African Investor Relations

Many of the more established listed companies in the First World have mandatory director induction programmes. Ones designed to ensure that directors understand their fiduciary duties in the context of corporate governance. It beggars belief that a public article of the nature below can state ……

” When first appointed members had been of the view that the dismissed Board members were familiar with their fiduciary duties in terms of the law and in terms of the articles of the company (NOTE: no mention of the Zimbabwe Code on Corporate Governance), regrettably it has turned out that they were not fully conversant with the above resulting in uninformed decisions for the detriment of all shareholders”

Where is the Institute of Directors when you need it? Where’s oversight from the shareholders about the capabilities of their board. In the 21st century there is actually no excuse for this sort of failure. It seems that the authors of this notice, “the members”, have shot themselves in the foot. Members are responsible for appointing directors (or ratifying the appointment) so they should put in place measures to ensure that educated and honest members are appointed to the Board. Its always someone else’s fault isn’t it. It’s just like dealing with teenage kids.

“Comply” or “explain” Mervyn King recommends in his approach to applying corporate governance vs the alternative of legislating compliance. Corporate governance is not about “checklists” he says. Its about the integrity of directors. Well, what should one do when there is little shareholder oversight (or activism) of their Board? When legislation is not prescriptive enough? Well this is where African corporate governance is not understood. Generally the absence of critical mass in investor numbers, in regulation, in shareholder education, in all stakeholders being informed about shareholder rights etc. is a recipe for ensuring that something different needs to be done.

The difference needed is to “create lists”. Lists of clear corporate governance deliverables making it mandatory for listed company executives and the Board to sign them off in public in front of shareholders. Every year at the AGM. Hold all directors accountable for the performance of all directors, not come up with excuses like “they did not know what their fiduciary duties were”.

The wishy washy corporate governance codes language is NOT appropriate for governance in African markets. It’s not that Africans are more dishonest than others. Its just that the environment we find ourselves in is more conducive to no-one paying attention to corporate governance – the levels of oversight on all levels are not as high so abuse can slip in. And it does.

The solution is so simple. Create a list, tell the directors to swear on their mothers death that they carried out an appraisal of the things in the list and disclose the results. Ticking off things on a list will create the basis upon which directors can become more aware of what integrity means because they will be reminded of it. What is this “list” you may ask?  Well, one form is the Institute of Directors South Africa’s Governance Assessment Instrument – this is what their website says….

As part of our efforts the Centre for Corporate Governance has established the Governance Assessment Instrument (GAI), a web-based tool with modules catering for all business sectors, including listed companies, SMEs, state-owned entities, medical funds, pension funds, NPOs, etc.

The GAI facilitates the implementation of good governance structures and practices. It also serves as a rating mechanism of governance.

To login or to view the GAI click here

You probably find that there are not more than 12 statements that need to be read out to directors at an AGM that cover everything that shareholders need to know about how their board is responsible for their own behaviour. Jointly. If the Board fails in part, the whole Board should go. Mix “lists” with the “comply or explain” mantra and we will be one step ahead of where we are now.

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I came across this article from the SEC in the USA and fail to find any parallels in Africa. Can you assist? This sort of study would be right up ASEA’s street and mandate, especially given the burgeoning access to social media and investment information that Africa’s retail investors have the opportunity to enjoy.

How come its so important for one of the most advanced securities markets in the world to carry out this sort of research, but its not on the agenda for African markets? Drop me a line if you know why.

SEC Seeks Public Comment for Financial Literacy Study Mandated by Dodd-Frank Act

The Securities and Exchange Commission today published on its website a request for public comment on financial literacy and investor disclosure issues that it is studying as part of a review mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Section 917 of the Dodd-Frank Act directs the SEC to conduct a study of retail investors’ financial literacy and submit its findings to Congress by July 21, 2012.  The SEC is using qualitative and quantitative research, including investor testing, to help inform the study. To supplement its research, the SEC also is seeking public comment on financial literacy and investor disclosure issues.

Consistent with the Dodd-Frank Act’s specifications for the study, the SEC is seeking comment on methods to improve the timing, content, and format of disclosures to investors regarding financial intermediaries, investment products, and investment services.  It also requests comment on information that retail investors need to make informed financial decisions on hiring a financial intermediary or purchasing an investment product or service typically sold to retail investors, including mutual funds.  In addition, the SEC seeks comment on how to make investment expenses and conflicts of interest in investment transactions more transparent to investors.

“Many of the issues that the Dodd-Frank Act identified for Commission study directly affect individual investors.  As a result, we are especially interested in receiving comments from individual retail investors,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.

The public comment period will remain open for 60 days, following publication of the request in the Federal Register. (Press Rel. 2012-12)

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I have done a quick review of African stock exchanges’ use of social media to connect with the broader investment public. I considered whether the stock exchange website had a feedback centre, email alerts, categorised email alerts, RSS, a watchlist function, client login, categorised RSS feeds, Facebook, Twitter and YouTube. 10 categories in all.

