African Investor Relations

I am pleased to announce that African Information Solutions for Companies Online Limited “African Is Cool” is now offering our online managed website services to businesses other than listed companies in Africa.

To request our marketing pamphlet click here.

Our decision to broaden our product outreach has been largely influenced by the feedback we have received by the companies we have dealt, the feedback received from the users of our websites, and our realisation of the significant size of the communities in Africa using the internet. Whilst our online investor relations solution should really be an “add on” to an existing corporate website we have designed and implemented new websites for the majority of our clients and then incorporated our online IR solution – and this has been another indicator of the demand for good interactive websites.

There IS critical mass in Internet use in African markets and we believe significant returns may be gained by companies that identify how to offer their services and products in this arena. The question is how?

A big weakness of the current corporate website is that it is managed by companies themselves. People are busy and they are not well informed. From our anecdotal evidence, we believe that website statistics of some really large organisations that manage their own poorly populated and outdated websites are less than 1/30^th of the traffic that should be going through their websites had their sites been adequately populated and managed. Furthermore, and this is the critical bit, these websites lack the interactivity tools that are able to identify people wanting to do business with their companies. Lastly it’s not possible to grow sustainable relationships with people that companies cannot identify.

The dynamic nature of the web means that companies should outsource the whole aspect of online communications. To be sure, many businesses in Africa do not have the critical mass to employ someone full time in the online communications space. The corporate awareness levels of the issues involved are low. Few executives will realise that it is not “what” to do online but “how” to do it. They also don’t realise that they actually own the greatest strategic asset in an online communications policy: data. A simple example of the demand for online information is our portal of online African annual reports on www.africanfinancials.com – the growth in traffic to this website has been phenomenal as illustrated in the chart below:-

The question is: does your business generate information or data that is of use to a broad range of stakeholders or customers or agents etc. If it does you are sitting on a strategic asset and the internet is the tool you should be using. Who should you deal with?

AIC is well placed to deliver value added solutions in the general corporate space as we have been in the high-end interactive online communications space for some time. Yes, we have specialised in investor relations but we spend a lot of our time communicating with stakeholders rather than investors and this has reiterated the opportunity that the online presence provides. For the past year and a half we have managed the school websites of St John’s Educational Trust: St John’s College and St John’s Preparatory School. Our experience outside of the online IR space has been positive.

It’s not a generalisation to say that there is a high level of discontent with what existing corporate websites are delivering to their owners. It’s easy to do a review oneself to see that all is not well with the typical corporate website. Sites look outdated aesthetically, errors are quick to point themselves out and there is no assurance that any information on the website is actually complete and up to date. No alerts icons appear. Send an email and its not responded to.

In growing our African Is Cool business we have been privileged to have highly competent business partners and have had the time and capital to invest in keeping up to date. As relative newcomers to the Internet we have not been influenced by past structures, habits or technologies and have been able to adopt the latest technologies as they arrive. Our background in database programming has also been of huge benefit.

So who should consider using AIC as their strategic online communications partner? Here are a number of criteria:-

1. Your business should be one that generates on-going data or information that is of interest to a broad range of users, stakeholders, agents or customers online. Examples would include banks, stock exchanges, agricultural associations, any association, insurance businesses, multi-nationals, commodity traders, agricultural organisations with outgrowers or agents etc.
2. Your business should be one that has the ability to respond to online traffic / feedback efficiently and be a business whose senior management buy into the concept of online communications.
3. Your business should be one that seeks to develop a secure, on-going relationship with stakeholders.
4. Your business should be brand, service or data oriented.
5. Your business should be one that realises that if “you pay peanuts you get monkeys”. Either you are going to take an online strategy seriously or not. Cheap services will be just that.
6. Your business should be one that deals with a vendor that has a strong corporate reputation from existing clients.
7. Your business should agree that it will not be involved in the update of data on an ongoing basis. AIC has a team doing this all day everyday and we know what we are doing.

