Africa’s exchanges urged to be innovative and integrate to attract more investment

Stock exchanges in Africa must integrate trading systems and innovative to attract more investors and help deepen as well as widen the economic integration process in Africa. The move will also promote the movement of capital across the continent, increase investment opportunities and encourage optimum financing for firms, irrespective of where they come from, experts have said. Claver Gatete, the Minister of Finance and Economic Planning, added that stock exchanges offer businesses and governments alternative source of funding and attractive investment opportunities, as well as promote a savings culture in Africa. “The encouraging news is that the stock markets in most African countries have undergone remarkable transformation as evidenced by an increasing portion of funds that flows directly to financial markets without being routed via the traditional bank lending and deposit operations,” Gatete said while speaking at the opening of the ongoing 20th annual African Securities Exchanges Association (ASEA) conference in Kigali yesterday. The conference which attracted over 300 sector experts and policy-makers seeks to enhance competitiveness of security exchanges to boost their contribution to the continent’s GDP. This year’s theme is, “The Road to 2030: making the African Capital Markets Relevant to the real economy”. Rwanda is hosting the annual meeting for the first time Rwanda. The finance minister further underlined the significant contribution of financial markets, particularly capital markets, in financing domestic economies, urging African countries to always consider them in their strategic plans. “However, we should be aware of the fact that Africa is not immune to the shocks and changes in the world economy because, while the rest of the world is today embarking on the fourth industrial revolution, Africa is still on the rise and the financial markets are not keeping up with the pace, which makes them more vulnerable,” he added. Prof Kingsley Monghalu, the in-charge of international business and public policy at the Fletcher School of Law and Diplomacy at Tuft University in the US, challenged security exchange players in Africa to innovate and integrate to be able to handle economic shocks the world is facing presently, including the fall in commodity prices and a slowdown of the Chinese economy. “This will require the existence of property rights, innovation and capital mobilisation,” he said, adding that ‘practicing capitalism without capital’ could be a dangerous for the markets. “Therefore, to avoid a stock market crush situation, stakeholders must put in place strong risk management systems and ensure a balance of ownership between local and foreign investors.” The expert believes that continuous investment towards industrialisation and inclusive growth will help boost the continent’s capital markets. Rwanda’s equity market capitalisation to GDP ratio stood at 32.93 per cent in 2015 compared to 48 per cent in Kenya. In monetary value, the country’s stock exchange has kept a steady performance in the last five years, registering a market capitalisation of almost $4.2 billion of 2015. The Rwanda Stock Exchange (RSE) market capitalisation was at Rwf2.751 trillion at the close of yesterday’s trading session compared to Rwf2.820 trillion on January 4, 2016. RSE at five years Five years since the bourse was launched in Rwanda, there are seven companies and 13 government and corporate bonds listed on the exchange and eight trading members as well as two licensed custodians. However, Dr James Ndahiro, the RSE chairman, said there is still need to deal with challenges facing the industry, including the lack of innovative products. Dr Ndahiro urged market players to conduct a scientific research that will help policy-makers to design appropriate regulations that support the sector. Stock market potential Though stock markets provide an avenue to raise money to fund development programmes in a sustainable manner, Africa has not utilised them as an effective option for raising the much-needed long-term capital to finance its economies, yet their potential is huge. Therefore, the continent must link its stock markets electronically so that members can execute orders on exchanges that offer the best deals for clients, , according to Oscar Onyema, the president ASEA. “However, countries and exchanges should evaluate regionalisation on a strict cost-benefit analysis and avoid indulging in the political payoffs associated with it,” Onyema, also the chief executive officer of Nigerian Stock Exchange, said. “The crucial issue is how integration will affect exchange competition which means that co-operating exchanges must specialise in different securities that differentiate them from others.” He said because African exchanges have monopoly in listing equities, players need to study how the integration of trading platforms could affect their competitiveness. He added that such a move could also encourage small and inefficient exchanges to co-operate with big players, noting that the implications for regional integration “need to be addressed and resolved prior to integration of stock markets”. Govt pledge more support Meanwhile, Prime Minister Anastase Murekezi (pictured left) said government will continue supporting local security exchange as part of the strategy to mobilise resources to support the country’s economic growth. Premier Murekezi said the objective is to ensure the business community has “access to the capital they need to make a contribution to development of Rwanda”. He challenged participants at the conference to come out with recommendations that will drive real reforms and help strengthen capital markets’ role in promoting the development on the continent. Learning from the best In a related development, local sector players say the conference is a key learning experience for Rwandans, which will help propel the bourse to greater heights. Charles Gakuru, the deputy head of treasury at I&M Bank, said the Rwandan financial market has got a chance to learn from the best on the continent, thanks to the ongoing ASEA conference in Kigali. Brigitte Kaneza, an account relationship officer at Bank of Kigali Securities, said financial markets face challenges, like lack awareness about the opportunities they offer. She was, however, optimistic that conference would provide the much-needed chance of “learning from other countries’ experience which will, hopefully, boost our innovation”. Kaneza said local sector players would continue mobilisation of the public to participate in the financial market, noting that this was critical and would make the exchange more relevant and help Rwandans solve their savings and funding needs. Emmanuel Rugamba Mutabaruka, the operations supervisor at CDH Capital, is hopeful local players will form partnerships with peers from other countries. “We will share knowledge and experiences, allowing us to build strong African stock markets,” Rugamba said, adding that all this will also enable transfer of knowledge and skills.

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Africa’s exchanges urged to be innovative and integrate to attract more investment