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Taking Stock

Taking Stock

Africa’s equity markets are anemic compared to their emerging-market counterparts in Asia and Latin America. However, a realization of their importance in financial system development and growing demand for equity from home-grown corporates looking to spread their wings are energizing trans-continental efforts to develop domestic stock exchanges. It is early days, but results are creating opportunities for investors large and small and providing governments with a platform to raise debt for infrastructure development. Here’s a look at initiatives to grow the capital markets in three very different corners of the continent.

The economies of Tanzania, Nigeria, and Zambia have had a difficult few years, with elections in the first two and a recession in the latter. Regardless, the stock exchanges of each have not rested on their laurels, instead opting to launch initiatives to boost transparency and encourage the involvement of larger companies.

In Tanzania, the Dar es Salaam Stock Exchange (DSE) has reported positive trading figures for 2016. The number of investors on the DSE has more than doubled over the past six months, reaching a market capitalization of USD9.8 billion. At the end of 1Q2016 it had 23 listed equities and three outstanding corporate bonds, making it the second largest exchange in East Africa. After demutualizing in 2015, the DSE issued its own IPO in June of this year, citing as its motives the need to invest in technology to enhance corporate governance and increase global competition. Official results from the DSE showed that the IPO was oversubscribed by over five times, raising TZS35.8 billion from more than 3,000 investors, 3.7 times the amount of capital that was expected. Moremi Marwa, CEO of the DSE, told TBY that the DSE was still in the throes of dealing with this change in structure. “The new mandate and demands will be different because we now serve shareholders. We will have to have a new board that will represent shareholders’ interests in this company,” he explained.

The DSE’s recent growth can in part be attributed to recent changes in legislation. In June 2016 the Tanzanian government approved a new finance bill requiring all communications and electronics companies to make 25% of their shares available to the public, listing on the DSE before 2017. Other factors fueling growth include initiatives by the DSE and by Tanzania’s Capital Markets and Securities Authority (CMSA) to improve capital market literacy among local and regional companies, as well as among the general public. As a result of these ventures the CMSA received the Africa Investor’s award for “Most Innovative Capital Market Regulator in Africa in September 2016.

Despite its challenging macroeconomic environment, capital markets in Nigeria have been performing well this year, sustaining upward growth throughout 3Q2016, mostly due to impressive third quarter results declared by some of its listed companies, such as the News Agency of Nigeria and Lafarge Africa. While many critics have recently suggested that the capital markets landscape in Nigeria does not truly reflect the country’s buoyant economic situation, with major companies still not listing on the NSE, a recent boon to the market came in the form of Jaiz Bank’s application to the Central Bank of Zambia to be become part of the NSE, which was approved this month. Jaiz Bank, the first non-interest bank to be established in the country, has seen rapid expansion in recent years.

In addition the Nigerian Stock Exchange is also employing several strategies to improve the already strong performance of its capital markets. New technologies, based on NASDAQ technologies, are revolutionizing the way the NSE operates, making mobile and online trading methods a viable option for trade. What’s more, the NSE is enforcing stronger regulations to encourage better governance and transparency. Oscar Oyenma, the CEO of the NSE, spoke to TBY about what these developments would mean for investors in practice. “In 2014, we launched the Corporate Governance Rating System (CGRS), which provides assurance for investors by evaluating companies based on the quality of their corporate integrity, corporate compliance with governance rules, and understanding of fiduciary responsibilities by directors and corporate reputation,” he said. The NSE has also issued joint listings with the LSE to better promote Nigerian companies abroad and thus increase foreign investment. It was for these strategic endeavours that TBY named the NSE the “Most Innovative Stock Exchange in Africa” at a recent award ceremony.

In Zambia, the Lusaka Stock Exchange has been on a gradual downward trajectory since 2014. According to LuSE data for 3Q2016, the benchmark Lusaka All Share Index (LASI) closed at 4,320.35 points, down 9.1% on the previous quarter. Listings have also decreased, from 24 in 2014 to 21 in 2016. There were high hopes that MTN Zambia, one of the country’s leading telecoms companies, would list on the stock exchange in 2015, but this fell through. What’s more, since Fitch and Moody downgraded Zambia’s credit rating, borrowing costs for Zambia on the international market have risen. One of the lowest performing listings recently has been Copperbelt Energy Company, although this is not surprising, given the global slump in copper prices. With global production of the commodity now standing just 1.1million tons, down 6% YoY, this has seriously affected the mining sector in Zambia.

However, it is not all doom and gloom for Zambia’s capital markets, as the recent purchase of a 17.5% equity share in Zambeef by the CDC, the UK’s finance development institute, seems to indicate. Zambeef, Zambia’s top food company, was listed on both the LuSE and the London Stock Exchange (LSE). As TBY noted earlier this month, Zambeef’s shares soared by 120% over the past three quarters, with the price of the firm’s shares skyrocketing from GBX7.75 (USD0.10) to GBX17.15 (USD0.22) between August and October 2016.

Many efforts are being made to develop Zambia’s capital markets, with the government and the LuSE prioritizing the improvement of similar areas to Nigeria and Tanzania. In 2015 the LuSE launched its alternative investment market, aimed at SMEs, which Minister of Commerce, Trade and Industry, the Hon. Margaret Mwanakatwe, deemed crucial for the transformation into a multi-tier capital market. Brian Tembo, the CEO of the LuSE has stated the alternative market combines the benefits of a public flotation with simplified admission requirements, providing alternative short-term funding options and a regulatory framework more accommodating to smaller companies. It enables SMEs to issue equity and debt securities, and will thus encourage a higher standard of corporate governance and accountability, raising the profiles of SMEs and making them more attractive to potential investors. In this way it is hoped that the creation of the Alt-m will eventually lead to Zambian companies’ long-term growth and eventual listings on the LuSE. In conversation with TBY, Tembo said that “through the alternative market, we have not only made access easier through lower requirements and fees, we have also created a support structure for new companies.”

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