African Investor Relations

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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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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(a) PRIMARY OBJECTS AND POWERS

(i) To establish an association for systematic mutual cooperation, exchange of information, materials and persons, mutual assistance and joint programmes between the members;

(ii) To promote the establishment of securities exchanges in all African countries;

(iii) To promote the development of common standards of training and professionalism among members of the Association and other market players;

(iv) To promote common standards of issuing, listing, trading and settlement of securities;

(v) To facilitate the development and promotion of products and services for Africa’s capital markets;

(vi) To assist members in the promotion and development of the range of services associated with the capital markets;

(vii) To develop and promote a data bank and information system for the mutual benefit of members;

(viii) To study, and research on matters of mutual interest to members;

(ix) To disseminate information; produce materials in all media, hold conferences, seminars and exhibitions, and conduct other public education activities relevant to the interests of members;

(x) To ensure that the views and interests of the Association are promoted in the appropriate worldwide fora; and

(xi) To do all other things, not inconsistent with the foregoing as shall promote the objects and powers.

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We have now published the annual reports of each of the African stock exchanges on www.africanfinancials.com. Actually, only 7 of the 19 African markets have their annual report published online (don’t ask about Nigeria). Only 6 of the 19 African stock exchanges have an up to date annual report on their website. Here are the offending stock exchanges:-

Putting these annual reports online is our way of giving a message to the stock exchanges to get their a-into-g in using the Internet and to set the standard for listed companies to follow. Here are the links to the annual reports of the various African countries whose stock exchanges have published up to date annual reports online:-

Botswana

Kenya

Mauritius

Namibia

South Africa

Uganda

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Electrolux have been awarded the best annual report in the World for 2010 by Reportwatch by e.com.

Their top 2010 annual reports were rated according to the following rating parameters:-

They key thing for me is that this process is almost global and free. Most “award” initiatives entail the payment of a fee by the listed company that serves as a revenue generating project for the sponsors / appraisers. Africa needs a different approach, one that puts the objective of transparent reporting and one that rewards excellence above the need to charge companies. E.com has done it why can’t someone do this for Africa?

Reportwatch has its weaknesses in that not all annual reports might be appraised, but 1,000 – 1,500 assessments globally is high and would be sure to capture the best in the World.

The space for African annual reports awards is open for someone to come in and improve reporting. Structured correctly an initiative such as this in Africa would have tremendous indirect benefits to sponsors. But commercially who could justify this? Not a lot of companies. The big accounting firms? Regional securities organisations have a vested interest in this. The African Stock Exchanges Association in association with a donor / grant funding related to governance. The absence of an initiative of this nature in Africa points to the following:-

• absence of regulatory regimes co-operating with each other across Africa
• absence of awareness at director level of the importance of the annual report
• perceived absence of commercial opportunity

Who created the Reportwatch appraisals?

“The two “generators” of the idea were Vero Escarmelle (a marketing and communication consultant) and Mike Guillaume (an economist and financial specialist). Both were heavy users of reports in their consulting practice (“Volvo, Philips, Saint-Gobain, Canadian banks and a few U.S. industrials were among the references regarding content at that time,” remembers Mike) and had an inside experience through the coordination of annual reports for financial institutions. After the spin-off of the reporting unit renamed enterprise.com (or e.com) in 1999, the Annual Report on Annual Reports became a trademark of e.com.”

Annual report appraisals look for and benchmark best practice in order to strive for higher -and highest- standards in financial and performance reporting, investor and stakeholder information, and corporate communication. The longer term advantage is that richer report content, higher report value, better access to company information decreases the cost of capital. Mmmmmm… can this really be motivated in illiquid African markets where no empirical evidence exists?

e.com provides annual report benchmarking services comprising report evaluation tools and reporting assessment services to help companies report better or best, on paper and online. The bottom lines in any report should:

• Mirror company value
• Show investor value
• Enhance report value
• Increase stakeholder value

e.com are quick to point out that the ranking and score are based on an evaluation of the company report and output and cannot be interpreted as such as an assessment or rating of the company that releases the report. However investors are able to infer some opinions and decisions based on report content:-

Robert J. Samuelson once wrote, “Annual reports often tell us more than their authors know or intend.” (Newsweek, April 21, 1997).