(African is Cool) has been managing the online investor relations initiatives of 17 listed companies in 5 African markets. Our online investor relations portfolio continues to grow and we are currently rolling out 5 new online investor relations clients in Zimbabwe and Botswana. There is significant scope for listed companies to take their investor communications initiatives online and this potential is matched by the commercial potential in normal commercial activities. Its from this background that we now enter managed corporate websites.

To request our marketing pamphlet click here.

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I have written about the inefficient information dissemination practices of African stock exchanges in the past.

The issue of stock exchanges not doing enough for its listed companies should be an agenda item for any listed company in most smaller African markets. The core of the problem as it relates to information dissemination relates to African stock exchange rules permitting hardcopy publication of corporate news / actions as the only dissemination medium.

In this modern day and age, hardcopy only dissemination is just not acceptable given the pervasiveness of the Internet as a communications tool. The absence of awareness at regulatory levels (and governance levels)  of the key issues surrounding information dissemination practices is also inexplicable.

There is some good news however. News that we expect to grow in significance.

I am pleased to announce the launch of www.africansens.com, a portal to promote the 100% online dissemination of corporate actions and news for listed companies in Africa. Initially our focus is on providing 100% coverage of listed companies’ corporate announcements in Zimbabwe and this will be extended to Zambia, Botswana, Kenya and Malawi.

Access to the portal is free and is RSS enabled. Users of the site can receive corporate action alerts in their email as soon as they are published online on www.africansens.com. We are currently unable to publish all the content we receive online because we are doing this for free. Users will notice however that African Is Cool clients’ corporate action material will appear online in Africansens in full or at least a link thereto will be available.

We expect www.africansens.com to grow into our largest portal and hope to offer sponsorship / advertising to organisations that want to present their brand to the investment communities interested in African listed equities. Sponsorship funds raised will be re-invested into providing information for free through www.africansens.com.

From an online investor relations perspective, this www.africansens.com initiative complements the many others that we have to get our clients’ message out to the broader investment community. We have two twitter accounts: www.Africanfinancials.com and www.africaniscool.com to complement this and our portal www.africanfinancials.com has over 22,000 annual reports viewed online every month.

We look forward to your feedback.

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In Kenya new legislation deems that once something is published on the website of a listed company it is deemed to have been delivered to the shareholder. Beem-me-up-scotty-Star-trek-type-thing. To listed companies this avoids the hassle of dealing with the ignorant masses of retail shareholders. The SEC in Kenya and the Nairobi Stock Exchange have endorsed this.

To every listed company though, there are those shareholders that are important. The ones that will have something to say when they ask why their shareholder proxy materials were not delivered to their door. For example, the institutional shareholders that actively monitor the creation of shareholder value. Companies that adopt the deemed-Dr Spock communications method only will alienate professional investors. So these investors will need looking after. You will have a trend developing in Kenya where the mailing list will come back from the dead and start to grow and this will create an uneven playing field, or the perception of an un-even playing field in the communication platform. The more priveleged “more important” shareholders will receive their shareholder proxy material by courier or by hand delivery or by post. The ignorant peasant shareholder will not. The rich and influential will get richer and influential and the ignorant and poor will stay like that. This will be supported by the law.

Some institutions and funds are required to vote their shares and in the USA the existence of nominees or share held in “street name” has been seen to have disenfranchised shareholder suffrage. The Dodd Frank act in the USA and other initiatives are actively trying to put the vote back into the hands of the retail shareholder. In Kenya regulators are taking it away.

In the absence of progressive initiatives to provide shareholder choice the new mailing list will grow only after a shareholder has been aggrieved i.e. they don’t receive their proxy material and then they complain and then they do receive it. You will have a situation where shareholders will attend meetings under very different circumstances but in the eyes of the law they will have been treated the same. For the listed company, the man in the middle, issues of corporate reputation will arise and the African conspiracy theory attitudes may start shareholder activism. In shareholder votes, where contentious issues need shareholders’ votes, it will be very easy for someone to stand up and accuse a listed company of purposely or negligently not distributing shareholder information. The law will be irrelevant. Perception will be relevant. Once negative shareholder emotion kicks in then a different side to corporate sustainability, or lack thereof, will be seen.

