Transcript Realising the Potential of Africa`s Stock Exchanges

Realising the potential of
Africa’s Stock Exchanges
Enlisting the active support of the
African Development Bank to take
African Exchanges to the next level
March 2012
Presentation Outline
• Key facts and figures on African Stock Exchanges
• Comparative stock market data: African Stock Exchanges v/s Exchanges
from other regions of the World
• Assessing African Stock Exchanges’ growth potential
• Current constraints hampering African Exchanges’ growth
• Overcoming the constraints and unlocking African Exchanges’ growth
potential
• AfDB’s contribution to unlocking African Exchanges’ growth potential
2
Key facts and figures on African Stock Exchanges
Key Facts
•
Coverage
There are currently 26 Exchanges operating in Africa covering more
TUNISIA
MOROCCO
than two thirds of African countries
•
ALGERIA
1,282 African companies were listed on these Exchanges as at 31st
LIBYA
EGYPT
December 2011 with a total market capitalisation of US$1.2 trillion
CAPE VERDE
•
MALI
South Africa, home to the largest stock exchange on the continent
SENEGAL
(Johannesburg Stock Exchange), accounts for 83% of the continent’s
BENIN
TOGO
GHANA
total market capitalisation.
Country
CÔTE
D'IVOIRE
Market Cap. (US$bn)
Listings
996
360
Morocco
60
73
Egypt
53
211
Nigeria
40
215
Kenya
10
53
Tunisia
10
54
South Africa
NIGER
CHAD
BURKINA
FASONY003D6R_1.wor
SUDAN
NIGERIA
CENTRAL
AFRICAN
CAMEROON REPUBLIC
UGANDA
EQUITORIAL GUINEA
KENYA
GABON
BRVM
RWANDA
TANZANIA
BVMAC
MALAWI
ANGOLA
ZAMBIA
NAMIBIA
ZIMBABWE
BOTSWANA
MAURITIUS
SWAZILAND
Existing Stock Exchanges
Mauritius
7
109
SOUTH AFRICA
Upcoming Stock Exchanges
Other markets
Total
31
207
1207
1,282
BRVM Regional Stock Exchange (Members: Côte d’Ivoire, Benin, Burkina
Faso, Guinea Bissau, Mali, Niger, Senegal & Togo)
BVMAC Regional Stock Exchange (Members: Gabon, Cameroon, Central African Republic,
Chad, Congo & Equatorial Guinea)
Source : ASEA website
Standard & Poors Fact book 2011
3
Comparative stock market data: African Stock Exchanges v/s
Exchanges from other regions of the World
Market capitalization per region (US$bn)
Market cap. to GDP and turnover ratios (2010)
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
Region
1993
2002
2011
Americas
5,820
11,937
19,789
CAGR (%)
n.a
8%
6%
4,409
3,733
14,670
n.a
-2%
16%
2,495
6,342
12,105
CAGR (%)
n.a
11%
7%
Africa (ex. South Africa)
10
47
211
CAGR (%)
n.a
19%
18%
South Africa
172
185
996
CAGR (%)
n.a
1%
21%
12,906
22,243
47,771
Africa) have significantly lower market capitalization to GDP and
n.a
6%
9%
turnover ratios than Exchanges in the US, Europe, Japan and the
CAGR (%)
Europe & Middle East
Total
CAGR (%)
Turnover ratio (%)
Source : World Bank, March 2012
•
Most African Exchanges (with the notable exception of South
BRIC countries.
Source : World Bank, March 2012
Standard & Poors Fact book 2011
•
Market capitalization
to GDP ratio (%)
Ghana
Tunisia
Nigeria
Botswana
Egypt
Kenya
Russia
Brazil
Japan
China
India
US
Asia Pacific
•
This emphasises the extent to which the African Stock Exchanges
are undersized with respect to the economies in which they
Although African Stock Exchanges (ex. South Africa) account for a
operate.
small part of total world market capitalization, they’ve
•
experienced a more robust growth than their counterparts in
More importantly, it underscores the growth potential of African
Stock Exchanges.
other regions during the last 20 years (CAGR 18 %).