My review was cursory as I wanted to get a general feel for whether certain aspects of social media were being adopted by Africa’s stock exchanges. The spider diagram above summarises the % incidence of basic interactivity & social media indicators on stock exchange websites. The long and the short of this quick review is that social media is not seriously on any agenda of African stock exchanges. This, when Africa’s new Facebook statistics show a total of 37.7m users as at 31 December 2011. This, when the African Stock Exchanges Association is theoretically lacking strategic direction and when it’s raison d’etre is being eroded by regional stock exchange associations. There is ample scope for these organisations to seriously consider the extent of the opportunity offered by social media and other online platforms, especially in coal-face investor education initiatives.

Here are the various country scores representing how many of the 10 main indicators above appeared on African stock exchange websites – 100% is all of them appeared, 10% is only one appeared:-

Interestingly the Stock Exchange of Mauritius does not score highly but the exchange does have a very comprehensive website – just little interactivity. Zimbabwe’s website is currently being re-developed and it will be interesting to see where this emerging exchange fits into the overall ratings above.

Traditional capital markets regulators will argue that it is not the role of regulators to engage directly with investors. This may have been applicable in the past and certainly the prospect of African stock exchanges doing so now is scary given the absence of resources in this area. The fact is the conversation about these sorts of things needs to start happening now and a framework set out for the future.

There is no better platform than one to one communication to educate investors and an educated investor is a protected investor – and a protected investor is what African stock exchanges should be developing by the thousands, every day. But its not happening. OK the sky is not going to fall because of it, but there may be long term downsides to not engaging retail investors in African markets even if its just to provide them with corporate actions, annual reports and price sheets everyday.

My message is that these media are sitting ducks for someone to do something progressive for a change rather than lag behind the rest of the world.

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The egos of founding shareholders grow with the profits of their private company. This results in the very significant decision to list the company on the stock exchange at some stage – typically as part of a mid-life crisis.

This listing process “enhances brand”, gives “a higher profile”, provides a “better rating” with the banks. The key thing for the founding shareholders is that they don’t have to give away control. They raise money from retail shareholders who participate to make a “quick buck”, irrespective of the IPO price. The expectation of a “quick buck” breeds the expectation of a “quick buck” and so stagging inevitably occurs to the ultimate detriment of the retail shareholder. Count how many IPO share prices in African markets are actually higher now, after the event.

After the IPO the egotistical founding shareholder then slips back into his old ways.  Illiquidity in the share slowly results in its share price being undervalued compared to the company’s asset value and peers. Dealing with retail shareholders and their rights, is a hassle at the best of times but more so when there are few shareholders accounting for a relatively small percentage of the issued share capital. This in turn results in low trading values, both as a percentage of issued shares and in nominal terms. Its easy to lose interest, for all of us.

Generally speaking there are no efforts by egotistical shareholders to engage their company’s shareholder base as potential customers of the business post IPO. Except, of course, when the annual report is delivered – or “if” the annual report is delivered to the minority shareholder. Some markets such as Kenya have dropped the requirement to deliver annual reports to shareholders.

Over time, as the share price declines as a result of illiquidity, and in order “grow shareholder” value, the company then embarks on a share buy back scheme whereby the company buys-out the same shareholders it sold shares to. Take this to the logical conclusion a listed company then systematically reverses the IPO process to the point where the company has to, or it “makes sense” to de-list.

The moral of the story is that directives of listed companies and potential listed companies and indeed regulators, do not provide enough strategic thought about why their companies should list and what the benefits are. “Building brand”, “better reputation” and all those cliches stand for nought unless the listing is used actively post IPO and this is where African listed company directors have their head in the sand (this is the polite version).

African capital market players need to look at what small listed companies or indeed companies that have small free floats are actually achieving by listing. A review of most African stock exchange listed companies’ websites show that the answer is “not a lot”.

Its so exciting looking at African markets’ potential until you actually see how many companies are actually “investable” – very few. This illiquidity paradox is serious.

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We like to celebrate excellence, even though its not our own. Why? Because we understand the value of a decent website and we appreciate good work.

African website vendors are probably unable to replicate the quality of the Q4 products (perhaps they (we) can!) but for most African listed companies the 80: 20 rule applies. 80% of the benefits of going online are enjoyed from 20% of the effort. Examples? Timely info. Comprehensive info, push technology, alerts – get the basics sorted and then sit back and watch the benefits. Q4 is at the forefront of world class communications solutions and their best practice is there for us to learn from and to aspire to.

So the message to listed companies and regulators of African capital markets is: LOOK and see and digest what is happening elsewhere in the World! Lets take those best practices, apply them in our markets and actually put into place tools for enabling efficient and informed investor relationships and decisions instead of harping on with rhetorical cliches about Africa being the “last frontier” and full of potential. We’ve heard this for the past 25 years and to be honest its boring.

