the 3rd annual trading african summit -...

The 3rd Annual Trading

African Summit

West Africa - Investment Opportunities and Exchanges

www.bourseafrica.com

Presented by Mr. Chris Goromonzi MD & CEO BOURSE AFRICA Botswana Limited (BA) South Africa – November 2013

THE 3rd ANNUAL TRADING AFRICA SUMMIT 6 - 7 NOVEMBER 2013

http://www.bourseafrica.com/

Structure of the Presentation

• Painting the Picture : West Africa

• Exchange landscape : West Africa

• Bourse Africa Ltd : A perspective


“Africa’s rise is real”

Source: Ernst & Young’s attractiveness survey Africa 2013

African growth seen holding up despite global risks…


“West Africa growing”


PAINTING THE PICTURE: WEST AFRICA


West Africa - A quick glimpse

West African sub-region consists of 16 countries out of which three are landlocked and 13 are coastal states.

Eight of the countries make up the West African Economic and Monetary Union (WAEMU). Five countries form part of the Economic Community Of West African States (ECOWAS)

Nigeria by far the largest economy, making up 68% of the region’s GDP and hosting more than half the region’s population.

Ghana, Côte d’Ivoire, and Senegal are the second, third, and fourth largest economies respectively.

West Africa is expected to continue its rapid growth with rates of 6.7% in 2013 and 7.4% in 2014 (African Development Bank).


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Nigeria is expected to grow by between 6.7% and 7.3% in 2013 and 2014 respectively. In Ghana and Côte d’Ivoire, average growth in 2013/14 is likely to exceed 8% and 9% respectively. In most countries of the region, growth is expected to pick up in 2013/14, exceeding 5% (African Development Bank).


Africa Business Environment - Major constraints

• Skill Constraints

• Inadequate infrastructure; Access to technology & connectivity

• High corporate taxes, interest rates among others

• Inadequate capitalization of capital markets/liquidity challenges

• Narrow and fragmented domestic markets

• Capacity building - innovation

However, some major improvements have been noted over the past few years.

Improvement in macroeconomic conditions

Source: African Economic Outlook 2013. Note: mining sector made Sierra Leone real GDP growth leap from 6% in 2011 to 16.7% in 2012 , with support from agriculture, services and construction. (p) is projection.

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Real GDP Growth in West Africa (%)

2009

2010

2011

2012

2013(p)

Consumer Prices (Inflation)(%) 2009 2010 2011 2012 2013 (p) Western Africa 10.1 10.4 9.3 9.8 8 Africa 10 7.2 8.5 9.1 7.4

Overall Fiscal Balance (% of GDP) 2009 2010 2011 2012 2013 (p)

Western Africa -7.4 -4.6 -1.3 1.3 2 Africa -5.2 -3 -3.1 -2.5 -2.4

Ease of doing business in West Africa

Improving regulatory quality to conducive to business operation.

Nevertheless, the main perceived challenges to doing business in Africa remained:

1. Access to financing

2. System for trading across borders

3. Government bureaucracy

4. Insufficient capacity to innovate

Thus, in need of a flexible, vibrant, diversified and multi-asset markets.

Untapped Investment opportunities in West Africa

Nigeria & Ghana – most exciting emerging markets in the west region with oil as the

major draw card for investment.

The largest proportion of FDI in Ghana and Nigeria - the oil and gas industries with

69% and 79% contributed to these sectors respectively (2003 and 2011).

Ghana

Sizeable resource endowment of minerals, gas and oil reserves. Ghana’s Jubilee

field has a reserve potential of about 5 billion barrels of oil.

Strong investment environment, with long tax holidays, duty-free settlements,

low capital requirements and free transferability of profits, dividends and related

income.

A stable and well-established democracy add to investment appeal.



Agriculture and related infrastructure

In year 2009/2010, Africa produced about 68% of the world cocoa production of

which Ivory Coast and Ghana alone contributed 55%.

The International Cocoa Organization (ICO) revealed that West African farmers

supply 70% of all cocoa to the chocolate industry worldwide.

Instability and volatility of cocoa price pose a great challenge to these producing countries. Further, the inability to understand global demand-supply signals lead to either a scarcity or glut in domestic production. These inefficiencies can be addressed by developing an efficient Futures market which will ensure fair price discovery while also leading the spot markets to align with international prices.



Financial sector development as a catalyst for growth The financial sector in the region expanding rapidly The increase in the last few years has been largely centered on banks, and has been driven mostly by strong growth in the domestic deposit base Banked population in the region rose by more than 5% from 9% in 2006 to 14.3% at the end of 2011

Given nature of these African economies, there is a continued importance of the microfinance sector for providing access to financial services to low income people. At the end of 2012, there were 729 microfinance providers with 4,836 branches throughout the region

Innovation in Banking…

Despite good story on banking growth – major opportunities exist in extending services to all sectors especially lending to the agricultural sector,

Role of securities exchanges as catalysts in resource mobilization – experiences from other markets e.g. SA and India.