“Even though a relationship may be found -or argued- between company, report and shareholder value, mind the deductions! Enron used to produce a decent annual report before its collapse, while a market leader such as Microsoft, among many, has never been capable of publishing an attractive one (even online).Good performance and even less company size don’t necessarily translate into good reports. “

Their services can compare annual reports with peers, best practices and For a complete list of services go to www.reportwatch.net/e-com/making-reports-pay-off

I am sure there is a business model that can be applied for African markets to showcase good annual reports appraised on say basic parameters to start off with. The global audience this would attract would justify the expense.

Africanfinancials.com would be the first place to assess Africa’s online annual reports offerings.

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That time of year again has come around and  The Lusaka Stock Exchange will host the 14^th Annual ASEA AGM & Conference, at Falls Resort Zambezi Sun Livingston from 10 – 12 November 2010.

I am not attending.  My big issue is that nothing practical or tangible comes out of these ASEA conferences.

There is no long-term plan for African markets’ strategy being implemented, on a micro or macro level, from year to year. There is no insightful research on trends in African markets.  The political divisions between markets, the differing access to resources and the fact that many regulators are quasi-Government organisations with limited funding means that the environment for progress on a pan-African does not exist.

One example, is the issue of a pan-African seamless and trading platform. Remember project Thusanang – this is an example. Every year a high powered professional is invited to speak about seamless Pan African trading and pan-African co-operation. This year the presentation is entitled “CREATING A PAN AFRICAN HUB, FOR SEAMLESS TRADING, CLEARING AND SETTLEMENT. There is a presentation by Mr. Anthony Mahinda Thomas Weeresighe – Chief Executive Officer, Millennium IT, Sri Lanka and also Director of Global Development, London Stock Exchange Group, UK. Who thinks of these topics? There are no less than 4 similar topics in the agenda (see below).Have the brokers /stakeholders been consulted and has the homework been done? Any attempt to establish settlement or trading structures outside of domestic institutions will alienate brokers and those service providers in the local markets. The JSE’s Pan African trading board is a good example of this, where there is political stress on account of commissions going to SA brokers rather than the ones in the domestic markets. The issues are complex and any presentation at any ASEA event should concentrate solely on what the vested interests are of players both sides of the border. Service providers should be motivating these initiatives on commercial grounds, not rhetorical initiatives from African regulators.

Another example of the inefficiency that results from high levels initiatives is the cross-listings in east African markets. Speak to anyone that has bought or has tried to buy shares in Tanzania and transfer them to Kenya (or vice versa) – it’s overly basic and cumbersome. The trading and settlement structures are very cumbersome and purely physical. The tried and trusted depository receipt structure used in Zimbabwe is the solution but it appears that this was never on the agenda. Why not? If Zimbabwean stock exchange officials attend these international events with their East African counterparts surely there is transfer of skills and practical ideas. But there isn’t.

We do not see enough of “engine room” mechanics, the capital markets technicians, being given a platform to tell us of their problems and practical plans to improve the practical side of trading, disclosure and information dissemination. If they are there, we don’t see them.

We do not see any hardcore market research on African markets. Here is some.

We do not see innovative ideas coming from ASEA. Here are a few ideas.

We do not see initiatives to improve shareholder suffrage or shareholder education. Here is one.

Each stock exchange in ASEA should ask themselves what is the single most uniting initiative that they can adopt to add value to investors in Africa on a pan-African scale. Then concentrate on this. If this question cannot be answered then I believe that all of the Pan-African political positioning needs to be dropped. It’s not going to happen.

By the way that single topic is the “use of the Internet in information dissemination”: regulatory and otherwise. There are a whole lot of other basics  like market regulatory data, put all listing rules and companies acts weekly commentaries (not that hard to do) etc. online but this is not intellectually stimulating per se.

What about getting someone from Edgar or from SENS in SA to tell the regulators how they disseminate information in a broad immediate and non-exclusionary manner? Tell us the basics – there’s some really interesting stuff about the use of the Internet in capital markets out there.

There is no evidence of stock exchanges engaging the parties for whom they exist, the listed companies, on a proactive level. There is no research into what executives think of the stock exchanges that serve them.