Lets hear about the African awards for best online websites! Not awards that are self serving but awards that are independently determined. Perhaps the African Stock Exchanges Association can pick this up……..

I suspect not.

This article below was released by Q4, a leading provider of online investor relations solutions including newsrooms, corporate and investor websites and strategic consulting. I have no financial interest in Q4, but what they highlight in their Q4blog triggers an awareness to investors and listed companies across the globe of the power of the Internet.

We’re pleased to announce that our long-term client, Agnico-Eagle Mines, has been awarded first prize in the electronic disclosure category of the 2011 Canadian Institute of Chartered Accountants (CICA) Corporate Reporting Awards (CRA) for their investor website: agnico-eagle.com.

This is the second year in a row, that Agnico-Eagle has been recognized at the CRA for their best practice IR website, securing an Honorable Mention in the electronic disclosure category in 2010 – with first place awarded to Potash Corp., a winner in the electronic disclosure category multiple times.

Companies eligible for the electronic disclosure award were judged on specific content relevant to investors, navigation and usability, innovation, overall effectiveness and IR website best practices. This year, companies were also evaluated on how well they integrated social media into their sites.

Agnico’s long-standing commitment to continually improve the investor experience on their IR website is focused on achieving a global standard in best practices. An additional goal is to limit the effort required to update site content.

The strategy for the site evolved from a comprehensive IR website best practice audit of the Agnico site conducted by Q4 and provided to both the client and their design firm, The Works. This document detailed key recommendations, which were adapted in the redesign. A strong collaboration between Q4, The Works and Agnico-Eagle throughout the design and development of the site helped ensure that all key communications objectives were met.

What follows are some of the features that make Agnico’s site exemplar of best practices:

The Design

The talented team at The Works created a clean, progressive design that provides numerous ways for investors to easily navigate the site to not only find the information they are looking for, but to also ensure that they encounter the information Agnico wants them to see. For example, right from the home page the rotating images in the masthead highlight key content and events, and the drop-down main navigation prominently singles out one specific piece of content in addition to providing links to all sub-section information. The navigation also makes it easy for users to see where they are, where they want to go and how to make their way back. The site also brings key content forward by prominently displaying frequently sought information such as news releases and presentations, as well as providing lots of quick links:

Integrated Social Media Galleries

Agnico was interested in making their information more interactive and easily accessible – not just on their site, but in alternate channels as well. The multimedia galleries offer an extensive collection of Vimeo videos and Flickr photos, which Q4’s platform automatically pulls in from the social channels and integrates into their site. Some of these assets are also displayed elsewhere on the site in context with specific information:

Follow Us Page

The ‘Follow Us’ page on the site provides a number of ways to stay connected to the company such as email alerts, RSS feeds, Facebook, Twitter and Vimeo. In today’s multi-channel world, public companies must ’be where their investors are’ to stay connected. Prominently featuring ‘Follow Us’ as a universal link in the site header makes it easy for investors to find this information:

Quarterly Report Summary Page

Agnico’s quarterly summary page provides an aggregate view of all quarterly related materials in a single page. It includes the press release, conference call, webcast, report and financials. Agnico also provides a brief video of their CEO, Sean Boyd who provides commentary on the quarter. (Much of the information in this video is scripted in advance of the earnings call and Agnico’s video production company Silverpoint is able to shoot and produce the video to ensure that this information is on the site on the day of their earnings call.) The right rail in this section is entirely driven by tags. So each time the company reports their quarterly results, the tag on this page (for example Q22011) is updated to the next quarter i.e. Q32011. To address Agnico’s goal of minimizing manual updates, Agnico touches the content once and the information automatically aggregates on the quarterly page (and other pages, such as the Investor Briefcase, Presentations etc.).

Interactive Financial Data

The interactive financial data also called the ‘operational database’ on the Agnico site, is an innovative investor service that gives analysts a full set of interactive quarterly financials and fundamentals. Provided by our partner, Virtua Research the financial database permits customized charts, excel downloads and the ability to share content from the model through email and social networks:

This award underscores the commitment and effort Agnico puts into continually making their IR website an integral part of communicating their story to investors. Congratulations from the team at Q4 to everyone involved!

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I follow Q4 closely because they are world leaders in what they do. I have no financial interest in Q4. Unfortunately. But what they say rings so true with my mission in life. There are good reasons for this.

With regulators, directors and investors in Africa lagging their first world peers, but with listed companies seeking capital and investment in the “last frontier”, the prospect of enabling African listed companies to empower themselves (rather than relying on brokers and regulators) in reaching out to investors is very compelling. For me at least – because the absence of progressive capital markets regulators (in the adoption of the internet as a communications and investment promotion tool) means that listed companies should be given the reins to determine their own future. The reasons are : there’s an absence of information, its good corporate governance, it builds brand and corporate reputation and the upside is great.