EXCHANGES LANDSCAPE: WEST AFRICA


Role of Exchanges

Background of exchanges in West Africa

Most African exchanges are still small and dominated by just a few large companies.

Governments of different African countries are trying to implement reforms and methods for development of stock markets.

Investors seeking higher returns and greater diversification are forced to look beyond their borders for investment opportunities – African stock exchanges becoming important sources of investment capital for large corporations.

Thus, there is a commitment to expand the capital markets reach in the West African sub-region – Major exchanges in West Africa are the Nigerian Stock Exchange (NSE), Ghana Stock Exchange (GSE) and Bourse Régionale des Valeurs Mobilières (BRVM).

Reforms ongoing to adopt a fully integrated regional stock exchange to enhance raising of capital by firms (more financing opportunities) – A West African Capital Market Integration Council

Role of Exchanges

Performance of Major West African Stock Exchanges against other exchanges(US Dollar-Adjusted Returns)

Market Index 1-Month Return

6-Month Return

1-Year Return

3-Year Return

5-Year Return

Year to Date

Return

Avg Weekly Trade Volume

Botswana Stock Exchange 3.20% -1.40% 4.20% -9.20% -16.80% 4.30% $5.3m

Bourse Régionale des Valeurs Mobilières

3.60% 14.00% 44.70% 37.70% -11.70% 25.90% $5.3m

Dar es Salaam Stock Exchange 4.00% 10.50% 12.50% 34.40% 15.30% 10.80% $1.7m

Ghana Stock Exchange 0.80% 4.20% 68.90% N/A N/A 48.20% $3.7m

Johannesburg Stock Exchange 8.50% -1.00% -5.30% -2.10% 43.50% -11.00% $3,887m

Lusaka Stock Exchange 1.50% 14.30% 24.10% 44.30% -7.90% 26.00% $0.6m

Malawi Stock Exchange 6.10% 78.60% 51.70% N/A N/A 62.10% $0.9m

Nairobi Securities Exchange 7.70% 7.50% 44.10% 26.50% 25.10% 33.90% $35.3m

Namibian Stock Exchange 4.30% 0.80% 3.80% 36.40% 75.00% -3.10% $0.8m

Nigerian Stock Exchange 1.80% 7.00% 38.50% 56.50% -42.00% 26.90% $129.0m

Stock Exchange of Mauritius 2.50% 2.80% 14.20% 12.90% 19.80% 12.80% $5.3m

Uganda Securities Exchange 6.20% 5.80% 40.50% 25.70% 12.10% 36.70% $2.7m

Zimbabwe Stock Exchange 10.10% 8.80% 37.00% 46.00% N/A 31.30% $7.8m

S&P 500 3.00% 7.20% 16.70% 46.90% 44.20% 17.90% N/A

Source: Investing in Africa. Note: data as of September 30, 2013

Role of Exchanges

Number of listed companies in Stock Exchanges

Year NSE, Nigeria

GSE, Ghana

BVRM NSE, Kenya

2010 217 35 39 55

2011 198 34 39 58

2012 194 34 37 60

Market capitalization of listed companies in Stock Exchanges (US$ billion)

Year NSE, Nigeria

GSE, Ghana

BVRM NSE, Kenya

2010 53.4 13.68 6.97 14.48

2011 43.06 28.52 6.96 10.34

2012 57.77 30.46 8.1 15.9

Ghana Stock Exchange

Foreigners vs. Local Investors

% of the Total Value Traded

Type of Investors 2012

Foreign Investors 44%

Local Investors 56%

Total % 100%

Nigeria Stock Exchange

Foreigners vs. Local Investors

% of the Total Value Traded

Type of Investors 2012

Foreign Investors 56%

Local Investors 44%

Total % 100%

Source: ASEA Yearbook I 2013

Role of Exchanges

Major constraints

African stock markets are highly fragmented, small, illiquid and technologically weak,

severely affecting their informational efficiency.

Listings are limited – few IPOs

Underdeveloped legal, regulatory and monetary systems

Regional integration is slow

Small size of African stock markets and the absence of liquidity are often cited by foreign investors as the major impediments to investing in the region – Market depth and breadth

Though exchanges in Sub-Sahara region have started adopting electronic methods, they are yet to catch up with global advancements

Even the developed stock markets in Africa are facing problems of dominance of specific stocks in the market and concentrated trading on limited stocks.

Integration of the capital markets in the West African region however has the potential to help countries overcome these constraints. In the same vein, a multi –asset market can be crucial to achieve this goal.



