The Economist magazine says most African stock exchanges are small and likely to stay that way. It says few smaller, family-owned businesses, are keen to list on African stock exchanges and that liquidity or secondary trading is an “even bigger challenge” with few African exchanges achieving turnover (share value traded) of even 10% of market capitalization (the value of shares listed).
The magazine cites a recent paper by economists from Erasmus University, Rotterdam, and City University, London. They investigate 59 nascent stock exchanges around the world. They find that exchanges which start small, with few listings and low turnover, tend to remain so. The best chance for success comes from strong banks and growing savings, meaning that many African exchanges might need to wait until their economies grow.
Several African exchanges are big enough to move forward, including Johannesburg Stock Exchange with nearly $1 trn in market capitalization, Nigeria Stock Exchange and Kenya’s Nairobi Securities Exchange. The article also points to the successful regionalization project that is the Bourse Régionale des Valeurs Mobilières (BRVM), headquartered in Côte d’Ivoire and bringing together 8 national markets to create more investors and more listed stocks.
The article was written after the author attended last month’s 2016 African Securities Exchanges Association conference in Rwanda and watching the brokers in scarlet jackets at the trading board of the Rwanda Stock Exchange in Kigali. It says most African exchanges were created in the 1990s to help with the sale or privatization of state-owned enterprises. Many of these have been turned from loss making drains into high profit giants, driving economies, creating jobs and making investors including local institutions richer.
On the Uganda Securities Exchange, 7 out of 8 domestic listings are from privatizations, and many other exchanges tell the same story. Botswana’s national telco was the BSE’s biggest IPO when it came to market successfully this year. Others are forcing companies to list, for instance telecom companies and mining companies are key targets and listing can be forced through respective licensing of other regulations. Tanzania has reportedly ordered 8 telcos, including 3 offshoots of international companies, to float 28% of shares and MTN is likely to list on the Nigerian bourse in a deal with the telecoms regulator.
Meanwhile private equity continues to flourish in Africa. There could be a positive spin-off in terms of private equity funds using stock exchanges as exits to sell on to new funds and through IPOs. The article does not touch on one of the most interesting trends, the rise of African institutional investors and the effect they could have on capital markets development.
For the original Economist article, read here.