Anyway I take the liberty of replicating Q4′s blog below because I want to send their message to listed companies in Africa. Bizarrely, what Q4 is saying in first world markets has even more relevance in African markets. For me at least.

A few notes about IR in African markets:-

- newswires are not used (with a few exceptions)

- conference calls are not used (with a few exceptions)

- podcasts are not used (with a few exceptions)

Here goes the message from Q4

“Late last week the SEC issued guidance on how companies can use corporate web sites and blogs for the release of material information under regulation Fair Disclosure. This timely announcement has the potential to dramatically impact the corporate disclosure industry.

Rather than outlining the content of the guidance I thought I would provide some initial thoughts on what I see as being the key messages of the interpretive release. If you are not familar with the guidance please see the following links for more information.

SEC Docs

• The full SEC interpretive release (47 page PDF)
• SEC Press Release

Some Initial Blog Posts

• SEC OKs websites and blogs for Reg. FD
• SEC To Recognize Corporate Blogs as Public Disclosure, What This Means for Wires and Press Releases
• SEC To Recognize Corporate Blogs as Public Disclosure. Can We Now Kill the Press Release?
• The emerging self-distribution news model

Here are a few initial take aways from the announcement:

The playing field of disclosure has been leveled. Newswires no longer have the built in demand for their services that they did before. (NYSE still mandates the use of wires but the assumption is that they will follow suit). This does not mean that the Newswire’s are going out of business, but it certainly means they are going to have to compete with more than just each other moving forward. Newswires will need to look closely at their business model and determine how they are going to compete in a world where the distribution of information is free (welcome to the Internet).

The press release is not dead. There is nothing in any of the SEC announcement that speaks to companies not using a press release. The press release is a document type, not a distribution method. It can be posted to a corporate web site, company blog or sent out over a newswire. IROs and public companies have well defined controls and procedures around the creation of press releases and other disclosure documents. This recent announcement does not impact the importance of using a press release to disclose information to the market, just how the press release gets from the company to the investor.

In order for information to be “Public” (and applicable to RegFD) the corporate web site needs to meet 3 criteria.

1. a company web site is a recognized channel of distribution
2. posting of information on a company web site disseminates the information in a manner making it available to the securities marketplace in general, and
3. there has been a reasonable waiting period for investors and the market to react to the posted information.

As you can see, these are quite general and not prescriptive, this means that companies will need to be committed to meeting these guidelines and likely it also means that new vendors will step up to help. This criteria warrants a post on its own, so I won’t go into detail on each aspect here.

The guidance is principle based and future proof. If the SEC had come out and said “you must use RSS and email alerts” it would be creating the same problem it is now getting out of. By using a principle based approach it allows the market to determine what is acceptable and ensures that certain technologies and/or companies are not able to create protected industries (like the newswires did). Having said that, a principle based approach also creates a grey zone that lawyers do not like, which means that the mass market of issuers will likely not change anything, until the market adopts a new standard. This will require forward-thinking issuers and vendors to innovate and create this new standard.

The corporate web site is the podium for all disclosure. We’ve been saying this for some time (as have many others) but it is now official. The corporate web site is the hub of corporate disclosure. With this new guidance and the combined innovated efforts of issuers and vendors, we will continue to see the corporate site dominate the world of disclosure for the foreseeable future.

I would certainly advise all those in the corporate disclosure space to read the full 47 page report. It’s long but there are some great comments in there.”

NOTE: This blog entry is sourced from the company blog for Q4 Web Systems a leading provider of on-demand software for corporate and investor websites. The text above is a direct extract from Q4 Web Systems Blog, an excellent resource for IR best practices.

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Rwanda’s ambitions to become a “cyber-island” in the middle of East Africa are well known. I downloaded the Bank of Kigali’s prospectus and quickly searched for the following words:-

“Internet” “Website” “Investor relations”

“Internet” comes up in reference to their internet banking services. “Website” and “investor relations” do not appear at all. I visited the corporate website and was pleased to discover an “investor relations” section which consists of some downloads. No email alerts.

There’s something special about an IPO. And that’s the ability to identify all the investors interested in the company at IPO (investor interest is at its highest) and to strike a secure two way relationship with them. Forever, thereafter. Each new investor that comes onto the shareholder register thereafter is known – through the company secretaries or share registrars.

So on the one hand you have listed companies paying thousands of dollars in generic advertising (billboards etc) to try to identify prospective customers and on the other hand, you have thousands of pre-qualified customers (they have invested in your company – they must be educated, have savings and are middle class) being ignored. The funny thing is you have their contacts details, in full. The only effort that is put into engaging these shareholders as prospective customers is through a few pictures in the annual report every year.