Why I am I so against ASEA? I am not against it I am just frustrated that some of the dynamism shown in First World especially in the technology arena is not shown in African markets (other than South Africa), and even then, they (the South Africans) have their issues (of superiority).

Do I have a vested interest? Absolutely! But I know that if I become extremely wealthy doing what I do, I will have benefitted the rest of Africa with me.

If it quacks like a duck, waddles like a duck and looks like a duck then its a duck. ASEA is a dead duck and needs to evolve into an eagle and soar.

By the way, if you are going, be sure not to miss this:-

“11:20 – 11:45 FINANCIAL LITEREACY GROWS ECONOMIES Presentation by Mrs. Maureen Dlamini, Senior General Manager: Education & Executive Head: Africa, JSE Ltd., South Africa” (sic)

The full programme appears below:-

11^TH NOVEMBER 2010

08. 30 – 08.40 OPENING REMARKS – Ms. Beatrice Nkanza, Chief Executive Officer LuSE

08.40 – 09.05 PRESENTATION - Mr. Sunil Benimadhu ,President of ASEA and ChiefExecutive Officer, the Stock exchange of Mauritius “ASEA: Shaping up the future of African capital markets”

09.05 – 09.25       WELCOME TO ZAMBIA – Presentation by Mr. Timothy Mushibwe, Chairman, Zambia Tourism Board, Zambia and Board member Lusaka Stock Exchange

09.25- 09:45 “CAPITAL MARKETS AND ECONOMIC GROWTH IN AFRICA – THE LINK AND WAY FOWARD” Presentation by Dr. Sam Maimbo –Senior Financial Sector Development Specialist – World Bank, Washington, D.C., USA

09.45 – 09.50 ARRIVAL OF & WELCOME OF THE GUEST OF HONOUR Mr. Friday Ndhlovu, Chairman of the Board, Lusaka Stock Exchange and Managing Director, Investrust Bank plc

09:50 – 10:20 ADDRESS BY THE GUEST OF HONOUR-Honourable Dr. Situmbeko Musokotwane, MP; Minister of Finance & National Planning, Republic of Zambia

10:20 – 10:50 OFFICIAL GROUP PICTURE & TEA BREAK                                                                                              (Sponsor)

10:55 – 11:20 CREATING A PAN AFRICAN HUB, FOR SEAMLESS TRADING, CLEARING AND SETTLEMENT Presentation by Mr. Anthony Mahinda Thomas Weeresighe – Chief Executive Officer, Millennium IT, Sri Lanka and alsoDirector of Global Development, London Stock Exchange Group, UK.

11:20 – 11:45 FINANCIAL LITEREACY (sic) GROWS ECONOMIES Presentation by Mrs. Maureen Dlamini, Senior General  Manager: Education & Executive Head: Africa, JSE Ltd., South Africa

11:45 – 12.10 EXCHANGE LIQUIDITY;: DRIVERS OF BETTER LIQUIDITYPresentation by Mr. Clifford Sachs, Managing Director; Equities Sales & Trading, Renaissance Capital, South Africa

12:10 – 12:35      HARMONIZATION OF THE FINANCIALSECTOR ANDCAPITAL MARKET DEVELOPMENT IN FINANCIAL SYSTEMS Presentation by Dr. Caleb Fundanga, Governor , Central Bank of Zambia

12:35 – 12:40  SOUTH ASIAN FEDERATION OF EXCHANGES [SAFE] Presentation by Mr. Aftab Ahmad Ch, Secretary General, SAFE

12:40 – 14.00 LUNCH BREAK – Sponsored by ZANACO  BANK

AFTERNOON SESSION CHAIRPERSON: Dr Lloyd Chingambo, Managing Director African Carbon  Credits Exchange, Zambian

14:00 – 14:20 THE ROLE OF AFRICAN CARBON CREDIT EXCHANGE IN   THE DEVELOPMENT OF AFRICAN CARBON MARKETS Presentation by: Dr Okey Oramah – Vice President African Export-Import Bank, EGYPT

