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Stricter rules needed to support growth of African bourses

by Khulekani Magubane & Nick Hedley, August 29 2012, 17:22
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Africa’s stock exchanges are growing in line with the continent’s “growth story”, but stricter regulations, better banking systems and financial market education are needed to get the continent’s exchanges off their feet, according to the Johannesburg Stock Exchange’s (JSE) Strategy and Public Policy Director, Siobhan Cleary.

Two years ago, the Casablanca Stock Exchange in Morocco became the fourth African stock market to join the World Federation of Exchanges (WFE), a group of 54 markets that has strict membership requirements.

Ms Cleary told journalists at the 2012 JSE Media Day in Sandton on Wednesday that the JSE now made up 66% of the continent’s total market capitalisation, significantly down from a previous high of 90%, because of the growth of other exchanges in Africa.

There are 26 countries in Africa with stock exchanges while other countries are looking to open stock markets, according to Ms Cleary. Many of the existing exchanges are looking to become members of the WFE.

However, there are a number of challenges within the continent’s exchange markets that discouraged local and foreign investment, including a lack of information as a result of poorly-enforced regulations, restricted trading times, and small, illiquid markets that meant investors could sometimes make returns on investments but not realise these gains.

Because of these challenges, many investments into Africa were done outside of stock exchanges, although countries were increasingly focusing on what they had to do to get this right and get companies to list and investors to invest, she said.

“The issue is mostly that regulatory environments need to be improved to protect investors. This is not to say that all markets that don’t have WFE membership are trying and failing, some of these markets are comfortable where they are and do not aspire for WFE membership yet,” she said.

“African markets are expensive to trade in, especially regarding the exchange transaction. This is challenging when you have investors who want to be protected and want to know that they can sell assets if they wish.”

Ms Cleary said the JSE was working hard to change the perception in corporate Africa that companies that had grown in their local markets should list on the London Stock Exchange rather than exchanges in Africa.

In order to grow Africa’s “incredibly small” capital markets, the continent needed macroeconomic stability, a developed banking sector, supportive regulation and financial market education, Ms Cleary said.

She added that while providing a platform for the listing of African infrastructure-related debt was “attractive” to the JSE, exchange controls had constrained this.

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