For between US$10,000 and US$30,000 a year a listed company can take and make all reasonable efforts to ensure that shareholder proxy material availability is communicated to shareholders or delivered to shareholders. This is effectively an insurance policy against the sort of shareholder actions that may arise from not communicating at all or “beeming” shareholder material via Dr Spock’s Star Trek Enterprise. Its about corporate reputation. Oh and its good corporate governance. Actually delivering shareholder proxy materials to the owners of a company is good corporate governance.

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“King 2 emphasizes that the most powerful enforcement body in the corporate system is the shareholder body. Via pension funds, provident funds, insurance products and other group investments, the public makes up the largest owner of many publicly listed companies.”

(King Report)

If the public is ignorant of their rights and the role they play in maintaining checks and balances in economic competitiveness who checks the checkers? Whose responsibility is it?

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There is a culture of mistrust in Nigeria that has been entrenched over many years and the current disaster over the Nigerian Stock Exchange is a logical conclusion to the absence of transparency and integrity in the market. Here are some interesting statistics on the number of shareholders in Nigeria – or estimates of statistics of the number of shareholders in Nigeria. Its ball park stuff.

The figures exclude duplicates and are compared with the number of mobile phone users and the number of Internet users. These statistics could be wrong by 20% but my message would not change. What is my message?

My message is that the Internet as a communications tool has to be the core information and data dissemination platform for market data in Nigeria. The Nigerian Stock exchange should stop rent seeking market data make it readily available for free to the market. The Nigerian Stock Exchange should immediately come up with an enforce minimum standards of online disclosure AFTER consulting with listed companies. To me the simplest non-disclosure of information sends a strong message.

What evidence do I have that my message might, just might, have some substance?

There are probably around 10 million shareholders in Nigeria. There are 33 million + internet users and + 68 million mobile users

It does not take a rocket scientist to realise that it is highly likely that a significant proportion of shareholders are able to use modern means of communication to receive news, data and market data on listed companies. You may argue that there are already millions of internet users accessing investment data online. If they are they are not getting information from listed companies’ websites – and they should be. Listed companies should realise there is a huge community out there that if treated right could just be a really valuable resource to which to communicate to and from which they can receive feedback. The objective to grow the bottom line and improve corporate reputation. Its this last point that is especially pertinent in Nigeria at the moment because Nigerian investor relations is in a terrible shape.

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Safaricom is a big, big company but it has a mediocre investor relations website. I have provided a few constructive suggestions on how to improve the website and shareholder communications below:-

SMS. Have an SMS registration module online and undertake to SMS the availability of material information being posted on your website as soon as it is released. This, critically, would be used to tell shareholders that their shareholder voting material is available online. Mobile penetration rates are high enough to ensure that the immediate, broad and nonexclusionary news of Safaricom’s corporate actions are made.

Focus on delivery of shareholder proxy material. Shareholders in any organisation should not have to actively seek out their shareholder proxy material. More importantly Safaricom should make use of all available media to keep its shareholders informed.

Optimise the Safaricom IR section for mobile. Mobile penetration is significant in Kenya and the ability to take the alert above to the website is significant.

Publish the annual reports in Scribd. It’s free! Plus investors don’t have to download the annual reports in order to read them. Plus the content is searcheable.

Publish investor presentations in slideshare. It’s free!! Plus the content is viewable immediately instead of having to download the file.

Use “push technology” to send out corporate news and information. Dealing with hundreds of thousands of shareholders is an opportunity to showcase the Safaricom brand

Use online charting. Use the sample here as a guideline and put major corporate actions on the chart. The software to do this is free.

RSS enable the website. RSS means real simple syndication. Its real simple and its effective.

Don’t put a direct link to viewing the presentation online in PDF. The full year 2010 presentation is 29 megabytes. Accessing this is obstructive as it downloads the presentation first before you view it. Enable investor choice to view the document online in scribd or similar software or to download it.

Optimise PDF downloads. A presentation that takes up 29 megabytes can be reduced to less than 2 megabytes by using the Adobe Acrobat optimise function.