4
Assessing African Stock Exchanges’ growth potential
Market capitalization (ex. South Africa, US$ million)
•
700,000
Market capitalization of African Stock Exchanges (outside South
Africa) currently amounts to US$ 211bn at a market capitalization
600,000
to GDP ratio of 35%1 (World Bank, March 2012).
500,000
400,000
•
Assuming that over time African Exchanges replicate the 96%
300,000
average market capitalization currently observable in the US,
200,000
Europe, Japan and BRIC regions, the market capitalization of
100,000
0
African Stock Exchanges, ex-SA, would increase from the current
Dec - 11
Potential Increase
Total
US$ 211bn to US$ 580bn, representing an increase of US$ 369bn.
Turnover (ex. South Africa, US$ million)
•
350,000
This would represent an almost 3-fold increase. This surge in
African Exchanges’ size is not unrealistic given the solid growth
300,000
perspectives in Africa.
250,000
200,000
•
150,000
Total annual turnover of African Stock Exchanges in 2011,ex SA,
amounted to US$ 44bn in 2011 for a 21% turnover ratio2
100,000
50,000
0
Dec - 11
Potential Increase
Total
1
Average market capitalization to GDP ratio of African countries with a stock exchange (ex. South Africa) as of December 2011
2
Turnover divided by market capitalization
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Assessing African Stock Exchanges’ growth potential
•
Assuming a 156% turnover ratio (average ratio of the US, Japan and the
BRIC countries) and based on current market capitalization, turnover of
African Stock Exchanges, ex-SA, would increase to US$ 330bn,
TUNISIA
MOROCCO
representing an increase of US$286bn.
ALGERIA
LIBYA
EGYPT
•
levels.
CAPE VERDE
MALI
SENEGAL
NIGER
CHAD
BURKINA
FASONY003D6R_1.wor
BENIN
TOGO
GHANA
CÔTE
D'IVOIRE
This would represent more than a seven-fold increase from the current
SUDAN
•
NIGERIA
business, consumption, telecommunications, mining etc.]
UGANDA
KENYA
GABON
•
RWANDA
MALAWI
ANGOLA
Private & Public sector entities in Africa will require funding to support
their growth requirements
TANZANIA
BVMAC
to be
underpinned by massive sectoral investments [infrastructure, Agro-
CENTRAL
AFRICAN
CAMEROON REPUBLIC
EQUITORIAL GUINEA
BRVM
Africa’s current and future growth (+5 %) is expected
•
Stock Exchanges in Africa can provide centralised and organised
ZAMBIA
platforms for these private and public sector entities to raise capital to
NAMIBIA
ZIMBABWE
BOTSWANA
fund their future growth
MAURITIUS
SWAZILAND
•
Asset allocation at the international level is growingly shifting towards
emerging and frontier markets
Existing Stock Exchanges
SOUTH AFRICA
Upcoming Stock Exchanges
•
African Stock Exchanges are expected to benefit from this asset
BRVM Regional Stock Exchange (Members: Côte d’Ivoire, Benin, Burkina
Faso, Guinea Bissau, Mali, Niger, Senegal & Togo)
allocation shift and witness increased portfolio flows from international
BVMAC Regional Stock Exchange (Members: Gabon, Cameroon, Central African Republic,
Chad, Congo & Equatorial Guinea)
institutional and retail investors
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Current constraints hampering African Exchanges’ growth
INVESTORS
COMPANIES
• Limited pool of buyers and sellers
• Tightly controlled ownership structure
• Small average size of trade
Liquidity
constraints
• Companies still tend to resort to bank
• Lack of equity trading mentality
borrowing even when capital raising
• Limited investible universe of securities
through Stock Exchange may be cheaper
• Buy & hold mentality prevails with both
• Unwillingness to open up capital structure
institutional and retail investors
Regulatory &
operational
issues
• Cumbersome investment process
•
• High investment costs
red tape
• Custodial risks
•
• Lack of confidence in regulatory oversight
Compliance requirements considered to be
onerous
•
• Lack of awareness of equity investing
Information
issues
Listing process characterised by excessive
Once listed, African companies do not
communicate enough to the investment
• Limited broker information about specific
community
investment opportunities
• Lack of throrough research on listed
companies
•
Lack of appreciation for investor requirements
•
Lack of awareness of pros and cons of equity
Beneficiary
funding
7
Overcoming the constraints and unlocking African Exchanges’
growth potential
• Encourage local institutional investors, namely pension funds and insurance companies, to increase asset
allocation to local listed equities
• Increase the percentage of Africans investing in stock markets from the current < 1 % to > 10 %
Liquidity
constraints
• Develop national educational programmes to develop a share investment culture
• Introduce measures to encourage private equity Africa-focused funds to utilise African Stock Exchanges as exit
routes
• Better market the strong performance of African Stock Exchanges to the local and international investment
community
• Encourage brokers to minimise trading costs and banks to offer competitive custodian fees
• Set up junior markets aimed at attracting small-cap and medium-cap companies to the market
Regulatory &
operational
issues
• Focus on ‘light touch’ listing regulations for small-cap companies, but…..
