Monday, June 28, 2010

Africa has 'too many bourses, too little liquidity'

By Ellis Mnyandu - June 28, 2010

Africa should consider rationalising the number of securities exchanges that are on the continent in order to boost the appeal of Africa's markets as a viable investment destination.

This view was expressed by Maria Ramos, the group chief executive of Absa - South Africa's largest retail bank.

"I think we probably need to rationalise the number of stock exchanges on the continent," she said during a panel discussion at the Fortune Global Forum in Cape Town. "We are currently sitting with 23. Looking at these markets there is not enough liquidity to sustain all of them."

Ramos said there had been an ongoing dialogue for quite some time about what needed to happen to integrate financial markets on the continent. But so far there had been no discernible steps to turn the dialogue into tangible real action.

The call for integration comes at a time when developing markets are under the spotlight as the global financial crisis pushes investors to look for investment returns elsewhere to offset sluggish returns in the slow-growing developed world.

Developed economies like the US and Europe have bore the brunt of the global financial crisis, putting developing economies such as South Africa, Brazil, China and India on investors' radar screens.

But a key hurdle for investors looking to put money into Africa is the continent's disparate securities exchanges, some of which barely see meaningful trading in each of the days that they are operating due to a lack of liquidity.

Although an integrated operational framework might bring such benefits as transparency for investors, a key challenge might come from regulation.

There would also be an issue of regional harmonisation - bringing east Africa, southern Africa, west Africa and north African bourses under a single framework. Currently some exchanges have tended to band together by each region.

Trade and Industry Minister Rob Davies echoed the call for integration, noting that Africa had rather small domestic markets in individual countries. There was a long-standing observation that there was a larger potential with markets that had groups of countries behind them, he said on the sidelines of the forum.

"The debate is about how we get there," Davies said.

In South Africa the JSE Limited operates Africa's largest bourse, the Johannesburg Stock Exchange, which is among the top 20 securities exchanges in the world and its size dwarfs that of other African bourses such as those of Malawi, Libya and Mauritius.

The 11th annual Fortune Global Forum, which ends today, brought together heads of state, ministers, and the chief executives of the world's biggest companies to discuss business, economic and social opportunities arising from the increasing role of emerging markets in the global economy.