Africa no longer ‘flavour of the month’ - JSE chair

Johannesburg - Although there are 29 stock exchanges located across 27 African countries, many still do not offer enough liquidity to attract meaningful levels of investment, according to Nonkululeko Nyembezi-Heita, chair of the JSE.

"The African growth story is no longer a fairy tale. Over the past decade multinational companies, private equity funds and infrastructure development programmes have channelled capital to the continent as they began to realise the true potential it holds, but like most emerging market regions, Africa is no longer the ‘flavour of the month’," she said.

"Those of us who run Africa’s Capital Markets have to admit that only a small portion of global investment flows to this region come through our platforms. This is a difficult obstacle to overcome, as a lack of liquidity can only be addressed through higher levels of investment on our exchanges."

In her view, many African exchanges still need to realise the importance of providing accurate and timely market information. This lack of information makes investors much more hesitant about investing on the continent and perpetuates the view that Africa is still the dark continent.

"For capital markets to truly make a meaningful difference to economic growth and development we must be truly inclusive in our approach. Our markets cannot be accessible to only large companies. While big companies make important contributions to an economy, they do not represent it in its entirety," said Nyembezi-Heita.

"Share price trends of these groups often do not truly reflect the economic reality that most Africans experience and in which they are trying to build their businesses. The JSE’s answer to this challenge has been to move down the continuum of funding to also provide capital-raising platforms for small and medium-sized businesses which form the true engine driving many developing economies."

AltX platform

In 2003, the JSE created the AltX platform to enable companies to grow within the framework of a market place, while also providing investors with exposure to these businesses in a regulated environment. At present, there are 61 companies listed on the AltX, with a total market capitalisation of R39.19bn as at 21 November 2016.

Since the inception of the AltX 13 years ago, more than 29 companies have migrated to the JSE’s Main Board, demonstrating that the AltX is a catalyst for growth, in her view.

The JSE is also working on a project to assist even smaller companies than those on our AltX board to raise capital. This will provide these companies with the opportunity to expand their roles in the real economy.

"The development of platforms for small to medium-sized businesses to list across African capital markets will also allow private equity investors to consider listing as an effective way to realising the return on their investments," said Nyembezi-Heita.

"This means the development of stock exchanges will not only encourage further investment through the exchanges themselves, but also in the broader real economy. The listing process can also contribute to a company’s development through encouraging greater transparency and stronger corporate governance."

How to bring stock exchanges and smaller businesses together will be one of the key topics discussed this month at the Annual African Securities Exchanges Association (Asea) Conference and General Meeting in Kigali, Rwanda.

"We cannot deny that Africa is currently experiencing uneven levels of economic growth, but there are some markets that are showing consistently good growth which we need to take advantage of," said Nyembezi-Heita.

"The world is facing challenges on multiple fronts, all weighing on emerging economies. Most of these influences fall outside our control. But what is left within Africa’s control is the ability to create an environment in which small and medium-sized businesses can thrive."

In her view, the shift in focus from large corporates to smaller enterprises is but a natural progression in the evolution of capital markets as these are the businesses which are creating jobs, fostering innovation and pushing the African economy forward despite stronger headwinds like lower global growth and depressed commodity prices.