Redesigning Africa's Capital Markets
Thursday 6th May 2010 - 10:30am - 12:15pm
Although many African stock exchanges have outperformed those in developed markets during the time of crisis, financial markets are, for the most part, not yet sufficiently large or developed to cater to the region's financing needs.
How can an integrated financial market structure, closely linked to better liquidity mechanisms and an enabling financial services regulatory environment, be developed to ensure sufficient scale and sophistication for issuers and investors?
This session is off the record.
• Africa must move towards investment-based economies. Well-functioning and deep capital markets are part of a healthy investment ecosystem
• The ability to mobilize foreign savings through capital markets is a critical issue across Africa, however, there is a need to encourage domestic savings and investment
• A pan-African exchange will not work because of issues of national sovereignty. However, creating four to five regional hubs with common operating platforms is an option.
One of the themes of this year’s meeting is that Africa must move to investment-based economies. Well-functioning and deep capital markets are part of a healthy investment ecosystem. Africa is a patchwork of 20 exchanges characterized by low liquidity, different governance and regulatory standards, and high costs of execution. In addition, African exchanges typically offer a small number of listings: just four stock markets on the continent have more than 50 listed companies, 14 have less than 20 and five have 20 or more listings. South Africa is the exception, boasting more than 400 listings. None of these factors are conducive to creating an attractive investment climate.
At the same time, a 2008 study revealed that 96% of sub-Saharan African countries had a negative savings to investment gap. The ability to mobilize foreign savings through capital markets is a critical issue across Africa. However, several participants cautioned about the need to encourage domestic savings and investment, particularly when things go badly in international markets. There is a need to create buffers that can create “stickier” African money.
For capital markets to facilitate investment, the basics must be in place, including governance, rule of law, property rights, transparency and certainty of settlement. A participant pointed out that the needs of local investors must be serviced before a market can ever attract international investment.
In a world dominated by global capital flows, the question is whether Africans want to design and influence their own destiny or do they want to follow the stream? In building investment-based economies, Africa will be competing globally for investment. The continent must implement globally acceptable accounting standards; enforce regulations; achieve competitive execution costs; create robust infrastructure, particularly IT systems and platforms; raise listing standards; and offer interesting opportunities and financial products.
Participants dismissed the possibility of a pan-African exchange, recognizing that a new model must not challenge national sovereignty. Creating four to five regional hubs with common operating platforms could enable national exchanges to share information, facilitate cross-listing one company on multiple exchanges, as well as save on IT infrastructure and technology, which currently represents about 40% of an exchange’s operating cost. In sketching out a roadmap to redesign Africa’s capital markets, participants noted the following:
• A predictable regulatory framework and access to information is critical, as is the ease of doing business and a competitive tax regime across a region
• The optimal execution for transactions is key. Investors should be able to decentralize their investments and easily repatriate funds
• Investors want certainty. Transparency and the liquidity resulting from deep and broad capital markets will create confidence and bring down costs. Deep markets also reduce volatility and make it easier to deal with capital inflows and outflows. Reversing capital flows out of Africa into other markets would also reduce volatility
• To give African exchanges credibility on the global stage, they should become members of institutions such as the International Organization of Securities Commissions and the World Federation of Stock Exchanges
• The support of regulators is essential. National exchanges could work closely with central banks to convince – and educate – policy-makers that frameworks to support robust capital markets are needed
• Discussions could be launched within the Economic Community of Western African States, the East African Community, South African Development Community and the African Union
There is an urgent need for education, not just for policy-makers, but also for African entrepreneurs and investors. There is much work to be done in this area. What is the point of deepening markets if investors do not know how to use them? One stock exchange manager commented that he has a range of viable financial products and services on offer, but no one knows what to do with them.
Christian Angermayer, Chief Executive Officer, Angermayer, Brumm & Lange Group, Germany
Pravin Gordhan, Minister of Finance of South Africa
Richard Gush, Chief Executive, Corporate and Investment Banking, Africa, Standard Bank of South Africa, South Africa
Stella Kilonzo, Chief Executive, Capital Markets Authority, Kenya
William J. Mills, Chief Executive Officer, Europe, Middle East and Africa, Citi Global Markets, United Kingdom
Benno Ndulu, Governor of the Bank of Tanzania
Nicky Newton-King, Deputy Chief Executive Officer, Johannesburg Stock Exchange, South Africa; Young Global Leader
Ndi Okereke-Onyiuke, Group Chief Executive Officer, Nigerian Stock Exchange, Nigeria
John Rwangombwa, Minister of Finance and Economic Planning of Rwanda
Sean M. Cleary, Chairman, Strategic Concepts, South Africa
This summary was prepared by Dianna Rienstra. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum.
Copyright 2010 World Economic Forum
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of the World Economic Forum.
Sean M. Cleary
Chairman, Strategic Concepts, South Africa
MBA, Brunel University, UK. 1970-83, Diplomat; 1983-85, Chief Director, Office of the Administrator-...
Chief Executive Officer, Johannesburg Stock Exchange, South Africa
Nicky Newton-King is Deputy Chief Executive Officer of the Johannesburg Stock Exchange. In this posi...
- Ndi Okereke-Onyiuke
William J. Mills
Chief Executive Officer, Europe, Middle East and Africa, Citi Global Markets, United Kingdom
1977, graduate, Denison University. Over 30 years' experience in investment banking. Formerly: Chief...
Country Executive, South Africa, Bank of America Merrill Lynch, South Africa
Degrees in English and Law; AMP, INSEAD. Admitted attorney. Some 20 years of investment banking expe...
Division Manager - Financial Sector Development Department, African Development Bank (AfDB), Tunisia
BCom (Hons), Catholic University of Eastern Africa; MBA in Corporate Finance, Loyola University, Chi...
Governor of the Bank of Tanzania
PhD, Economics, Northwestern University, US. Formerly, Lead Sector Specialist, Macroeconomic Divisio...
Minister of Cooperative Governance and Traditional Affairs of South Africa
Bachelor's in Pharmacy, University of Durban, Westville. Late 1960s, active in anti-apartheid strugg...
Governor of the National Bank of Rwanda (NBR)
Studies in Accounting; Master's degree, Maastricht School of Management, Netherlands. 2004, Deputy D...