Make PDFs word searcheable. Dont save PDFs in images when they contain narrative text. Ensure that they are word searcheable for the convenience of investors.

Use push technology to offer investors a menu of alerts. Automated solutions can be found so management’s valuable time need not be disturbed.

View Safaricoms annual report here in iPaper

Go to the iPaper website here

View African Telcos annual reports here

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I had a brief look on the Afribank website to see if they had any public statements on their commitment to good corporate governance. They did not. Another article from the www.BusinessDayonline.com, a media firm in Nigeria sets out the details. Good stuff.

The Securities and Exchange Commission (SEC) yesterday accused Afribank and its senior executives of manipulating the bank’s December 2007 public offer in an elaborate scheme that was deliberately designed to buy back its shares deceive the market.

In doing this, SEC said Afribank contravened the Investment and Securities Act 2007. It also alleged that Afribank also perpetrated a fraud in connection with the purchases and sales of Afribank shares. A statement issued by the SEC last night said : “Afribank made a Public Offer (“Public Offer”) that closed in December 2007. After the Public Offer, Union Bank advanced credit facilities to three stock broking firms, Fidelity Finance Limited, Spring Capital Limited and Falcon Securities Limited, and three subsidiaries of Union Bank Union Trustees, Union Assurance, and USL Nominees.

“These entities bought Afribank shares in the names of 1,258 subscribers, which accounted for 66.4% of the public offer. Subsequently, all six (6) entities repaid their loans to Union Bank, using funds made available to them through four (4) Afribank related entities and subsidiaries. Then on the instruction of the Afribank MD, the Afribank shares held by the 1,258 subscribers were consolidated to reflect beneficial ownership of nine (9) companies owned by the Bank and its directors in a total of fourteen (14) accounts.

“These actions are alleged by the SEC to constitute false trading. False trading is prohibited by the ISA in provisions that prohibit activities that may create a false or misleading appearance of active trading by engaging in the purchase or sale of a security that does not involve a change in the beneficial ownership of the security. Also allegedly violated is the general fraud provisions that prohibit the employment of a device, scheme or artifice to defraud that would operate as a fraud or deceit on any person in connection with the purchase or sale of a security”.

The below listed seventy-one entities have been sued in court for their varying roles and responsibilities in the above alleged schemes.

•Falcon Securities Limited

•Peter Ololo

•O.j.a. Idudu

•T.g. Ogisi

•S.a. Otegbola

•Matthew Udueho

•J.t. Ogbeha

•F. Nesiama

•Eric Nwobi

•Lucky Oghene-omoru

•Fidelity Finance Company Limited

•Osa Osunde

•Philip Emioma

•Queen Esther Erediauwa

•Jimmy Evbuomwan

•Afribank Nigeria Plc

•Afribank Capital Markets Limited

•Afribank Registrars Limited

•Ail Securities Limited

•Afribank Trustees & Investments Limited

•Asset Management Nominees Limited

•Union Bank Plc

•Sebastian Adigwe

•Osa Osunde

•Ashim Adebowale Oyekan

•Bala Zakariya’u

•Chukwuemeka Okwosa

•Anthony Adaba

•Jibrin Isah

•Chinedu Onyia

•AIsa Mohammed Zailani

•Henry O. Arogundade

•Roberts Orya

•Ben Nwoji

•J.d. Lawuyi

•Usman Zarma

•B.m. Wali

•Ndubuisi Osakwe

•Adewale Adeniji

•Chester Ukandu

•John Maha

•Bidi Umeh

•Jooji Tor

•Adetayo Ogunbajo

•Ola Ifezulike

•Henry Agunbiade

•Dayo Afolabi

•Umar Suleiman

•Oladapo Malomo

•Nathaniel Ottio

•Abubakr Rajab

•Shehu Usman

•Abubakr

•Ahonsi

•Lawrence Idowu

•Pac Capital Markets Limited (formely known Asspring Capital Markets Limited)

