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Realising the potential of Africa’s Stock Exchanges March 2012 Enlisting the active support of the African Development Bank to take African Exchanges to.

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Presentation on theme: "Realising the potential of Africa’s Stock Exchanges March 2012 Enlisting the active support of the African Development Bank to take African Exchanges to."— Presentation transcript:

1 Realising the potential of Africa’s Stock Exchanges March 2012 Enlisting the active support of the African Development Bank to take African Exchanges to the next level

2 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

3 Key facts and figures on African Stock Exchanges 3 Key FactsCoverage There are currently 26 Exchanges operating in Africa covering more than two thirds of African countries 1,282 African companies were listed on these Exchanges as at 31 st December 2011 with a total market capitalisation of US$1.2 trillion South Africa, home to the largest stock exchange on the continent (Johannesburg Stock Exchange), accounts for 83% of the continent’s total market capitalisation. CountryMarket Cap. (US$bn)Listings South Africa Morocco6073 Egypt53211 Nigeria40215 Kenya1053 Tunisia1054 Mauritius7109 Other markets31207 Total12071,282 Source : ASEA website Standard & Poors Fact book 2011

4 Comparative stock market data: African Stock Exchanges v/s Exchanges from other regions of the World 4 Market capitalization per region (US$bn) Although African Stock Exchanges (ex. South Africa) account for a small part of total world market capitalization, they’ve experienced a more robust growth than their counterparts in other regions during the last 20 years (CAGR 18 %). Market cap. to GDP and turnover ratios (2010) Region Americas5,82011,93719,789 CAGR (%)n.a8%6% Asia Pacific4,4093,73314,670 CAGR (%)n.a-2%16% Europe & Middle East2,4956,34212,105 CAGR (%)n.a11%7% Africa (ex. South Africa) CAGR (%)n.a19%18% South Africa CAGR (%)n.a1%21% Total12,90622,24347,771 CAGR (%)n.a6%9% Source : World Bank, March 2012 Standard & Poors Fact book 2011 Most African Exchanges (with the notable exception of South Africa) have significantly lower market capitalization to GDP and turnover ratios than Exchanges in the US, Europe, Japan and the BRIC countries. This emphasises the extent to which the African Stock Exchanges are undersized with respect to the economies in which they operate. More importantly, it underscores the growth potential of African Stock Exchanges. Source : World Bank, March 2012

5 Assessing African Stock Exchanges’ growth potential 5 Market capitalization (ex. South Africa, US$ million) Market capitalization of African Stock Exchanges (outside South Africa) currently amounts to US$ 211bn at a market capitalization to GDP ratio of 35% 1 (World Bank, March 2012). Assuming that over time African Exchanges replicate the 96% average market capitalization currently observable in the US, Europe, Japan and BRIC regions, the market capitalization of African Stock Exchanges, ex-SA, would increase from the current US$ 211bn to US$ 580bn, representing an increase of US$ 369bn. This would represent an almost 3-fold increase. This surge in African Exchanges’ size is not unrealistic given the solid growth perspectives in Africa. Total annual turnover of African Stock Exchanges in 2011,ex SA, amounted to US$ 44bn in 2011 for a 21% turnover ratio 2 Turnover (ex. South Africa, US$ million) 1 Average market capitalization to GDP ratio of African countries with a stock exchange (ex. South Africa) as of December Turnover divided by market capitalization

6 Assessing African Stock Exchanges’ growth potential 6 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, representing an increase of US$286bn. This would represent more than a seven-fold increase from the current levels. Africa’s current and future growth (+5 %) is expected to be underpinned by massive sectoral investments [infrastructure, Agro- business, consumption, telecommunications, mining etc.] Private & Public sector entities in Africa will require funding to support their growth requirements Stock Exchanges in Africa can provide centralised and organised platforms for these private and public sector entities to raise capital to fund their future growth Asset allocation at the international level is growingly shifting towards emerging and frontier markets African Stock Exchanges are expected to benefit from this asset allocation shift and witness increased portfolio flows from international institutional and retail investors

7 Current constraints hampering African Exchanges’ growth 7 INVESTORSCOMPANIES Liquidity constraints Beneficiary Limited pool of buyers and sellers Small average size of trade Lack of equity trading mentality Limited investible universe of securities Buy & hold mentality prevails with both institutional and retail investors Tightly controlled ownership structure Companies still tend to resort to bank borrowing even when capital raising through Stock Exchange may be cheaper Unwillingness to open up capital structure Cumbersome investment process High investment costs Custodial risks Lack of confidence in regulatory oversight Listing process characterised by excessive red tape Compliance requirements considered to be onerous Lack of awareness of equity investing Limited broker information about specific investment opportunities Lack of throrough research on listed companies Once listed, African companies do not communicate enough to the investment community Lack of appreciation for investor requirements Lack of awareness of pros and cons of equity funding Regulatory & operational issues Information issues

8 Overcoming the constraints and unlocking African Exchanges’ growth potential 8 Liquidity constraints Regulatory & operational issues Information issues 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 10 % 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 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 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

9 AfDB’s contribution to unlocking African Exchanges’ growth potential 9 Addressing market development and liquidity issues Addressing Regulatory & operational issues 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 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 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

10 AfDB’s contribution to unlocking African Exchanges’ growth potential 10 Addressing information & visibility Issues of African Exchanges Addressing Capacity- Building 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 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


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