Capital market experts discuss the essential drivers that will build liquidity and increase accessibility to African securities markets at SWIFT’s African Regional Conference
Cape Town, 6 May 2015 – Speaking at SWIFT’s African Regional Conference today, a panel of capital market experts from across Africa agreed that local capital markets are crucial to African development; improving access and deepening liquidity in these markets are fundamental steps. While attracting international investors is important, local companies, savers and investors must also benefit from African growth, they said.
There has been significant growth in Africa’s capital markets over the past decade but there is still a long way to go before markets reach their full potential and Africans benefit fully from this growth, said Ian Bessarabia, Business Development Manager, Sub-Sahara Africa, SWIFT.
“There has been a significant increase in securities-related SWIFT traffic in Africa, with growth outpacing growth rates in the rest of the world. Unfortunately, the lion’s share of this traffic is related to foreign investors’ transactions from offshore accounts into local custodian banks and does not reflect a growth of African investment into African markets. This means that off-shore investors, not African investors, are reaping the benefits of the continent’s growth story,”
Donna Oosthuyse, Director of Capital Markets, Johannesburg, Stock Exchange, said technology, innovation and robust infrastructure are the keys to success. “There is a direct link between technology and levels of activity. When we implemented our new trading platforms, the value and volumes of trades multiplied significantly.”
She said that going forward, the exchange had to continue to innovate, for investors and issuers, and leverage much more the fact that the JSE is a multi-asset class exchange, which is unusual in Africa. “These are important competitive advantages.”
Ade Bajomo, Executive Director, Market Operations and Technology, Nigeria Stock Exchange, agreed that technology has been the “game changer” for financial markets. “It has fundamentally changed the way business is done and requires significant investment, which we are putting in. The exchange world now measures performance in nanoseconds, so robustness and capacity are very important for us.”
It’s also about innovating and growing the number of investors, Bajomo added. “We have about 5 million retail investors in Nigeria; how do we grow this by 5 or 10 times in the coming years? We are working with our brokers to bring in trading apps for smart phones. We are a country of phones. An android phone costs less than $40 so this trend will continue; our industry has to be in the mobile space.”
Nerina Visser, Exchange Traded Funds Strategist and Advisor, ETF South Africa, said the continent has to find a way to leverage the growing pools of local liquidity. Currently, she said, African growth is being recycled back to Africans as aid; instead, Visser argues that the continents markets have to put in place the right infrastructure and products to encourage intra-African investment.
Reforms across Africa have already created private pension systems that are rapidly growing assets under management (AUM) in line with the continent’s population growth. For example, AUM by the Nigerian pension industry, grew from US$7bn in December 2008 to US27$ by October 2014. Ghana’s pension industry, meanwhile, is expected to grow by up to 400% over the next four years. This opens up huge opportunities to fund the long term investment in infrastructure and other sectors that the continent needs, at the same time as delivering return for investors.
“Capital markets have the potential to give everyone the opportunity to benefit from the growth of their own continent,” said Visser, “so, the big issue we have to address is how do we enable people to participate in that growth – what tools and products do we have to develop in order to empower investors?”
Visser said terminology was a critical element when trying to increase investor participation across Africa. Technical jargon and acronyms alienate retail investors, she said. “The ability to communicate with people wherever they are, is fundamental to education, we need to drop the industry jargon so as to ensure that what we say resonates with retail investors,” said Visser.
Financial market infrastructures will play an essential role in helping Africa to make the most of this burgeoning pool of capital by creating a virtuous circle: making markets more accessible and more efficient, reducing transaction costs and eliminating settlement risks.
Standardised financial market infrastructure that underpins the buying and selling of securities is one aspect of building liquidity and depth for African Securities. The right infrastructure ensures that access to financial markets is easy, transparent and robust; poor infrastructure acts as a constraint on the growth and vitality of equity markets and inhibits liquidity due to the heightened levels of operational risk.
Many investors argue that the ability to trade in and out of a security easily are likely to shape Africa’s equity prospects in the coming years and not stock valuations and economic climate.
Robust infrastructures (such as central securities depositories) make buying and selling easier. They reassure investors that the ownership of securities is registered correctly at the time of sale, and that payments are cleared and transactions settled. These unseen processes minimise risk and play a critical role in giving investors the confidence to invest. As confidence grows, so do trading volumes and liquidity; this attracts more activity in the market and convinces more companies that stock market listings are an efficient and effective way to raise growth capital.
“African securities markets are on the cusp of transformational development. This is clear from SWIFT securities traffic growth and by the rising volumes on many markets. Now is an ideal time to adopt global standards and industry best practice to help support this growth,” says Bessarabia.