This year’s ASEA Conference, now in its 18th year, brings together members of 23 African securities exchanges as well as investors from the United States, Europe, the Middle East and Asia to discuss the evolving role of the capital markets in driving Africa’s growth potential.
Kenya’s Deputy President William Ruto, in his opening speech, challenged African countries to develop their capital markets. This he believes will enable them provide alternative sources of finance for long-term productive investments. Ruto said the development of regional markets will expand intra-Africa trade, which is currently at paltry levels compared to that of other continents.
Data from Society for Worldwide Interbank Financial Telecommunication (SWIFT) reveals that African capital markets still have some way to go if they are to support this aim. “There has been a significant increase in securities-related SWIFT traffic in Africa, with growth here 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,” says Ian Bessarabia, Head of Business Development, Sub-Saharan Africa, SWIFT.
Bessarabia, who joined a panel discussion today focused on Enabling African Capital Markets Through Technology, pinpointed the four key factors that he believes will fundamentally change African financial markets and help to drive up levels of intra-African investment.
Financial market infrastructure: The right financial market infrastructure ensures that access to financial markets is easy, transparent and robust while poor infrastructure acts as a constraint on the growth and vitality of capital markets and inhibits liquidity due to the heightened levels of operational risk. Many investors argue that it will be the ability to trade in and out of securities easily and not stock valuations and economic climate that are likely to shape Africa’s equity prospects in the coming years.
Standardised systems and processes: Standardised clearing and settlements processes will help to drive up trading volumes and boost liquidity by improving efficiency, cutting cost and eliminating risk. This will mean that investors have easier and cheaper access to these markets and this will support more companies being persuaded to make use of the capital markets to raise capital through a stock market listing.
Robust regulatory frameworks that are internationally recognised: To encourage foreign direct investment into Africa, the legal and regulatory frameworks which protect investment need to be robust and companies seeking investment must meet minimum levels of governance and transparency. Robust infrastructures (such as central securities depositories) make buying and selling easier and give global investors the confidence to invest in African exchanges that they know meet international standards.
Regionalised African securities markets: The next stage of evolution in African securities markets may well be the development of interoperability or linkages between different exchanges using international standards supported by companies like SWIFT. Securities markets can learn valuable lessons from the successful harmonisation already under way in various regional payments markets. The Southern African Development Community (SADC) is leading the way where payments are concerned. The third phase of SADC’s SIRESS payment system went live September 2014, with almost 70 commercial banks from nine countries now participating and cross-border transaction volumes rising rapidly.
African securities markets, according to Bessarabia, are on the cusp of transformational development. This is clear from SWIFT securities traffic growth and by the rising volumes on some of the bigger markets such as Nigeria. And makes now the ideal time to adopt global standards and industry best practice to help support this growth.
