). In the Southern African Development Community (SADC) we are also making some progress in harmonizing and integrating our markets.
“Investors would rather see us as one big market, instead of small markets. For any issuer, reaching out the whole region will attract wider interest. In Tanzania we are well placed for this and we encourage harmonization and integration.”
Benimadhu “I have seen examples of larger markets and we should learn from that and use their experience. Take the case of Australia and Singapore, they allowed brokers from Singapore to trade in Australia and vice versa to increase order flow. After 10 years they scrapped it, it did not generate expected volumes. Many of the others have also fallen short of expectations. One which is working is Hong Kong-Shanghai but that is for specific reasons, including access to the Chinese market.
“I am a contrarian. I believe linkages make sense, but before doing that it makes sense to grow the domestic market. Open up, attract foreign flows. Don’t spend a lot of time and energy on linkages, but focus first on growing the domestic market. We should follow regional links, but they should not sidetrack us from where we should concentrate, on our own markets”.

Uganda Capital Markets Authority joins IOSCO MMoU Appendix A

Capital Markets Authority (CMA) Uganda has taken a big step forward for international links, after changes to Ugandan law. CMA been admitted by global securities standards setter International Organization of Securities Commissions (IOSCO) as a signatory to Appendix A of the IOSCO Multilateral Memorandum of Understanding (MMoU).

The MMoU provides an international benchmark for cross-border cooperation and offers securities regulators tools for combating cross-border fraud and misconduct. Uganda’s regulator will have increased access to knowledge and research through the IOSCO network.

The admission follows the recent amendment of Uganda’s CMA Act. The capital market regulator becomes the 112th member to append its signature to the memorandum, which was instituted in 2002.

Keith Kalyegira, the CEO of CMA, said in a press release: “This is a big step for CMA and Uganda in general and I must thank all the stakeholders that have been very instrumental in enabling us to reach this milestone including the CMA Board; our parent ministry of Finance, Planning and Economic Development; Parliament of Uganda; and the Ministry of Justice and Constitutional Affairs which has tirelessly worked with us to enhance our regulatory framework so that it can fit international standards.

“Our desire going forward is to transform Uganda’s capital market into one of the most efficient, and trusted centres for attracting capital and providing capital in Africa, and this could not easily be achieved without enhancing our regulatory framework to fully suit international standards by ensuring we comply with Appendix A requirements”.

CMA Uganda became a member of the IOSCO Appendix B in 2007 and has since been compliant with most of the international best practices in regulation. However, its participation, engagement and contribution to international dialogues was limited.

The IOSCO MMoU supports mutual cooperation, assistance and consultation among members to ensure compliance with, and enforcement of securities laws and regulations. It is a response to more international activity in securities and derivatives markets.

The formal signing ceremony will be held at the 42nd IOSCO annual conference due in Jamaica in May 2017. CMA first applied to IOSCO to become a signatory to the IOSCO MMoU in September 2007, and was assigned to Appendix B. The capital market regulator proactively started steps over several years towards legislative change to bring Uganda’s legislation into compliance with the MMoU. The reapplication was submitted to the IOSCO General Secretariat in July 2016.

East Africa regulator links

CMA is also a member of the East African Securities Regulatory Authorities (EASRA), which is instrumental in the development of the capital markets industry in East Africa. This includes some joint oversight activities, particularly for financial firms operating in more than one of the East African Community EAC countries. CMA Uganda also does joint inspections with its Kenyan counterpart.

Uganda’s growing capital market

CMA recently concluded its 5-year strategy, and expects to launch a 10-year capital markets development master plan by the end of March. This will map a growth plan for Uganda’s capital market which already includes 2 Ugandan securities exchanges. It will lay a strategy for increasing access to patient capital to finance the growth of commerce and industry in Uganda.

In Uganda, CMA cooperates with other government agencies in the financial sector including Bank of Uganda, the Insurance Regulatory Authority, the Uganda Retirement Benefits Regulatory Authority (URBRA), and the Uganda Registration Services Bureau. The Uganda Registration Services Bureau acts as the Registrar of Companies and implements the Companies Act, 2012 (Companies Act).

It also works with law-enforcement agencies such as the Office of the Attorney General, Director of Public Prosecutions and the Uganda Police. CMA, Bank of Uganda and the Uganda Insurance Commission (now the Insurance Regulatory Authority) signed a Memorandum of Understanding to facilitate cooperation and exchange information in the securities, banking and insurance sectors.

Trading of listed securities is conducted through the Uganda Securities Exchange (USE), established in 1998. There are 16 listed companies on the USE, of which 7 are from privatization of government parastatals. Trading of government bonds on the USE was introduced in 2004.

In July 2015, an automated trading system was introduced on the USE. The clearing and settlement period is 3 days (T+3). A computerized Securities Central Depository System (SCD) was put in place in 2010 following the enactment of the Securities Central Depositories Act (SCD Act) in 2009. The SCD has enabled the USE to automate the clearing and settlement process.

On 4 March 2014, CMA’s Board of Directors considered and approved the application of ALT Xchange East Africa Limited to operate as a stock exchange in Uganda in accordance with the CMA Act.

