Challenges and Outlook for African Exchanges:

Where are we heading?

Presented by:

Sunil BenimadhuChief Executive, The Stock Exchange of Mauritius Ltd President , African Securities Exchanges Association

8 October 2013NeMa Africa 2013

Tower Suite, Hilton London Tower Bridge, London

Presentation Outline

The shift in the balance of economic power and Africa’s rise

The changing world economic momentum: A gradual and yet irreversible shift of international asset-allocation in favour of African capital markets

African stock market’s: facts & figures

Challenges of African Stock Exchanges

Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa

African Securities Exchanges Association’s (ASEA) contribution to the African capital markets’ space

Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to internationalise its platform

The shift in the balance of economic power and Africa’s rise

Top 10 Economies2011 2050

Country GDP (PPP) ($ tn)

Rank Country GDP (PPP) ($ tn)

United States 15.06 1 India 85.97China 11.32 2 China 80.02Japan 4.47 3 United States 39.07India 4.40 4 Indonesia 13.93Germany 3.09 5 Brazil 11.58Russia 2.38 6 Nigeria 9.51Brazil 2.31 7 Russia 7.77United Kingdom 2.25 8 Mexico 6.57France 2.22 9 Japan 6.48Italy 1.83 10 Egypt 6.02

Source: International Monetary Fund; The Wealth Report 2012

The shift in the balance of economic power and Africa’s rise

The changing world economic momentum: A gradual and yet irreversible shift of international asset-allocation in favour of

African capital markets

Growth in the developed world looks anemic at best and international investors are on the look for superior returns outside of the traditional markets

Emerging Asia and Latin America have benefitted from the first wave of asset-allocation shift during the 1990’s and 2000’s

Africa is the last-growth frontier that will benefit from the second wave of asset-allocation shift

The setting up of dedicated Africa funds, Africa-focused structured products and PE funds is on the rise and will intensify

Fundamental shift to the current static perceptions of African Exchanges being fragmented and illiquid

Global brokers/liquidity providers who, have so far overlooked African stock markets, will growingly turn to these markets as the last financial Eldorado

African stock market’s: facts & figures

Country Year to Date (%) Country Year to Date (%)

1 Ghana 65.682 Malawi 53.08 Americas US - Dow Jones 13.023 Rwanda 37.50 Chile -14.604 Nigeria 29.64 Brazil -17.955 Zambia 28.016 kenya 24.63 Europe London 8.737 Uganda 23.76 France 8.048 BRVM 21.16 Germany 6.459 Zimbabwe 19.53

10 Botswana 12.95 Asia China 13.1111 Namibia 12.77 Malaysia 4.6412 Mauritius 11.41 Sri Lanka 3.3913 Tanzania 8.52 Indonesia -2.8214 South Africa 8.10 Thailand -7.0115 Swaziland 0.41 India - BSE 500 -11.9716 Tunisia 0.3717 Egypt -3.5618 Morocco -10.71

Source: African Alliance Source: World Federation of ExchangesSource: Yahoo Finance

African Markets Developed & Emerging Markets

STOCK MARKET PERFORMANCE (year-to-date)

African stock market’s: facts & figures

Countries No. of ListingsMarket Capitalisation

(USD Bn)GDP @ Current Price

(USD Bn)Market Capitalisation /

GDP(%) Turnover (USD Bn)Turnover Ratio

(%)

Egypt 253 49 257 19 21.90 45

Nigeria 195 70 263 26 4.10 6

Morocco 75 50 97 51 6.30 13

Kenya 61 19 37 51 0.80 4

Tunisia 69 8 46 18 1.10 13

Mauritius 93 8 10 82 0.60 7

Ghana 30 5 41 11 0.14 3

BRVM 38 8 78 10 0.12 1

Zimbabwe 74 6 11 50 0.50 9

South Africa 409 434 384 113 372.00 86

TOTAL 1,297 655 1,224

Source: 1. Standard & Poor's Factbook 2012 2. Internatioanal Monetary Fund (www.imf.org) 3. ASEA Yearbook 2012

JUNE 2013

How do African stock markets stats compare with those of a few emerging markets?

Countries No. of ListingsMarket Capitalisation

(USD Million)GDP @ Current Price

(USD Million)Market Capitalisation /

GDP(%)Turnover (USD

Million)Turnover Ratio

(%)

Malaysia 941 395,083 287,943 137 128,908 33

Thailand 545 268,489 345,672 78 232,442 87

Indonesia 440 390,107 846,450 46 139,618 36

Chile 229 270,289 248,431 109 56,899 21

India 5,112 1,015,370 1,838,166 55 740,177 73

Brazil 366 1,228,969 2,492,907 49 961,306 78

Source: 1. Standard & Poors Factbook 2012 2. International Monetary Fund (www.imf.org)

YEAR 2011

Challenges of African Stock Exchanges

Fragmented nature of financial services sector

Restricted market depth and breadth

Equity-Centric Exchanges

Liquidity issues

Unusually high transaction costs

Absence of an active and well developed domestic investor base (low institutional participation & less than 1% retail

participation)