•Chris Oshiafi

•Anthony Adeniyi

•Mike Chukwu

•Tolu Fadahunsi

•O. Unebu •Tony Ezenna

•Cosmas Maduka•Union Capital Markets Limited

•Niyi Opeodu

•Ibrahim Gobir

•Tunde Yamah

•Salihu Ehimeakhe

•Ebenezer Emeruem

•Mohammed Adburaham

•Olatunji Olutola

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The absence of reporting by the NSE mirrors that of listed companies:- not reporting to the SEC the 2010 figures. As a member of the general public we can’t access the NSE’s 2008 figures let alone 2010. I am assuming that the figures in between have been submitted to the SEC and the SEC has not made them available to us. The article below states that the NSE has earned approximately US$280m over the past four years – I personally cant believe that this is correct given the extent of the amount. If this is true I also cant believe that none of this money has been used to put effective information dissemination practices in place. I would not be surprised if the extent of the earnings of the NSE were as a result of charging everyone in Nigeria for access to the NSE website – say 600,000 people @ US$120 per annum = US$72m – makes sense!! I am in the process of paying my US$120 so that I can get hold of information that I should have access to for free anyway.

In a way the absence of reporting can / should always be construed negatively. Those with nothing to hide can spend a few dollars and communicate with their shareholders and stakeholders and those that are hiding can hide behind poor communication and hide what they are up to. They say that communication and information is the “life blood of markets”. How true.  Now to more Nigerian scandal:-

The article below appears in Business Day, a Nigerian media firm.

FRIDAY, 30 JULY 2010 01:19

An opportunity appears to have been opened for the Arunma Otteh-led Securities and Exchange Commission (SEC) to push its agenda of full regulatory oversight following a fresh allegation of financial impropriety against the management of the Nigerian Stock Exchange (NSE) which grossed a hefty N42.2 billion income in four years. The SEC is in possession of a strongly worded petition sent by Aliko Dangote, a very senior council member of the Nigerian Stock Exchange, that could force it to open investigations into the finances of the Exchange, and test Otteh’s resolve to ensure that SEC performs its market regulatory role effectively.

On Tuesday, an academic and member of Central Bank of Nigeria’s Monetary Policy Committee, Doyin Salami, expressed concern over regulatory slacks in the market, challenging SEC to begin to bite to bring corporate governance sanity to the market, especially its managers.

A SEC source said the petition appears to express deeper concerns over cthe financial management and health of the Exchange, particularly what he described as “corporate governance and transparency challenges” in the financials. Independent investigations yesterday revealed that the Exchange’s auditors had raised a 20-point query over the 2009 accounts and have, therefore, refused to sign and pass them, as satisfactory answers to the query are yet to be provided by NSE management.

In the petition seen by BusinessDay, the NSE management is accused of not presenting to the council or members the audited accounts, seven months into the current financial year. It is also accused of “not presenting to the Finance and General Purpose Committee, interim financial statements for the first and second quarters of 2010.”

The petition is anchored on three planks namely: the expenditure pattern of the NSE; the Excahange’s inter-company and associated companies’ investments; and a huge pension hole in its pension scheme.

“In the last four years (2006 – 2009), the Nigerian Stock Exchange grossed a total income of N42.2 billion with a surplus of only N5.6 billion, representing 13 percent growth over the four year period. “Careful review of the expenditure shows major cost elements are salaries, pension, travel and marketing. At the end of 2007, NSE had a cash position of over N9 billion and as of today, the Exchange is in deficit and is unable to meet its obligations as and when due,” Dangote said in the petition. With regards to inter-company and associated companies’ investments, the petition stated that “current inter-company balances with inter-company/associated companies amount to N3billion, which have been built over a period of years. Similarly, investment in such companies is now in excess of N1.3 billion without any commensurate return being accounted for.”

Dangote also said the pension scheme of the NSE was in trouble as a result of poor management, requesting that the scheme should be “urgently audited to gain a thorough understanding of the extent of the liability of the Exchange. “For instance, I am aware that in the 2008 Accounts, there was an actuarial valuation done which presented a deficit funding of N2.6 billion. A decision was made at that time to amortise this amount over a five year period,” he said in the petition.