• …..maintain strong compliance framework in line with international best practice
• Introduce tax and other concessions to encourage potential listing candidates
• Encourage production of high quality research by broking community
• Develop pro-active workshops for investors and companies highlighting benefits of using local capital markets
Information
issues
• Improve information flows on listed companies and promote quarterly reporting requirements
• Ensure that African Exchanges’ statistics are relayed live to the investment community world wide through
international Data vendors like Bloomberg, Reuters etc.
• Sponsor vigorous PR campaigns showcasing successful local IPO’s on African Stock Exchanges
• Organise African listed companies’ road shows to showcase their growth potential to the international
investment community
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AfDB’s contribution to unlocking African Exchanges’ growth
potential
• Implement the AFMI initiative to launch an Africa Bond fund and an Africa Bond fund index
• Ensure that the underlying government securities in which the Africa Bond fund investing are listed on their
respective Exchanges
• List the Africa Bond fund on African Exchanges that offer multi-currency listing and trading platforms
• Launching of AfDB bond issue in selected African markets in local currencies and listing of these Bonds on
Addressing
market
development
and liquidity
issues
African Exchanges to broaden and deepen the range of investible instruments available to local investors
• AfDB to leverage its position as private equity fund investor (Lp) to influence fund managers (GP’s)and investee
companies to list on African Exchanges as a potential exit route
• AfDB to consider launching on Africa Equity fund (with contributions also from its pension fund) to invest in
top-performing African companies listed on different African Stock Exchanges
• Listing of AfDB issued Bonds (those issued in Euro, USD, GBP) on African Stock Exchanges that can handle
multi-currency listing and trading
• AfDB to consider launching on Africa IPO fund to invest in promising African companies
• AfDB to fund Technical Assistance to advise governments on the use of local capital markets in the divestiture
Addressing
Regulatory &
operational
issues
of state-owned assets
• AfDB to fund Technical Assistance to advise governments on implementation of regulatory best practice
• AfDB to consider funding the Hub & spoke model to cross-link national Exchanges in Africa with a view to
facilitating cross-border transactions and improving liquidity on these markets
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AfDB’s contribution to unlocking African Exchanges’ growth
potential
Addressing
information
& visibility
Issues of
African
Exchanges
• AfDB to sponsor the establishment of an African IPO data base to enhance the visibility of successful African
IPO’s to the international investor community, investment banks and other capital markets participants
• Establishment of links between AfDB website & ASEA website
• AfDB to become a lead-Partner/Sponsor of ASEA annual conferences to raise the international profile of the
ASEA annual conference
• Signature of a MOU between AfDB and ASEA focusing on areas of cooperation between the two institutions
Addressing
CapacityBuilding issues
• Setting up of a focused Africa Capital markets team in AfDB to follow up on critical areas of support of AfDB
to African Stock Exchanges
• Financial assistance from AfDB to set up a full-fledged Secretariat for ASEA
• Setting up of an African Financial Training Institute within AfDB, with the support of African Governments to
provide short but intensive training courses to intermediaries/professionals operating in the financial services
sector in Africa
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