Manual Trading and Settlement infrastructure

Issues of efficiency and real-time availability of market information

Corporate Governance practices of Listed Companies

Protection of Minority Shareholders’ rights

Accounting and Disclosure standards

Transmission mechanism

Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa

At the micro market-level:

Active stimulation of the four P’s that characterise the Exchange space:- products, players, participants and partnership

Increase the number of local investors from the current 1% to at least 10% of the population

Diversify product base (corporate & government bonds, short-selling on liquid counters, single-stock futures on liquid stocks, introduce index-futures)

Slash transaction fees

Innovate by introducing turnaround trades

Reach out to the rest of the world and improve the availability of updated market statistics. Aggressively put African stock markets on the radar screen of international investors

Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa

At the micro market-level:

Bring the good companies to list on African Exchanges

Successful African companies should contribute to the growth of local capital markets and local economies, instead of systematically supporting the growth of the larger well-established markets

Sensitise listed companies about their role as public companies and improve the quality and frequency of their reporting

Link up our stock markets through technology so as to increase the intra-regional investment flows and broaden the availability of tradable scrips on our Exchanges

Ensure that quarterly reporting becomes the standard

Transform the Exchange’s website as a powerful source of historical and updated statistics

Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa

At the macro market-level:

African economies have so far built up their growth as suppliers of new materials and low value-added goods to western countries

There is, now, a substantial need for African economies to power themselves up to move-up the value-chain of products to become over time the supplier of high-value added products to the rest of the world

Continued improvement in business climate and further opening up of African economies to the rest of the world

Implementation of inclusive growths that propels the middle-class to the forefront of economic activity

Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa

At the macro market-level:

Embracement of democratic principles and good governance at the highest decision-making levels

Substantial improvements in infrastructure ( roads, railway, ports, airports ) linking African markets

African Governments need to understand and actively support Securities exchanges/capital markets in the transformational phase of African economies and in the empowerment of the lower social classes

ASEA’s contribution to the African capital markets’ space

ASEA’s current website (which is outdated) is being revamped to become a key source of daily updated information for the international investment community

ASEA is endorsing the important role of increasing the visibility of African markets at the international level

ASEA has launched an African index with FTSE

This African index should serve two key functions:

1. Emerge as an attractive benchmark for investors investing on African stock markets

2. Be used as a reference for the creation of an African ETF

ASEA’s contribution to the African capital markets’ space

ASEA should ensure that this African ETF is listed on the different African Exchanges tracked by this ETF

ASEA is gradually emerging as the mouthpiece of African stock exchanges vis-à-vis African governments and international organisations like the African Union, the African Development Bank and the World Bank

It is endorsing the role of enticing governments to support the development of vibrant capital markets in Africa

Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to

internationalise its platform

1989 2013

No. of listings 6 126

Market Capitalisation (Rs Bn) 1.44 248.6

Market Capitalisation/GDP (%) 4.32 72.15

SEMDEX (End of period) 117.34 1963.67

SEMTRI (in Rs terms) 118.95 6193.02

A statistical overview of the evolution of SEM since inception

Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to internationalise its platform

Introduction of a multi-currency listing, trading and settlement platform (USD, GBP, EURO, ZAR)

Introduced a highly competitive and compelling listing framework for

Setting up of a new trading technology that:1) Opens the space for foreign brokers/liquidity providers to connect directly to our trading systems2) Cross-link our market with other markets in the region

Introduce the concept of remote membership to attract foreign brokers, foreign participants to our market and global order flows to SEM’s trading platform

Positioning SEM as an attractive capital-raising, listing and trading platform for African ventures

SEM offers a very attractive stock market environment:

- Junior mining/exploration companies- Global funds -Global Business companies-sponsored/unsponsored Depositary Receipts - Exchange traded funds- specialist debt instruments - Structured products- Derivatives on foreign underlyings

- No capital gains- No taxes on dividends- No exchange control- Ability to open and hold multi-currency accounts with banks (USD,

EURO, GBP, ZAR, AUD, etc.)

Why SEM and what is the SEM’s Competitive edge as a capital-raising and trading platform for African ventures?

SEM is a multi-asset class internationalised Exchange platform that allows African issuers to list a wide spectrum of financial instruments and raise capital through a wide variety of modes ( shares, bonds, funds, Depositary receipts, convertible instruments, Exchange Traded funds ( ETF’s) )

SEM facilitates international capital-raising by African issuers through its multi-currency listing, trading and settlement platform (USD, EURO, GBP & ZAR)

SEM has been a powerful value-creation platform for many companies that have chosen to list on its platform [USD total return range from 3,000 % to 7,540 % for Top 10 companies]

SEM has an Exchange architecture that opens us the global institutional investors’ space to African issuers. 40 % of annual market turnover is from global institutional investors

SEM is sub-saharan Africa’s ( ex JSE ) only WFE member Exchange and was awarded “ Africa’s 2011 & 2012 Most Innovative Exchange ’’ by Africa Investor at the NYSE

Clearing and settlement on SEM done in line with international standards

- Potentially provides a 4% to 8% currency conversion savings to international investors trading in African securities - Hedges the international investors against African currency risks and eliminates need to resort to currency hedging instruments

Why SEM and what is the SEM’s Competitive edge as a capital-raising and trading platform for African ventures?

