The African securities market has witnessed considerable development since the early 1990’s, due to the advent of stock market, commodities and trading institutions. Before 1989, there were only 8 stock markets in the entire African continent (3 present in North Africa) and (5 present in Sub-Saharan Africa). There are 29 exchanges in Africa, representing 38 nations’ capital markets. Due to the rapid expansion of these institutions, there’s also been a significant upward growth in market capitalization and the number of listed companies. Currently, 50% of the 54 African countries have securities exchanges – which lead the way to the formation of African Securities Exchange Association (ASEA) which was later incorporated in Kenya during 1993. ASEA had one basic objective during its formative years: to provide a formal framework for the mutual cooperation of stock exchanges in order to foster unity on a wider securities market to ensure speedy development of the region in line with the ASEA objectives.
Current State of Stock Exchanges in Sub-Saharan Africa
A number of leading stock exchanges are helping to drive sustainability reporting via the inclusion of environment, social and governance (ESG) reporting requirements in their listing regulations. Beyond the Johannesburg Stock Exchange (JSE), exchanges in the Sub-Saharan Africa (SSA) are rarely associated with sustainability, but there has been progress in this regard. The JSE is the most advanced stock exchange in the region, promoting sustainability – with the introduction of integrated reporting (IR) requirement since 2010 and the introduction of ESG reporting on a comply or explain basis in 2002.
Apart from the JSE, no other exchanges have implemented any form of sustainability reporting requirement or voluntary reporting guidelines and according to research data of 2014, notable developments by four other SSA exchanges is worth noting here, having followed suite to implementing sustainability reporting requirements:
- Ghana Stock Exchange (GSE): initiated pans to develop a sustainability reporting framework for listed companies; seeing sustainability reporting as a means of ensuring that the country remains a leading and competitive economy, and initiated plans to develop a framework in June 2013.
- Stock Exchange of Mauritius (SEM): in September 2015, launched SEMSI (Sustainability Index) which tracks the price-performance of those companies listed on the Official Market or the Development & Enterprise Market which demonstrate strong sustainability practices.
- Zimbabwe Stock Exchange (ZSE): ZSE began consulting with stakeholders in November 2013. It proposed amending listing requirements to include a requirement to report on ESG practices and performance, encouraging listed companies to apply the reporting framework developed by the Global Reporting Initiative (GRI).
SSA is made up of 49 countries which accounts for 85% of Africa’s population, thus positioning Africa as a significant source of growth in the future. The World Bank believes that economies in the continent could be on the brink of an economic acceleration; similar to that of China 30 years ago and India 20 years ago (World Bank Report 2011). In 2013 – SSA economy grew by 4.7% and seven African countries were expected to be among the top 10 fastest growing economies in the world for the period 2011 – 2015 according to World Bank 2014 Report.
Many stock exchanges in Africa are fairly new by formation and by international standards. However, a notable exception to this is the JSE which was founded in 1887, Casablanca Stock Exchange in Morocco, and Egyptian Exchange in Egypt. The JSE is currently ranked the 19th largest stock exchange in the world by market capitalisation and the largest exchange in the African continent.
It would only fair well to highlight the origins/formations of other exchanges in the African continent and how they have fared since their launch: JSE – 1887; Nairobi Stock Exchange (NSE) – 1954; Nigeria Stock Exchange (NSE) – 1960; Botswana Stock Exchange (BSE) – 1989; Ghana Stock Exchange (GSE) – 1989; Zimbabwe Stock Exchange (ZSE) – 1993; Lusaka Stock Exchange (LSE) – 1994; Stock Exchange of Mauritius (SEM) – 1989; Uganda Stock Exchange (USE) – 1997; and Malawi Stock Exchange (MSE) – 1994.
Of the above 10 exchanges, only five have implemented or taken positive steps towards incorporating ESG disclosures into their listing requirements, which are: JSE; GSE; SEM; NSE and ZSE. The Casablanca Stock Exchange, JSE, EGX, Nigeria Stock Exchange, the Namibian Stock Exchange and the Zimbabwe Stock Exchange have been regarded as the largest exchanges in the African continent.
Performance of Africa’s stock exchange was highly positive according to the Africa Business Central which in 2014 highlighted the following 10 most active stock markets in Africa based on an average weekly trade volume and all these exchanges enjoy the membership of African Securities Exchanges Association (ASEA), which has 25 securities exchanges as full members and three financial market institutions as Observer Members and a mutual affiliation to the South Asia Federation of Exchanges (SAFE):
- JSE – $3.7 Billion
- Nigeria SE – $116.9 Million
- Nairobi SE – $44.1 Million
- Stock Exchange of Mauritius – $ 10.4 Million
- Zimbabwe SE – $5.8 Million
- Dar es Salaam SE – $5.7 Million
- Bourse Regionale des Valeurs Mobilieres (serving Benin, Burkina Faso, Cote d’Ivoire, Guine Bissau, Mali, Niger, Senegal & Togo) – $5.6 Million
- Botswana SE – $4.9 Million
- Lusaka SE – $4.3 Million
- Uganda Securities Exchange – $2.9Million
Equity Capital Markets in Africa’s Stock Exchanges
2015 was a challenging year for the Africa Equity Capital Markets (ECM) – with volatility in markets and emergence of renewed global economic uncertainties – some linked to the Africa rising chronicle. Traditional sectors have been disrupted which has spilled over to 2016, and a number of these have responded by shifting focus and strategy to more stable and predictable sectors. Africa’s ECM activity in 2015 was more driven by the continued capital growth in the financial sector, whereas non-commodity sectors such as agriculture, healthcare, consumer goods, real estate, infrastructure, construction and renewable energy have also become more significant to the growth of African economies.