What is the gap in relation to global exchanges

a) Narrow product range – mainly equities and government bonds

b) Limited stock of products c) Illiquid markets d) Lack of attention to key products for hedging against price

risk, currency risk etc. e) restrictions to cross border trading f) Exchanges not designed for CCP role – confidence issue

Opportunities

EXCHANGE TRADED SECURITIES – KEY TO RESOURCE MOBILISATION AND GROWTH REALISATION

a) Introduction of derivative products in relevant currencies, equity indices for hedging – huge impact in increasing volumes for exchanges…potential for West Africa

b) Focus on commodities that Africa produces – agricultural commodities futures contracts ( highly relevant)

c) Listing of bonds on exchanges - huge potential for mobilising capital for West Africa

d) Innovation around products to promote participation by small investors in West Africa


Severe underdevelopment of African FX markets


BOURSE AFRICA LIMITED: PERSPECTIVE


Africa open for Business

Role of Bourse Africa in achieving a well-functioning capital markets

BOURSE AFRICA LIMITED (Bourse Africa), is the first international multi-asset class exchange from Mauritius that currently offers trading on three market segments viz., commodities, currencies and equities.

Bourse Africa endeavors to provide African and International market participants with ;

1. an efficient market for trading, investing and capital raising needs.

2. a state-of-the-art electronic trading platform with efficient clearing and settlement systems.

3. Market Risk Management - Equip African and global market participants with means for currency, commodity, equity and interest rate price risk management.

4. CCP Structure

5. Africa Focused Products


The launch of African currency and Index futures contracts are a move towards the same

Our objective for Africa is to give the market participants of the continent a highly liquid, regulated and transparent commodity, currency, equity

and debt market.

Given the growth of economy and finance in Nigeria, Ghana and other major

West African economies, multi-asset markets - poised to assume a significant

role in the growth of the local market and create positive externalities for

global market participants.

Kenyan Shilling

Ghanaian Cedi

Nigerian Naira

Bourse Africa: creative and innovative investment products

NSE 30 Index NSE 20 Index, Kenya

GCI Index


http://www.gbot.mu/Documents/products/ProductsLeaflet/EUR-USD-leaflet.pdf



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• CFD means ‘Contract For Difference’ on commodities & currencies introduced for the first time in Africa

• CFDs allow you to trade on the products like Gold or Euro or shares of Apple or Microsoft

• You do not actually own the Gold or Euro

• You are trading for price difference between your buy(entry) & sell (exit) or vice-versa

• Facilitates investment as well as trading

• Low margin deposits

• No levy of overnight rollover and interest

• Easy access to multiple markets and products through a single trading account

• Corporates will now find a regulated CFD market with enhanced transparency and no counterparty risk.

• Contract size of many of the commodity and currency contracts are smaller as compared to contracts traded on many global platforms to ensure accessibility to all types of stakeholders.

With CFDs, Bourse Africa is democratizing markets by introducing products wherein the participant may start trading with as low as USD 20.

Products: CFDs in Commodities,

Currencies, Equities & Indices

Bourse Africa: creative and innovative investment products


http://www.gbot.mu/Documents/products/ProductsLeaflet/Product-leaflet-silver.pdf

http://www.gbot.mu/products/bullion/WTIBusinessScenario.aspx

Debt market innovations

The bond market was mainly accessible to the institutional, corporate and high net-worth individuals through the Over The Counter (OTC) market. However, with the introduction of the fixed income market, investors now have access to the bond market through their broker/ dealer via the Exchange automated trading platform.

Given the impact of the financial crisis on private flows to Africa, the development of sustainable bond markets is necessary to bridge the financing gap

Africa will need at least US$ 20 billion in infrastructure investment per year which can only be sustainably financed through long-term bonds (African Development Bank‘s Financial Markets Initiative)

The development of local bond markets is also essential in order to match local financing revenues with debt service. he expansion of local-currency bonds should decrease the cost of local-currency debt which remains expensive due to high domestic interest rates.


Debt market innovations

Nigeria as an example

Liberalization of the bond market in 2013 - introduction of varieties of debt instruments by the Debt Management Office (DMO), Securities and Exchange Commission (SEC), Nigerian Stock Exchange (NSE) and floating of bonds by International Finance Corporation (IFC).

The Nigerian Stock Exchange came up with the retail bonds market, launched on February 1, 2013. The retail bond market is to be complementary to OTC market.

The retail bond market expected to drive the activities in the primary market, especially from the corporate aspect now that they know that they can actually participate from a retail perspective on the floor of the Exchange.

Massive opportunities created for the private sector for raising long-term debt instruments for long-term investment in real sector, infrastructure and development of finance industry.

For instance, four Nigeria banks namely Guaranty Trust Bank, Access Bank, Fidelity Bank and First Bank have taken advantage to issue $1.45billion between January, 2011 and July, 2013 from the international capital market.


THANK YOU

IT IS THE TYPE OF INSTITUTIONS WE CREATE IN AFRICA AND THE REGULATORY FRAMEWORK WE PUT IN PLACE THAT WILL DETERMINES OUR ABILITY TO ATTRACT THE RIGHT TYPE OF CAPITAL TO REALISE OUR POTENTIAL.