He also claimed that out of the funding of the NSE pension, more than N423 million was with a named insurance company, but that the existence of the funds was yet to be ascertained. The petition suggests that the NSE is in financial crisis as it is running behind in meeting its obligations to clients and suppliers, expressing serious worry that the “NSE is currently experiencing financial difficulties mostly arising from undisciplined spending and financial imprudence exhibited by the management of the NSE,” said Dangote.

The petition, dated July 21, 2010, was signed by Dangote, the Forbes Magazine-listed billionaire cum entrepreneur and longstanding member of the Exchange, whose election as president of the Council had been affected by a March 12 court ruling.That ruling is currently being appealed, with another case for the discharge of the ruling also pending, Dangote’s lawyer, Ricky Tarfa, said last week.

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The Nigerian SEC website announces

“It is with great pleasure that I forward to you, the Annual Report and Accounts of the Securities and Exchange Commission for the year 2008″

and then provides a link to a document which provides a myriad of market statistics in the form of an annual report. The report refers to the annual accounts on page 57 which do not appear on page 57 or anywhere else. The statement immediately below the announcement of the availability of the SEC’s annual report and accounts states:-

“This is to remind the under listed Public Quoted companies and others who may not have been listed but have their financial year end as December 31st and whose securities are traded on the floor of the Nigerian Stock Exchange that they are due to publish their quarterly financial reports and file same with the Commission on or before 30th April 2010″

The Nigerian SEC’s Vision Statement is to be “Africa’s leading capital market’s regulator”.

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Consider this wording from the Companies Bill 2008 relating to shareholder communication:-

“Where the document or information is sent or supplied “by means of a website”, it is deemed to have been received by the intended recipient—

(a)       when the material was first made available on the website , or

(b)        if later, when the recipient received (or is deemed to have received) notice of the fact that the material was available on the website.”

This all encompassing legality provides a legal exit for listed companies not interested in providing basic shareholder rights. What common law rights do shareholders have that may overrule this sort of requirement? Will companies honestly adopt this as an easy exit?

In the US the Shareholder Communications Coalition is an advocacy organization dedicated to improving the ability of individual investors to vote their shares and communicate with the publicly traded companies in which they invest. The Coalition also seeks to educate individual investors about their rights as shareholders and the importance of participating in corporate elections. Efforts are underway to restore the direct communications links between shareholders (yes each one individually) and listed companies. The same is happening in Nigeria where corporate governance failures in public capital markets have crippled a nation.

Kenyan regulators are not taking a long term view. Not concentrating on the corporate governance issues.

Is anyone aware of any other Nation that has similar shareholder communications legislation?

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I like following the SEC in the USA for a number of reasons: they are active and progressive on a number of fronts, not least of which is that its easy to follow what they are doing. Shareholder education and active regulatory intervention are the parts that interest because niether are prevalent in the majority of African markets. And they should be. Anyway herewith the latest article lifted from their website notified to me by “push technology”.

“The Securities and Exchange Commission today announced the award of $1 million to Glen Kaiser and Karen Kaiser of Southbury, Connecticut, who provided information and documents leading to the imposition and collection of civil penalties in SEC v. Pequot Capital Management, Inc., et al. This is the largest award paid by the SEC for information provided in connection with an insider trading case.

The SEC staff previously investigated alleged insider trading in Microsoft Corp. securities by hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee who accepted an employment offer at Pequot, but closed its investigation without action. In late 2008, Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action against Defendants Pequot and Samberg alleging they engaged in insider trading. Among other documents and information the Kaisers provided the SEC was a key email communication between Zilkha and another Microsoft employee that was not turned over to the SEC in the first investigation. Without admitting or denying the allegations in the SEC’s complaint, Pequot and Samberg consented to the entry of injunctions and orders requiring the payment of civil penalties totaling $10 million (as well as the payment of disgorgement and prejudgment interest totaling over $17 million and an investment advisory bar as to Samberg and censure as to Pequot).

