African stock exchanges should lower transaction costs and encourage new listings if they want to become more attractive vehicles for raising capital and lure new investment.
Shares on many sub-Saharan African bourses have offered enticing returns in the past five years, but investors complain about a limited number of initial public offerings, high fees and poor liquidity.
Addressing those issues will be vital if the continent’s capital markets are to keep African companies growing and support entrepreneurs in the race to drag more people out of poverty, bourse chiefs, brokers and regulators said. They were speaking at the African Securities Exchanges Association (ASEA) conference held last week in Mombasa.
“African exchanges have to make access to the market much, much easier,” said Alan Thomson, a South African stockbroker.
“In most countries, you have to work through a broker there,” he said, adding that a limited number of licensed brokers and challenges hindering new entrants drove up costs. “It is very expensive to set up. Settlement is expensive.”
Low volumes
Commissions charged on some African markets are much higher than in more developed exchanges. On the Nairobi bourse, brokerages often charge 2.5 per cent, compared with the 0.5 per cent that an investor, rather than institution, might pay in London.
Low volumes are also partly to blame for driving up fees, as local brokers have to charge more on each trade to meet costs.
“We continue to be challenged by liquidity,” Oscar Onyema, chief executive officer of the Nigerian Stock Exchange, said. “The markets are not deep enough.”
In a bid to boost volumes and offer investors more ways to manage risk, Mr Onyema said the Nigerian exchange planned to start trading by 2016 in derivatives such as swaps and options on currencies, interest rates, equities and equity indexes.
Nairobi also plans a new derivatives market.
Complaints about liquidity and high fees have not stopped African share prices doing well. The benchmark indexes for Nigeria, South Africa and Kenya are all up between 40 and 50 per cent over the past five years in dollar terms, taking into account local currency devaluations.
But there have been few major IPOs. Experts say governments had been reluctant to sell off more state enterprises, while families who run many businesses in Africa have been wary of offering shares and ceding some control to outsiders.
“There is definitely demand for assets here. The issue is supply,” said Muathi Kilonzo, head of brokerage at Nairobi-based Equity Investment Bank.
Global funds have been drawn in the past by the listing of Kenyan telecoms firm Safaricom in 2008 and Nigerian oil firm Seplat this year, but Mr Kilonzo said the flow of IPOs had been modest.
An IPO by the Nairobi Securities Exchange this year, in which it sold a 38 per cent stake, has helped rejuvenate Kenya’s IPO market, which had not seen an offering in about two years.
But many firms still turn to banks for funds, even though loans can come with punishing interest rates of 15 to 20 per cent or more.
Jendayi Frazer, a managing partner at Africa Exchange Holdings, said vibrant capital markets would support new businesses and fuel growth.
“It is the means by which the development of the continent is going to take place. It gives greater capital to young entrepreneurs,” said the former US diplomat. “It is essential to Africa’s economic take-off.”