14:20 – 15:00 INVESTOR PROTECTION AND CORPORATE GOVERNANCE IN AFRICAN CAPITAL MARKETS Facilitated by Mr. Mumba Kapumpa – President – Institute of Directors (IOD) Zambia Discussants: Mr. Patrick Chisanga – Managing   Consultant, Dynamic Concept Ltd, Dr. Joshua A. Okumbe – Chief Executive Officer, Centre for Corporate Governance, Nairobi – KENYA, Ms. Anna Manganyi – Senior Manager: Capital Markets Developments,Financial Services Board (FSB)  South,Africa, Mr. Norman Muller-International Organization of Securities Commissions (IOSCO)*Designation to be advised*

15:00 – 15:30 TEA BREAK

15.30 – 16.10 Session Chairperson: Dr. Jacob Mwanza, Director Lusaka              Stock Exchange and Chairman of the Board, Finance  Bank Zambia Ltd, Zambia

SOVEREIGN RATING, – IS IT STILL RELEVANT? Presentation by – Mr. Konrad Reuss            Managing Director, Standard & Poor’s Sub – Sahara Africa, South Africa Facilitated by: Dr. Denny Kalyalya- Deputy  Governor Operations, Central Bank of Zambia

Discussants: Mr. Mate Munalula – Vice President, Citi Bank, Zambia,Ms. Lindow Kristin – Senior Vice President; Regional Credit Office – Europe & Africa, Sovereign Risk Group, Moody’s, UK, Dr. Sam Mensah – Executive Chairman,       SEM Group Ltd, Ghana

16.10 – 16.50 Panel Discussion:  IT SOLUTIONS AND THE ROLE OF TECHNOLOGY IN AFRICA CAPITAL MARKETS Facilitated by Mr. EKow Efedzie – Deputy Managing   Director, Ghana Stock  Exchange  Discussants: Mr. Anthony Mahinda Thomas Weeresighe – Chief Executive Officer, Millennium IT, Sri Lanka Mr. Mehdi Bilgrami – Head of Exchange Traded Markets, MEA, Thomson Reuters, Dubai Ms Mwangala Akapelwa- Ehueni, Board Chairperson,Zambia, Information Communication Technology Authority, Zambia

16.50 – 17 .00 CLOSING REMARKS /ANNOUNCEMENTS Mr. Nathan D’Assis, Director Lusaka Stock Exchange,Zambia

19:00 – 21.00 BOMA DINNER – SPONSORED BYMILLENNIUM IT

DAY THREE – 12^TH NOVEMBER 2010

08.20 – 08.30 Session Chairperson: Mr. Hiran Mendis, Chief Executive Officer, Botswana Stock Exchange, Botswana

08.30 – 09.10 CROSS BORDER SECURITIES SETTLEMENT IN AFRICA Presentation by – Ms. Garebamotho Anna Komote – Manager Project, STRATE, South Africa Facilitated by: Mr. Vipin Y.S Mahabirsingh, Managing Director CDS Mauritius Discussants:Ms. Rose Mambo – Chief Executive Officer, Central Depository and Settlement Corporation (CDSC) Kenya,Mr. Charles Mate –Managing Director, Stockbrokers Zambia, Mr. Asinobi, Managing Director Central Securities Clearing System Ltd, Nigeria

09:10 – 10:00       REGIONAL INTREGRATION OF AFRICAN EXCHANGES; WHAT ARE THE OPPORTUNITIES AND CHALLENGES Presentation by Mr. Peter Mwangi – Chief Executive Nairobi Stock Exchange

PANEL DISCUSSION Facilitated by: Mr. Sunil Benimadhu, Chief Executive Officer, Stock Exchange of Mauritius  Discussants:Mr. Karim Hajji – Chief Executive Officer,Bourse de Casablanca, Morocco, Mr. Jean- Paul Gillet – Director General Bourse Régionale des Valuers Mobilières (BRVM)Mr. Emmanuel Munyukwi – Chief Executive Officer, Zimbabwe Stock Exchange and Chairman Committee of SADC Stock Exchanges (COSSE)

10.00 –10.30 TEA BREAK (Sponsor) Session Chairperson: Mr. Joseph Kitamirike, Chief Executive Officer, Uganda Securities Exchange

10.30 –10.45 ASSET MANAGEMENT IN AFRICAN EMERGING MARKETS – A FUND MANAGERS PERSPECTIVE Facilitated by Mr.  Muna Hantuba– Chief Executive Officer, African Life Financial Services Ltd Speaker1: Mr. David Damiba – Managing Director, Renaissance Investment Management, UK