The SEM is positioned at the very heart of the convergence point of demand-side flows and supply-side opportunities for investments into Africa

The demand-side flows are those of the Africa-dedicated funds, Africa-focused structured products that are and will growingly be established in the Global Business sector (GBS) in Mauritius to invest in African ventures

Demand-side flows can also be boosted by attracting order flows from remote global brokers

The supply-side opportunities will emanate from Global Business companies + other companies incorporated in Mauritius for outbound investments into Africa

SEM’s highly flexible/cost competitive listing framework and its state-of-the art multi-currency trading provide the winning capital-raising platform that enables an efficient interaction of the above demand and supply forces

In a nutshell, SEM completes the value chain process that will position Mauritius as a one-stop platform for incorporation, structuring, listing, capital-raising and trading of African ventures

Recent capital-raising on the SEMCompany name YEAR Amount raised

in USD (equivalent 1 USD = Rs 30)

BONDS Lux Island Resorts Ltd 2010 16,666,667 United Investment Ltd 2012 13,333,333 Omnicane Ltd 2012 36,000,000 Omnicane Ltd 2013 30,666,667 Mauritius Commercial Bank Ltd 2013 150,000,000 TOTAL 246,666,667

IPO Go Life International PCC 2011 9,665,000

NEW ISSUES The Medical And Surgical Centre ltd 2009 5,500,000 Ascencia Ltd 2009 10,279,050 Southern Cross Hotel 2009 274,365 Southern Cross Hotel 2009 6,789,929 Dale Capital Group Ltd 2010 6,086,585 ENL Land Ltd 2010 31,119,009 United Investment Ltd 2010 25,367,112 Ascencia Limited 2010 4,695,298 Ascencia Limited 2011 17,739,078 United Investment Ltd 2011 2,590,565 United Investment Ltd 2011 510,827 Promotion and Development 2012 79,507 Promotion and Development 2012 5,088 Bharat Telecom 2012 333,333 Sanlam Africa Core Real Estate Fund Ltd 2013 45,500,005 Rockcastle Global Real Estate Company Ltd 2012 145,869,970 Ascencia Limited 2012 3,000,021 Rockcastle Global Real Estate Company Ltd 2013 265,000,000

TOTAL 570,739,742

RIGHTS ISSUES Mauritius Stationery Manufacturers Ltd 2010 4,964,933 Lux Island Resorts Ltd 2010 16,666,667 Mauritius Freeport Development Co. Ltd 2010 5,000,000 Tropical Paradise Co. Ltd 2010 4,166,667 Mauritius Freeport Development Co. Ltd 2011 5,000,000 Tropical Paradise Ltd 2011 10,937,500 United Investment Ltd 2011 4,617,634 Mauritius Stationery Manufacturers Ltd 2012 8,782,289

TOTAL 60,135,689

Nearly USD 1 billion raised

The SEM: A powerful value-creation platform for listed companies

Company Date of Total Return (%) Annualized Total Return(%)Listing

The Mauritius Commercial Bank Ltd 05-Jul-89 9,300 20.59 ENL Land Ltd 24-Jan-90 5,119 18.15 Vivo Energy Mauritius Ltd 13-Nov-91 3,720 18.09 Mauritius Oil Refineries Ltd 21-Feb-90 4,258 17.32 The Mauritius Development Investment Trust Co. Ltd 05-Jul-89 4,519 17.11 Mauritius Union Assurance Co. Ltd 14-Dec-93 2,172 17.07 State Bank of Mauritius Ltd 30-Jun-95 1,467 16.25 Rogers & Co. Ltd 27-Jun-90 3,112 16.06 Omnicane Ltd 05-Jul-89 3,339 15.70 United Basalt Products Ltd 05-Jul-89 3,300 15.64

Official Market: Value Creation in some Top Listed Companies( as at 30 September 2013 )

(Usd terms)

Comparative Performance Analysis: SEM v/s a few other markets (2002 – 2012 )

Exchange 2002 2012 CAGR (%)

SEMDEX (Stock Exchange of Mauritius) 340.92 1,732.06 15.92

Bovespa (Brazil) 13,577.00 60,952.00 14.63

S&P / CNX 500 (National Stock Exchange of India) 1,059.05 4,743.45 14.60

FTSE/JSE All Share (South Africa) 10,441.70 40,482.92 13.11

S&P / TSX Composite (TMX Group) 7,688.41 12,443.50 4.47

SSE Composite Index (Shangai Stock Exchange) 1,645.97 2,269.13 2.96

All Ordinary Price (Australian SE) 3,359.90 4,664.60 3.03

Dow Jones (NYSE) 10,021.57 13,104.14 2.47

CAC-40 (France) 4,624.58 3,641.07 (2.15)

Thank You