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The US’s regulatory regime for listed companies is very transparent and easy to understand and I regularly point to it in highlighting the extent to which our African capital market regulators have under achieved. Edgar has not been to Africa. Edgar would like Africa as he would be kept busy by investors assessing investment opportunities and risk in Africa.

Many of my articles attributed to the SEC refer to the Form 8 – K whose content for every listed company is available on Edgar. I have provided a brief overview of that the Form 8 K is used for below thanks to the SEC’s recent news digest, which by the way, are published from 1956 onwards. Who said that historical information was irrelevant?

Form 8-K is used by companies to file current reports on the following events:

• 1.01 – Entry into a Material Definitive Agreement.
• 1.02 – Termination of a Material Definitive Agreement.
• 1.03 – Bankruptcy or Receivership.
• 2.01 – Completion of Acquisition or Disposition of Assets.
• 2.02 – Results of Operations and Financial Condition.
• 2.03 – Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
• 2.04 – Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
• 2.05 – Cost Associated with Exit or Disposal Activities.
• 2.06 – Material Impairments.
• 3.01 – Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
• 3.02 – Unregistered Sales of Equity Securities.
• 3.03 – Material Modifications to Rights of Security Holders.
• 4.01 – Changes in Registrant’s Certifying Accountant.
• 4.02 – Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
• 5.01 – Changes in Control of Registrant.
• 5.02 – Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officer.
• 5.03 – Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
• 5.04 – Temporary Suspension of Trading Under Registrant’s Employee Benefit Plans.
• 5.05 – Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics.
• 5.06 – Change in Shell Company Status.
• 6.01 – ABS Informational and Computational Material.
• 6.02 – Change of Servicer or Trustee.
• 6.03 – Change in Credit Enhancement or Other External Support.
• 6.04 – Failure to Make a Required Distribution.
• 6.05 – Securities Act Updating Disclosure.
• 7.01 – Regulation FD Disclosure.
• 8.01 – Other Events.
• 9.01 – Financial Statements and Exhibits.

8-K reports may be viewed in person in the Commission’s Public Reference Branch at 100 F Street, N.E., Washington, D.C. To obtain paper copies, please refer to information on the Commission’s Website at http://www.sec.gov/answers/publicdocs.htm. In most cases, you can view and download this information by using the search function located at http://www.sec.gov/edgar/searchedgar/companysearch.html.

The thing that stands out about this is the ready accessibility of any or all regulatory filings to the investment public through the regulator in the USA – a key investor protection tool. An informed investor is an educated investor as the Americans say.

Not in Africa.

Just try looking for Egyptian annual reports online. Isn’t it amazing that the Egyptians could record and celebrate their existence for thousands and thousands of years accurately and for free, but in the modern day environment you can’t locate up to date Egyptian annual reports online for free.

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They are setting a trend. AICO Africa;, the Zimbabwe Stock Exchange listed seed, cotton and FMCG group podcast its analyst presentation for the half year results to 30 September 2011. The is the second time AICO has podcast its full investor presentation and the company is setting the lead in Zimbabwe in consistently applying investor outreach initiatives.

The company is under-capitalised and has significant operational challenges, but their investment story is positive in the short-term, and exciting in the long-term given the profile of agriculture and food globally. Seed Co, also listed, is the Group largest asset and is also applying progressive investor outreach initiatives through their website and communication practices.

Some key stats from AICO’s presentation:-

1. Revenues up by 117% to US$m
2. PAT growth in Cotton up by 183% – recorded profit of US$4.6 m
3. Growth in Group sales volumes up by 19%

So does the investment story of a company determine whether the management adopts progressive online communications practices? Clearly not. Management, or the Board does. This quote from Standard Boardroom Practice, prepared by the Institute of Directors, London, revised 1971 is still appropriate (or perhaps more appropriate) in modern times:

“Although the process of encouraging shareholders to take an interest in the affairs of the company may be a rather slow one, directors should not be discouraged. It is their duty to make the maximum use of the methods open to them of keeping the shareholders informed.”

The “methods open to them”: a website, Twitter, Facebook, RSS feeds, Linkedin, SMS, emails, podcasts, conference calls, webcasts…….none of these applied in 1971, but they do now and they provide companies the opportunity to build brand and corporate reputation by forming and retaining relationships with stakeholders individually. At low cost. How? Technology.

With the slackening off of global markets and the withdrawal of foreign demand for securities in emerging African markets companies feel that they need to go “the extra mile” to seek and retain investors’ attention. There are two aspects of this “extra mile” that are disturbing. The first is that the “extra mile” should be the “norm” in these markets, as they are elsewhere and secondly, the number of companies not adopting the basic tenets of online disclosure (timely and comprehensive info) is high. My favourite quote above has been lost in time. Lost to the regulators and lost to directors because they are stuck in their past ways. But times have changed.