The SEC approved the award earlier this week pursuant to Section 21A(e) of the Securities Exchange Act of 1934, which authorized the Commission, in its discretion, to grant an award of up to 10% of the penalties paid in a case to a person who provided information leading to the imposition of those penalties, but only in insider trading cases. That provision has since been repealed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added new Section 21F to the Securities Exchange Act, authorizing the Commission to award bounties to parties who provide information leading to recovery of monetary sanctions in a broader range of cases, not limited as before to civil penalties recovered in insider trading cases.

On the same day the Commission filed the settled complaint against Pequot and Samberg in the above matter, it also issued an order instituting administrative and cease-and-desist proceedings against Zilkha in connection with the conduct described above. That matter is pending before an SEC administrative law judge.

For further information, please see Litigation Release Number 21540 (May 28, 2010). [SEC v. Pequot Capital Management, Inc., et al., Civil Action No. 3:10-CV-00831-CVD (United States District Court for the District of Connecticut] (LR-21601)”

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Our latest monthly reconciliation shows 1,652 listed companies in Africa:-

There is an article below that misses a number of points about African stock markets. It is so generic as to be meaningless. I have submitted my comments below the text of the article (forgive the acerbic tone):-

Africa has ‘too many bourses, too little liquidity’ , June 28, 2010, By Ellis Mnyandu

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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.

THE ISSUE IS NOT THE NUMBER OF STOCK EXCHANGES BUT THE QUALITY OF THE EXCHANGES. YOU TRY TAKING AWAY A NATIONAL ASSET – THAT’S HOW THE MARKET WILL VIEW IT. THIS IS WHY THE AFRICAN STOCK EXCHANGES ASSOCIATION HAS NOT ACHIEVED ANYTHING AT ALL. THESE STOCK EXCHANGES ARE NOT CO-OPERATING FOR GOOD REASON. THEY HAVE NO NEED TO.

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.”

WHETHER OR NOT THEY ARE LISTED IN GABON OR JOHANNESBURG THE LIQUIDITY / FREE FLOAT WILL REMAIN  THE SAME. YOU MAY SAY BUT ACCESS TO BIGGER BETTER MARKETS WILL ASSIST – THIS CAN BE ACHIEVED TO THE SAME EXTENT IN DOMESTIC MARKETS ALL IT NEEDS IS VISION AND MANAGEMENT. THE EXCHANGES WILL NOT BE SELF FUNDING – SO WHAT? NEITHER WILL THEY BE WHEN FOREIGN MARKETS EXTRACT THEIR RENTS.

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.

DID SHE SAY WHY? THE BEST THING THAT THE JSE COULD DO IS OFFER A FREE INFO DISSEMINATION PLATFORM TO LISTED COMPANIES IN AFRICA – THIS WOULD BUILD A COMMUNITY AND ENABLE EXPERIENCES IN THIS AREAS TO BE GLEANED OVER A NUMBER OF YEARS. THEN THE ISSUE SHOULD BE REVISITED.

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. MANY LISTED COMPANIES SHOULD NOT BE  LISTED – THE FAULT OF THE REGULATORS HERE. EITHER YOU HAVE A PROPER MARKET OR NONE AT ALL.

Although an integrated operational framework might bring such benefits as transparency for investors (IMPLICITLY AGREEING THAT THE INFORMATION DISSEMINATION PRACTICES OF THE EXISTING EXCHANGES ARE POOR), 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.POLITICS – WHY DO PEOPLE CONTINUE TO FLOG THIS HORSE? A FRAMEWORK OF WHAT – REGULATION SETTLEMENT, INFORMATION DISSEMINATION?

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. RHETORIC REGURGITATED FROM THE PREVIOUS 10 YEARS EXPERIENCE. LETS COME UP WITH SOMETHING NEW! DEAR MALAWI – YOU HAVE A “RATHER SMALL” MARKET!!

“The debate is about how we get there,” Davies said. THE DEBATE IS ABOUT HOW WE MAKE MARKETS MORE LIQUID:-

- BETTER REGULATION

- BETTER SHAREHOLDER EDUCATION

- DE-LIST NON-COMPLIANT SHARES

- BETTER INFORMATION DISSEMINATION

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.

INTERESTING INSIGHT HERE

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.

It is the first time that the forum has been held in Africa.

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