Kampala view (credit www.enjoyuganda.info)

Regional integration tops 2017 agenda for Africa’s exchanges

Stock exchanges across Africa should be working towards regional integration, says Prime Minister of Rwanda Anastase Murekezi. He was guest speaker at the 20th African Securities Exchanges Association (ASEA) annual conference. The conference’s action agenda would see the regulated stock exchanges driving industrialization and economic transformation.
Panel discussions highlighted the opportunities for African exchanges, provided they adapt to meet the needs and demands of local investors and issuers. They must also find the balance between local context and environment, and alignment with global best practices.
Government support and engagement are keys to the success of exchanges and to providing the capital to grow economies. Governments should continue to create enabling environments that encourage investment, economic growth and development. Regulation should follow market needs and focus on supporting development as favourable regulatory frameworks are essential for sustainable economic growth.
Other challenges the exchanges should continue to work on include: financial inclusion or letting more people access the capital markets for investing and for raising long-term risk capital for their enterprises; financial literacy and investor education; product innovation including using technology and creating innovative platforms for new products; and finding ways to finance the missing middle of small and medium enterprises (SMEs) in Africa.
Exchanges should encourage greater emphasis on environmental, social and governance components to enhance corporate transparency and performance.
Celestin Rwabukumba, CEO of the Rwanda Stock Exchange, said innovation and technology would enable Africa’s capital markets to harness resources to fuel structural transformation: “Currently, less than 5% of the African populace participate in the capital markets; this means that there is a huge opportunity to widen the base of African capital markets by incorporating new models based on technology and other creative innovations that target provision of direct linkages with the ordinary citizens in order to bring them in the loop of resource mobilization and utilization”.
The 20th ASEA conference brought together 300 delegates, including securities exchange CEOs, regulators, ministers, investors and others. It was held in Kigali on 28-29 November 2016. The theme was “Road to 2030: Making the African capital markets relevant to the real economy”.
Speakers included Claver Gatete, Rwandan Minister of Finance, and Prime Minister Murekezi delivered a message from the President of Rwanda, His Excellency Paul Kagame, in which he commended ASEA for its role in deepening the capital markets as a way of addressing the challenges that hampered Africa
Other speakers included Prof. Kingsley Moghalu, (former Deputy Governor of the Central Bank of Nigeria), Tonye Cole (founder of Sahara Group), Staci Warden (Executive Director, Milken Institute), Sandy Frucher (Vice Chairman of Nasdaq), Paul Muthaura (CEO Capital Markets Authority Kenya), David Grayson (Co-founder and CEO of Auerbach Grayson & Company), as well as CEOs from ASEA member exchanges.

SADC stockbrokers linking for cross-border investment

Stockbroking firms across Southern Africa are invited for networking on 7 December 2016 to learn more about investment opportunities in neighbouring capital markets. The Committee of SADC Securities Exchanges (CoSSE) aims to implement SADC ideals of close linkages between the region’s capital markets and to support cross-border capital-raising and investments.
First steps are to encourage information flow between the markets and to establish networks so that brokers can route trading to other local exchanges by working with a local broker in the target exchange.

cosselogo_about-cosse

On the agenda for the 1st SADC Brokers’ Network Session will be to facilitate and provide a platform for SADC brokers to meet each other, agree to enter into a SADC database, agree on a standard counter-party agreement which will be used when brokers trade for each other in their respective jurisdictions, and share information about their respective markets.
Every firm is invited to send representatives to meet other broking firms and learn about their activities. After the networking session, brokers will be encouraged to keep each other informed on local opportunities such as initial public offers (IPOs) which brokers in other countries and their clients may be interested in. Brokers will be able to share trading commissions on such deals when two firms are working together.
There are increasing linkages between the financial systems in the region’s capital markets, including the SADC Integrated Regional Electronic Settlement System (SIRESS) which was successfully launched in 2013 and has been growing fast since then.
The networking session will last all day from 8-5 and it will be at the Johannesburg Stock Exchange in Sandton, South Africa. It will be followed by a cocktail. Brokers wishing to attend should contact their national stock exchange.
Other information can be obtained by emailing CoSSEBrokerSession@jse.co.za.

Opinion: Steps for regional integration of capital markets

YOUR COMMENTS AND DISCUSSION ARE WELCOMED!

In mature capital markets, regional integration shows significant benefits in unlocking potential and allowing investors to mobilize liquidity across borders by interconnecting diverse markets. Regional integration seems to be the future of world capital markets.

Can it also work for African capital markets, many of which face considerable problems of liquidity?

Many parts of the world have already tackled integration and each has faced its own challenges. In the past, the state of the technology and the feasibility of effective regional integration used to be a major challenge, and often offset the benefits.

This has changed. The technology has become cost-effective and industrial standards have evolved, based upon the widespread experience and solid implementations in different regions. Remaining challenges that still prevent smooth implementation are not in technology but in the business processes and political will.