My experience with our clients is that the core decision makers know that “it is the right thing to do” but do not necessarily understand how or why – which is fair game. I make the mistake trying to promote these practices by  jumping up and down and waving my hands because I’m so excited. But life is not like that. Learning happens slowly. Confidence building takes time, as does seeing the benefits of how online communications benefits companies in areas other than investor relations.

The fact is that in the absence of prescriptive regulation, proactive adoption of good corporate governance it is only the commercial imperative that remains as a key motivator to promote progressive online investors. This message is not lost on AICO and Seed Co and they are building now for the future. Others are following too.

Ironically, when the world is embracing technology because of the opportunity to link directly with people at zero or almost zero cost, Africa is going in the opposite direction. Regulator’s dropping of the requirement to send annual reports (and proxy voting material) to shareholders (Kenya is one example of where this has been entrenched in law) is evidence of this. As is the absence of technology being adopted by Africa’s regulators.

Dominic Jones , a world leader in online investor relations, has this opinion about the trends in African markets regarding de-linking the direct communications channel with shareholders:

“Scrapping requirements for companies to mail printed disclosure documents to investors is a global trend, but it has exacerbated shareholder apathy in every jurisdiction where it has been implemented. This is largely because regulators have failed to replace printed disclosures with suitable standards of online disclosures. Apathy and an uniformed investing public is, to my mind, the single worst thing that can happen in any market. It ultimately will lead to market abuses.”

Brokers are realising the opportunity to link with investors too and the recent launch of the Lynton-Edwards website ( a Zimbabwe Stock Exchange registered stockbroking firm) shows how investment data can be used to reach out, identify investors and create a secure two way communications channel with them.

Sounds so airy-fairy doesn’t it? Consultant’s or marketing speak. But its not.

• Listen to the AICO business overview podcast here
• Listen to the AICO financial overview podcast here
• Listen to the AICO “Q & A section” podcast here
• View the latest AICO investor presentation here
• Sign up to AICO investor alerts here
• Sign up to Seed Co investor alerts here
• Visit the Seed Co investor relations website here

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On its Facebook account the Nairobi Stock Exchange suggests that high coffee prices could be good for shares listed on the exchange in the coffee industry. In a comment underneath, an investor bemoans the fact that even though the coffee prices are high the shares of Sasini closed lower. This exposes the complexities of capital markets to investors and underlines the need for shareholder education initiatives in Kenya and more importantly the need for the regulator to refrain from offering investment advice.

I do not believe that regulators have any place in making such statements to the market and if accidental comments are made (which I hope this is) then the opportunity should be taken to fully brief the investor on why share prices might fall following the announcement of seemingly good news. This can be a slippery slope because the more you explain the more you need to explain and a regulator has no place doing this when an actual industry or listed company is mentioned.

My key message is that if social media is used in African markets then it should be done in a fully informed manner. Fully informed of the rights and obligations and legal requirements applicable to regulators.

This was not a serious transgression but it does underlie the need for more awareness on the NSE’s side. Consider such utterances in an IPO situation and consider the heavy speculation and extraordinary (unsustainable) price rises in previous Kenyan IPOs and the matter could become a lot more serious (when the share price comes crashing down after all the stagging).

I read a few more posts and there is an utterance about the euro crisis from the NSE. Whilst the NSE has given a disclaimer on the content of its Facebook account, and the use of Facebook is a positive move to bring investing in the mainstream, there should be supporting education initiatives for the regulators and investors to ensure that Facebook’s use is fully understood. Any comment like that relating to the share price of Sasini should be seized upon to explain in detail why share prices can go down on the release of good news. The absence of any explanation just leaves the website user frustrated and disillusioned.

In another post the NSE says this

‎”Be fearful when others are greedy and greedy when others are fearful………..’ Invest in stocks when are others are running away from the market and sell when others are running back to the market.”

It should have been attributed to Warren Buffet but was not, as was pointed out by a NSE Facebook user. Its great to see the market correct the regulator or at least raise issues with the regulator whenever a wayward post is published by the NSE – social media is such a leveller and that’s why it needs to be taken seriously by regulators.

I have previously blogged about Kenya’s absence of internationally acceptable shareholder communications practices, law and stock exchange practices. See my previous blogs here.

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The Nairobi Stock Exchange sells a broad array of data and generates close to US$100,000 a year from this activity which accounts for approximately 2.5% of total revenues. There are 7 authorised data vendors whose deposits held at the NSE total about US$8,500. These data vendors re-package the NSE data into products and services that theoretically “add-value” to the users thereof. Data vendors in most cases re-charge for this data or package it in a way that they are able to generate revenues therefrom eg portal sites, that generate advertising revenues by virtue of their website traffic.

For the larger media firms such as Thompson Reuters and Bloomberg the value add to investors is significant as the data is bundled into global databases and other products.

