TED talk on the African Capital Markets

This 2011 You Tube link is a video of Yale World Fellow, Nicky Newton-King, the Deputy CEO of the  Johannesburg Stock Exchange (JSE) talking about the "Elephant in the Room", referring to strategies to move African Exchanges forward and African Exchanges refusal to adopt them. She listed three important strategies to attract more investors to African Exchanges.

1) Harmonisation of laws
2) Cross-listing of Securities
3) Creation of Regional or Pan-African Exchanges

The talk was exceedingly rudimentary-I am not sure what qualifies one as a Yale World Fellow- but interesting. I did agree with her last two points. Cross-listing of securities may be feared but will increase liquidity for the company and all boats will rise with that tide. Exchanges do serve issuers by providing the facility for raising capital. Cross-listing helps facilitate investors finding new, emerging market companies by appearing several places, ideally on a large exchange and on a smaller one.

I also agree that the development of more regional exchanges can only help. East Africa is well on its way toward a regional exchange, even though that has been true for awhile. Ms. Newton-King did not mention this but did use East Africa as an example of where a regional exchange might work.

Finally, I disagree that Harmonisation of laws in Africa, whether exchange procedure or governance, will help anyone. Once again we must remember the poor Southern African Development Community (SADC) Tribunal. 15 African states are members of SADC and yet when the Tribunal ruled against Zimbabwe in the Land Reform case of Ben Freeth and Luke Tembani in 2008, a decision upheld by the South African Supreme Court, it was ignored and then ultimately disbanded in 2011. For Harmonisation of laws to work among even a few exchanges, there needs to be a dispute resolution process in place that functions in a reliable way. Just like African Exchanges don't want to be part of an African Board in SA, they don't want to end up in court there either. So there will need to be a dispute resolution body for exchanges, investors and issuers to take their disputes to.

SADC is not the only alternative for resolution of disputes but for Southern Africa a SADC-like organisation could be developed. Harmonisation is always tricky, in my opinion, because of the potential power imbalances that cannot be rectified. It is usually the laws of the dominant party which are adopted and that is not always good for everybody involved.

More on SADC soon. Watch the video if you can. It is interesting and has some good slides!              

The Politics of African Stock Exchanges

The University of Texas at Austin is having a conference on Africa in March 2011. It is all about Politics and History. I submitted an abstract. Here it is:

In many countries in Africa, a stock exchange seems an oddity. Exchanges, national symbols of investment and commerce are housed in cities rife with poverty. Some African Stock Exchanges were established with funds from international donors-their existence a condition for receipt of funds. In general, there was no pressing economic need to establish an exchange. Since inception, these stock exchanges function in much the same way as their birth would suggest; as products of a political agenda in contrast to the traditional economic institution generating wealth for private and institutional investors.

This paper considers specific African stock exchanges, primarily in Eastern and Southern Africa, in comparison to Western exchanges in terms of history and politics. These exchanges are distinct in many ways in terms of liquidity, volume, and regulation. Furthermore, they continue to strive to conform to international standards. For example, many endeavour to obtain membership in the International Organisation of Securities Commissions (IOSCO), the gold standard in securities regulation dominated by Western developed exchanges. Additionally, they operate in nations that have few companies able to raise capital on the exchange and few consumers with the financial capability to invest.

The African exchanges considered by this paper developed in a manner distinct from Western exchanges. Still they are compared and measured according to standards set by others. This paper explores specific stock exchange beginnings and how they function now to hopefully better define how they operate domestically and possibly discover where they fit in the global community of stock exchanges.

http://www.utexas.edu/conferences/africa/2011/11Home.html

SITI East Africa

A securities training institute has been launched in East Africa. The Securities Industry Training Institute (Siti East Africa) is based at the Uganda Securities Exchange (USE) in Kampala, Uganda.

This initiative is financed by the IFC. The board members of Siti East Africa include representatives of all of the exchanges of East Africa-Rwanda, Uganda, Tanzania, and Kenya. It is a capacity building initiative. http://www.ifc.org/ifcext/esmid.nsf/Content/AboutESMID

The curriculum was agreed by all of the exchanges. http://www.use.or.ug/inner.php?cat=siti&subcat=&content= It contains 4 distinct courses: a Fundamentals course, Markets participants course, Officers and Directors course and Specialty seminar. The objectives of the entire program are to widen the base of knowledge that the capital markets rely upon to regulate itself and to function in a capable way with the public. The program targets directors of companies, brokers as well as policy makers and financial professionals.

The modules as described on the USE website cover such things as Client account management, payment and settlement, and Legal Aspects of the Securities markets. These fundamentals are essential for any market participant let alone financial market professionals. One of the objectives of SITI is also to conduct programs on Information Technology and Clearing and Settlement. This is absolutely necessary for the exchanges of East Africa.

I think this program is utterly awesome. But it is financed by the IFC so it is basically US subsidized. Right now I am struggling with whether that is entirely a bad thing….

The US financial markets have fairly stringent standards when it comes to broker education and examination. http://www.finra.org/Industry/Compliance/Registration/QualificationsExams/RegisteredReps/P011051 This is not replicated in the UK or elsewhere. Typically, the English are far ahead of us in education but here they fall behind I am afraid. I think this is absolutely the right thing at the right time. With worrying activities in Kenya as far as broker activity, requiring education and potentially examinations of financial industry professionals can only be a good thing.

Moreover, the potential for the involvement of information technology is enormous. A guy who works for SWIFT spoke at ASEA in Abuja. http://www.swift.com/ I met him at the water table between speakers at ASEA and accused him of being part of a global mafia controlling the transfer of international payments (swift code and all that). He said, ’rubbish!!’ and explained that they are completely transparent. (Ian Bessarabia, SWIFT). I did really believe him and I think he has something that Africa wants. SWIFT can provide clearing capabilities for exchanges. AND the fact that they are already so internationally connected means there may be some bullying but ultimately they provide credibility. ALSO, they can document easily all transactions so should disputes over trades occur resolution may be nothing more than production of the paper trail- rather than something more arduous requiring testimony or worse-lawyers. All of this sounds too good to be true, so it probably is. HOWEVER, I think that sometimes fear of bullying or too much corruption or fear alone prevents progress.

Take this Nigerian student on the Northwest flight to Detroit. People do things. Countries do things and organisations do things. If we begin to forget the differences between all of these things we might as well forget surviving global warming let alone the next 10 years.

People do things. Progress dies when we stop seeing with our hearts and our inner sense. Politics is number one right now in the US…not reason and progress.

Africa has many progressive initiatives. This education is run by the IFC but I don’t care about that. I no longer care where people come from. I only care about people as humans. What difference does it make anyway? Enough crazy politicians want to seem effective and make us sit for the last hour of a transatlantic flight. Well ok.

I choose life. I see people and they do things good and bad and I see that too and I am not confused.

I encourage everyone to develop this skill.