First it is important to understand the landscape. Africa’s exchanges are usually divided into 4 categories:
• Dominant market: South Africa is the biggest contender
• Medium-size market: Each region tends to have its leading market
• Emerging markets: Several markets are growing fast and showing innovation and determination
• Markets yet to take off: Some are recently established, some are showing slow growth.

As African stock markets have become larger and more prevalent over the last 10 years, there have been preliminary moves towards regional integration. This is the global trend, but more importantly because integration can meet the mutual needs of the exchanges themselves.

Lack of liquidity is a major constraint to attracting influxes of foreign capital (portfolio investment) and to efficient allocation of savings and asset pricing. The different businesses (shares) on offer can be limited and the size of potential deals is often small. Pricing and other cross-comparisons within sectors and across companies can be difficult.

Efficient securities markets in Africa will help exchanges act as efficient channels for the growing pools of domestic savings funds (pensions and insurance) towards national growth and development – both infrastructure and enterprises – as well as providing comfort for foreign and domestic investors. Links and eventual integration between national stock exchanges is the way to ensure this.

Talk of pan-African or other continental structures can be a distraction. It may overlook the necessary work to be done on national and regional limits, including exchange controls, prudential regulations, macro-economic stability and others. It ignores the key roles of local securities exchanges, which are already central in their national economies and have working legal frameworks and institutional set-ups that can be built upon.

Each market has evolved according to the needs of the market participants and the challenges that have been impacting them. Each has its own electronic platforms built for the local practices. Existing micro-level frameworks can prevent change being introduced in a straightforward fashion. For example, in certain markets, turn-around trading is yet not available and settlement procedures are longer than necessary. Regional integration can take this into account if it involves a pragmatic framework that accommodates the composition of the markets.

In most regions, regulations are a key limitation on integration. The enabling environment for integration requires common policies, institutions and regional frameworks and, above all, the necessary political commitment that ensures macroeconomic stability. Cross-border settlements are difficult as there are no common currencies and the cost of trading is higher due to intermediary costs. Regulatory work to be overcome includes tackling national exchange controls, harmonization of regulations and recognizing each other’s institutions and intermediaries. Prudential limits on cross-border funds’ investments and regulations that stop share offers being marketed across borders could also be rolled back.

Political will is needed to recognize the importance of national structures and to recognize the added value of an integrated regional structure.

Regional integration demands not only that participants agree on a common standard of procedures at the higher level, but that there are platforms to support the regional integration charter. Initially the process may be structured around entities that exchange information with each other but operate on their own.

An ideal is to think towards forming one mega-enterprise with national outposts – Africa’s example is the BRVM which provides an integrated exchange linking 8 markets and is firmly anchored in the considerable monetary and policy integration structures in the francophone region. The evolving future regional exchanges should link all stakeholders through a set of global processes that bridge the gaps between the diverse systems that exist at various levels and connect all to bring value to customers.

There have already been some healthy efforts by Africa’s regional economic communities. The Southern African Development Community (SADC) is supporting linkages between regulators, central bankers and the Committee of SADC Securities Exchanges. Strong advances include the SIRESS cross-border payments systems and cooperation and harmonization between exchanges and regulators, including on listing requirements. The West Africa Capital Markets Integration Council considerable progress has extended to mutual recognition of stockbrokers and regional structures, as highlighted in this blog, and cross-border share deals between national exchanges, in addition to its ground-breaking BRVM regional exchange for 8 countries. The African Development Bank (AfDB) and other multilaterals and finance institutions are supporting important projects.

One of the leaders is the East African Community (EAC), following the signature and ratification of its Common Market Protocol. The EAC Secretariat, working with the World Bank and other development partners, established the EAC Financial Sector Development and Regionalization Project I (EAC-FSDRP I) to support the development of the financial sector through the establishment of a single market in financial services among EAC Partner States. The project objective is to establish the foundation for financial-sector integration among EAC partner States, including the broadening and deepening of the financial sector through the establishment of a single market in financial services, with a view to making a wide range of financial products and services available to all, at competitive prices. InfoTech, a Pakistani IT vendor with expertise in capital markets, particularly in Africa, is delivering the capital markets linkages.

To complement work on the IT and other systems, there is much to be done at policy-making level to harmonize the rules of the game across the region, backed by full commitment of all direct and indirect stakeholders, such as stock exchanges, depository companies, regulatory authorities etc. and their IT vendors to support their existing systems so they can support the regional integration.

Implementing the capital markets regional integration project will be a big milestone and a big step in tackling the core issues that hinder effective integration. The prospects are huge.

Capacity-building at all levels is also critical. Policymakers and regulators need to enhance skills on how to grow efficient markets to ensure they support national and regional development objectives. Exchanges, brokers, banks and key advisors such as lawyers are also central. Knowledge and skills among potential issuers, including small and medium-enterprises, and investors including both institutions and the investing public, all contribute to fast growth of more efficient markets.

Integration has already been proven in advanced markets and the technology works. The biggest challenge and responsibility is with the policymakers who have to formulate a governance framework with effective support to implement the framework at grassroots level.

Working together, African capital markets are moving to the next level of their evolution.