There is a bigger question here for the NSE and that’s whether the foregone benefits of wider information dissemination exceed US$100,000 of revenue every year? “A bird in the hand is worth two in the bush”? At the moment it would seem that its easier to justify the 100-grand-in-the-hand. Is the NSE rent seeking from data that it should not be?

The products below show what you can buy – you can buy this information from the NSE using your cell phone! Which IS progressive, but is it really necessary? As a shareholder or an active investor, is it acceptable for me to pay for basic investment data? How many people does NSE have to sell to, to add to the “bottom line” and is the “bottom line” becoming more and more important for the NSE now that it is de-mutualising? Are the long term interests of Kenya’s capital markets being prejudiced by virtue of the fact that the  NSE is a monopoly on investment data and is selling it?

An alternative view is that this investment data should only be consumed by those that understand it and can afford it and through registered investment professionals i.e brokers. Yes, there are the ignoramus investors out there being misguided all the time as a result of their ignorance, but that’s the nature of the industry (look at World markets and they are supposed to be filled with educated people). From a regulators perspective, one could argue that  no-one really understands the markets so who cares? My retort to this response is consider the power of 4 million ignoramuses (those with access to internet in Kenya and with shares but no knowledge) being misguided by their ignorance and able to express this ignorance on a global platform 24/7. Phew!! An example? IPOs whose share prices rocket to stratospheric levels and then collapse: no shortage of evidence of this in Kenya.

Is this sort of ignoramus behaviour acceptable to the regulators whose core obligation is to protect investors?  ”An informed investor is a protected investor” I believe.

Whether African regulators like it or not, the growth of social media is changing the landscape for everyone. Social media is full of ignoramuses. In the absence of wide and engaging education efforts by the regulators (now) there is significant scope for the ignoramus market to completely dominate (over-positively or over-negatively) the general public’s perception. In that situation the regulator can’t do anything its too late. So they have to be pre-emptive. One could argue that the listed companies should bear some responsibility for educating investors and enabling them to make informed investment decisions – but that’s a different conversation.

My view is this:-

- the NSE should review the products below and make free the ones that are not well subscribed. Charge the top data vendors for the value add data / systems / feeds. Don’t charge for anything else (the basic products) but make it freely available to anyone who wants to sign up.

- engage the market as widely as possible with an online shareholder education course (linked to social media) – charge US$20 for it (enable payment by M-Pesa) and if you get 3,000 people signing up then that’s US$60,000 of the US$100,000 that you might have forgone above. Investors become more “informed” and “protected”. These education initiatives deal specifically with irrational exuberance in IPO situations and ignoramuses are learning things rather than buying data.

There’s a degree of intuition needed here in deciding the way forward for the NSE and I don’t have the stats to be able to say much more. The fact is that they have been selling data now for some time and know what the market does and doesn’t want. They need to reflect on this and amend their strategy to achieve both objectives.

Why is this relevant?

Well with the World melting at the moment, with Africa being seen as the last investment frontier, and with foreign investment at risk, there should not be any barriers to getting hold of timely information. The bigger picture is that the way the web is developing, all of this information is going to be available for free anyway in the future to almost everyone, by phone,iPad, PC, whatever and its only the likes of Thompson Reuters and Bloombergs that can justify the need to pay to re-package packaged real time data on account of their professional investor bases.

All of this debate is all so terribly over-intellectual isn’t it?

BUT, ask yourself whether 10 years ago you would have predicted that so much information and functionality could be available on the web FOR FREE. So really at the end of the day the future for African capital markets is whether the regulators that run them have a vision, a long term vision that embraces how the web is changing the world. A vision that does not involve US$100,000 now, vs benefits that are intangible and in the future and for the greater good. Like investor education. Mmmmm….