Over the past five years (2011 – 2015) – Africa has witnessed 441 ECM transactions raising a total of $41.3 Billion and a record of 28 listing, at a five year peak. 2015 also showed a steady overall increase in ECM activity of 18% in transaction volumes and 14% in terms of transaction volume as compared to 2014. Between 2011 and 2015 there were 105 Initial Public Offering (IPO’s) by African companies on both African and international exchanges and non-African companies in African exchanges raising a total of $6.1 Billion. Despite the volatility in global ECM – companies continue to be attracted to African markets. There has been an increase of 12% in terms of number of IPO’s by proceeds which involved companies of exchanges in North Africa, with oversubscription basis.
Also, in 2015, capital raised from IPO’s by companies on the JSE in US dollar decreased by 11% as compared to 2014, as a result of the weakening of the South African Rand. Whereas capital raised from IPO’s by companies on other African exchanges increased slightly by 3% as compared to 2014. In terms of volume – the JSE saw a 33% increase in the number of IPO’s compared to 2014. The continent has fared well in terms of activity on exchanges in the continent:
- The Egyptian Exchange (EGX) saw a six fold increase in the volume of IPO activity – boosted by the 5% anticipation of economic growth and favourable price-to-earnings ratios across the market.
- Rwanda Stock Exchange welcomed the IPO of the Bank of Kigali in a privatisation of government interest in the bank after a three year IPO drought.
- A decline in Nigeria’s Stock Exchange due in large part to the significance of the 2014 IPO of SEPLAT.
African ECM are seen rapid growth and the more prominent exchanges are using software systems to boost efficiency and operating speed and to reduce costs. These measures have impacted the market capitalization of most African stock exchanges. The following 2013 research findings highlight the top 10 stock exchanges by market capitalization and company listings:
- JSE – $970 Billion with 338 Listing.
- Nigeria SE – $114.2 with 190 Listings.
- Botswana SE – $54.1 Billion with 37 Listings.
- Nairobi SE – $20.6 Billion with 61 Listings.
- Dar es Salaam SE – $14.8 Billion with 7 Listings.
- Stock Exchange of Mauritius – $8.5 Billion with 91 Listings.
- Zimbabwe SE – $5.4 Billion with 69 Listings.
- Bourse Regionale des Valeurs Mobilieres (serving Benin, Burkina Faso, Cote d’Ivoire, Guine Bissau, Mali, Niger, Senegal & Togo) – $10.5 Billion with 72 Listings.
- Lusaka SE – $10.2 Billion with 22 Listings.
- Uganda Securities Exchange – $8.3 Billion with 15 Listings.
Promoting growth in the African stock exchange market
Given Africa’s growth prospects, the challenges for investors are to identify the best avenue for entering the market; stock exchanges hold some advantages over some financial institutions in raising the required investment capital. Companies can raise large sums of money to expand operations without getting expensive traditional bank loans, as listed firms are required to publish regular reports and stock exchanges give individuals a chance to invest directly in large corporations.
South Africa’s JSE has seen some recent competitors gaining momentum in its turf. The stock exchange market has opened up some competition and is currently witnessing the advent of:
- ZARX – “a low cost, simple and convenient trading platform that empowers ordinary South Africans with shareholding opportunities” according to its founder Etienne Nel. ZARX plans to simplify trading through same-day transactions and will therefore not charge custody fees.
- 4AX – awaiting its certification from the regulator and is backed by one of South Africa’s richest black families – the Maponya Group – aiming to focus on low trading and moderate compliance processes to give more black owned businesses access to the stock market.
- Lastly, A2X aims to target the top 50 to 65 largest companies already listed on the JSE.
With these recent developments, it is a great time and period to launch other competing exchanges, not only in South Africa but in Africa as well. One may ask why now is the perfect time to launch competing exchanges. The answers are simple: the decline in global economic growth prospects; slump in commodities prices; macroeconomic instabilities; heightened political risks; uncertain macroeconomic policies; deepening regional economic integration uncertainties and the maturing of other security exchanges in the continent – these are among other factors that motivates the capitalists of this world. The markets are in perfect conditions to either conduct or IPO or venture in securities exchanges. It is the perfect storm at the perfect time.
In conclusion, the attractiveness of African equity capital markets can be attributed to the continent’s prospective and fast-paced economic growth and development. But more needs to be done to improve liquidity and to attract more company listings. Key steps include promoting transparent and accountable institutions, providing adequate shareholder protection and investor education, strengthening regional collaboration and encouraging financial innovation. Governments should continue to support the exchanges by privatizing public enterprises via stock exchanges and by providing an enabled environment, including tax incentives to encourage listing of multinationals, foreign companies and small and medium-sized enterprises. Africa’s stock exchange market can indeed hold its own in the global securities exchange markets.