“How can African exchanges become an integral part of the continent’s economic transformation?” This is the challenge from Sunil Benimadhu, President of the African Securities Exchanges Association (ASEA www.african-exchanges.org), at the flagship conference in Abidjan, Cote d’Ivoire, earlier this month. It is a good agenda for action by Africa’s securities exchanges in 2014.
Benimadhu asks how the stock exchanges can “become powerful enablers and powerful drivers of change”; how they can “empower the middle-class, democratize the economy and help overcome poverty”; and how capital markets can “effectively provide the much-needed capital for corporate funding, but also the funding of governments’ social programmes in Africa?”
He identified 4 “S”s for securities exchanges:
S is for synergy
“There is a fundamental need for African stock exchanges to establish strong synergies with the other clusters within the financial services sector, like the banking sector, the insurance sector, the asset-management industry, the pension-fund industry, and work towards the emergence of an integrated approach to the development of the financial services sector in Africa. African exchanges have, for too long, been considered as mere appendages to the mainstream financial services clusters, when in effect they should have occupied a central position within the financial services spectrum, as clearly evidenced by successful financial centres in the world.”
S is support
Governments and policy-makers in Africa need “to understand the fundamental transformational role of capital markets to the socioeconomic fabric of African economies. Governments need to be fully supportive of the development of vibrant capital markets and they need to adopt policies that are conducive to the development of efficient and competitive markets.” Benimadhu cites Singapore, whose success began with a “direct interventionist approach of the Singaporean Government which made a clear statement about its vision to transform Singapore into an international financial centre and adopted policies that were fully supportive of the stated vision.” He points out how Singapore’s capital markets have contributed immensely to the transformation of the country’s economy into a world star. He added that Africa’s most successful companies should support the African stock exchanges by listing and contributing to market growth.
S is scope
African securities exchanges should “move up the value-chain and extend the scope of products and services they offer”. He acknowledges the short-term challenge is still the flotation and listing of new, valuable and liquid companies, but adds: “the short-to-medium term target implies a fundamental review of the exchange business model and the diversification of revenue streams via a strategic shift from the current equity-centric focus. New products including bonds, exchange-traded funds, structured products and eventually derivatives need to be introduced.”
S – substance
“Substance is about the ability of African Stock Exchanges to demonstrate that they have created value for the different stakeholders they service, namely issuers, investors and society as a whole.” Benimadhu says exchanges need to show how they have enabled existing issuers to raise capital to fund their growth and to create value for their shareholders and this will help bring new issuers to the market. “The substantive contributions of African Exchanges on both these counts are quite compelling and I think that these strengths need to be aggressively marketed by African exchanges to attract new issuers and broaden our product offerings.”
It is also important for African stock exchanges to improve their image and marketing to investors: “African exchanges need to demonstrate that they operate in a cost-effective and transparent manner, that information on listed scrips are readily and timeously available and that exchanges offer products that can potentially generate attractive returns to investors.
“With regards to society, exchanges should demonstrate that they can contribute to the democratization of the economy, create wealth for the citizens of a nation, contribute to the job-creation process, improve corporate governance and finally contribute to the overall well-being of a society from both a quantitative as well as a qualitative perspective.”
Panels at the conference included government support to the development of vibrant capital markets in Africa; how exchanges can generate substance and value for issuers, helping issuers tell their story right and endorsing effective communication strategies; and listening to issuers and investors on how African exchanges have added value to each.