Daily FIX Log File (flf)Contains all the day’s trading activity (both equity and debt) in electronic form.	Kshs.50000(monthly subscription)+/- US$6,480 p.a.
End of Day Listed Equity Securities Data (eded)Listed equity data, which is published no sooner than sixty (60) minutes after the close of trade on each trading day.Available in excel format	Kshs.7200(monthly subscription)+/- US$936 p.a.
Historical daily Price lists for bond data (hdpl-bond-market)Historical daily market reports for equity and debt data. Available in excel format.Data Available From 24th Feb 2011 to 13th Oct 2011	Kshs.30(per day’s price list)+/-US$71 p.a.
End of Day Listed Debt Securities Data (eddd)Listed debt data, which is published no sooner than sixty (60) minutes after the close of trade on each trading day. Available in excel format	Kshs.7200(monthly subscription)+/- US$940 p.a.
Historical daily Price lists for equity data (hdpl-equity-market)Historical daily market reports for equity and debt data. Available in excel format.Data Available From 4th Jan 2010 to 13th Oct 2011	Kshs.30(per day’s price list)+/- US$71 p.a.
Historical weekly Price lists for equity data – weekly market statistics (hwpl-equity-market)Historical weekly market reports for equity and debt data. Available in excel formatData Available From 4th Jan 2010 to 16th Sep 2011	Kshs.100(per weekly report)+/- US$56 p.a.
Historical weekly Price lists for debt data – weekly bond statistics (hwpl-bond-market)Historical weekly market reports for equity and debt data. Available in excel formatData Available From 4th Jan 2010 to 2nd Sep 2011	Kshs.100(Per weekly report)+/- US$56 p.a.
Historical monthly trading equity volumes (hmev)Historical trading volumes per month in excel formatData Available From 2010 to 2010	Kshs.1000(cost per annum)+/- US$11 p.a.
Historical monthly trading equity deals (hmed)Historical equity traded deals per month in excel formatCurrently No Files	Kshs.1000(cost per annum)+/- US$11 p.a.
Historical monthly trading equity turnovers (hmet)Historical equity traded turnover per month in excel formatCurrently No Files	Kshs.1000(cost per annum)+/- US$11 p.a.
Historical monthly debt traded deals (hmdd)Historical debt traded deals per month in excel formatCurrently No Files	Kshs.1000(cost per annum)+/- US$11 p.a.
Historical monthly debt traded volume/turnovers (hmdv)Historical debt traded volume/turnover per month in excel formatCurrently No Files	Kshs.1000(cost per annum)+/- US$11 p.a.
Historical monthly foreign investors trading data (hfid)Historical monthly trading summary of foreign investors. Information consists: purchases, sales, total turnover, percentage to total equity market turnoverAvailable in excel format.Data Available From 2009 to 2010	Kshs.3000(cost per annum)+/- US$33 p.a.
Historical Annual equity turnovers (historical-annual-equity-turnovers)Historical equity traded turnover per year in excel formatData Available From 1992 to 2011	Kshs.1000(cost per annum)+/- US$11 p.a.

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Imara has had a securities office in Angola for a number of years. The Group is bullish about the prospects for the country whose yet-to-emerge-stock-exchange could be the third or fourth largest in Africa based on the size and value of the companies that could come to market. There is nothing more I would like than to be a regulator in the Angolan Stock Exchange to be able to shape and influence the future of online investor relations in that country. A clean sheet. No bad habits, no legacy issues, just the opportunity to catapult Angolan companies onto the global investment stage with comprehensive, timely information that actually promotes investment, not promises to promote investment. I rub my hands in anticipation……

I replicate the Imara press release below. Their London event sounds ground-breaking and exciting.

Angola’s investment case gets big response – Imara

Angola is fast emerging as the next big sub-Saharan opportunity, judging by the response to the oil-rich nation’s upcoming investment indaba in London. The event on November 8 is believed to be the first forum to be convened in a major financial centre to foster closer contacts between the international institutional investment community and Angolan corporates and public bodies.

It has attracted a Who’s Who of attendees from the fund management and financial service sectors, says Anthony Lopes Pinto, head of Angolan operations at Imara, the pan-African financial services group.

Imara and London-based asset management Group Fleming Family & Partners are co-hosts of the event. Two years ago, the long-time associates launched a similar London investment day to showcase opportunities in Zimbabwe. The initiative helped free up investment flows and contributed to an international reappraisal of Zimbabwe’s post-dollarisation prospects.

“Response to our Angola conference has been overwhelmingly positive,” says Lopes Pinto. “We therefore believe we are well placed to repeat the success of the watershed Zimbabwe event.

“Angola has one of the fastest growing economies in sub-Saharan Africa. Some northern hemisphere economies may be struggling to cope with the continuing international financial crisis, but Angola is back in the black, foreign currency reserves are at an all-time high and government efforts are gaining traction to diversify the economy and reduce Angola’s dependence on oil.”

Delegates are expected from North and South America, Europe and the UK. Representatives of financial service companies significantly outnumber those from the energy and resource sectors. Senior Angolan officials will present a strategic overview of national prospects, with a focus on opportunities for public-private sector partnerships. In addition, speakers from major corporates currently active in the Angolan market will address the conference on operational conditions and progress toward a business-friendly policy environment.

The Angolan government has publicly stated that next year it will develop its capital markets in Luanda, deepening the financial sector and creating new sources of funding for Angolan enterprises.

“The diverse mix of attendees confirms that international investors have picked up official signals that opportunities are not restricted to the oil industry. With the recovery of the oil price, wide-ranging investment possibilities are fast emerging; which is why the response has been so positive from so many quarters.”

Imara has been represented in Luanda for more than two years by Imara Securities Angola SCVM Limitada, a joint-venture with an Angolan conglomerate. The Angolan JV launched corporate finance activities at the beginning of the year. Two deals are currently in the pipeline, a property project and a financial services transaction.

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