10.45 – 11.00      INVESTING IN AFRICAN MARKETS –BROKERS PERSPECTIVE Speaker2 – Mr. Jonathan Auerbach –Managing Director, Auerbach Grayson & Co, New York, USA

11.00 – 11:10 Speaker 3 Mr. Zomunoda Chizura – Managing Director Old Mutual –Investment Group, Zimbabwe

11.10 – 11.25 Q & A: Session Chairperson: Mr Friday Ndhlovu, Chairman, Luse Board and also Managing Director,  Investrust Bank plc, Zambia

11.25 -11.35- PRIVATE EQUITY – TRENDS AND WAY FORWARD: Presentation by – Mr.  J P Fourie- Executive Director, Southern Africa Venture Capital Association, South Africa

11:35 – 12:15   PANEL Facilitated by: Mr. Ashie Mukungu – Country Economist, African Development Bank (Afdb), Zambia Office, Zambia Discussants:Mr. Andrew Chipwende- Managing Director Zambia, Development Agency, Zambia, Mr. Ronald Tamale – Associate Director, Private Equity,Standard Chartered Bank, South Africa, Mr. Basil Nundwe – Managing Director Aureos Capital, Zambia

12:15 -12:25   BOND MARKET DEVELOPMENT STRATEGIES: Presentation by Mr. Graham Smale Director Interest Rate Products JSE Ltd., South Africa

12:25 – 13:00 PANEL DISCUSSION Facilitated by Mr. Peter Banda – Director Financial Markets –Central Bank of Zambia Discussants: Mr. Binos D. Yaroe – General Manager, IT & Market Operations, Nigerian Stock Exchange, Mr. Ahmet Keskinler – Turkish Treasury, Central Bank of Turkey. Mr. Nic Chalmers – Head Global Markets Stanbic Bank, Zambia

Session Chairperson Mr. Ceasar Siwale, Managing Director, Pangaea- Renaissance, Zambia

13.00 –13.40       VALUATION AND RESEARCH ON AFRICANMARKETS Facilitated by Mr. Marius Bosch – Bureau Chief for  Southern Africa, Thomson Reuters, South Africa Discussants: Mr. Randolph Oosthuizen – Head of Research African  Alliance Securities, Mr. Patrick Kingsley – Nyina – Executive Director, Databank  Brokerage Ltd,Ghana Mr. Tue Andersen –Portfolio & Investment Advisor, Equity Capital Resources plc, Zambia

13.40 – 13.50       WRAP UP AND CLOSING REMARKS [SPEAKER TBA]

13:50 – 15:20 LATE LUNCH SPONSORED BY  (AFRICAN ALLIANCE)

15: 20 – 18.00 BOOKED INDIVIDUAL ACIVITIES

19.00 – 22.00 GALA DINNER SPONSORED BY (THOMSON REUTERS)

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8 ideas to improve African capital markets:-

IDEA 1 Obtain a private sector research grant to monitor the reporting of African stock exchanges and compare their standards of performance to those required by them of their listed company clients and or of international stock exchanges or international organisations of stock exchanges. Who should do this? A private sector organisation sponsored by a grant from a development finance agency.

IDEA 2 Make an appraisal of the Institutes of Directors in those markets that have stock exchanges and ask some qualitative and quantitative questions about the impact of those IODs in each market. The IODs that are immaterial by impact should be part of an initiative to align them with the South African IOD. The IODSA should actively engage its African peers by making more efforts to put its products and services online and to increase awareness. The IODSA should not get hung up about being seen to be in African markets and should enable local IODs to brand these initiatives with a domestic identity. Who should do this? The IODSA.

IDEA 3 Use the JSE SENS service as a disclosure platform for all African markets. But brand it according to each market so that the South African face of the product does not put noses out of joint politically. The platform should be made available for a nominal sum by the JSE as a gesture to counter its perceived arrogance of the JSE by other African markets. The study into rent seeking in idea 8 will set the parameters under which this initiative may be implemented. Who should do this? The JSE through the African Stock Exchanges Association.

IDEA 4 Provide a one year notice of the intention to de-list or demote those listed companies with low free floats (ones below prescribed limits) to a second tier board. Within this year consider the undertakings by those listed companies to restructure their shareholdings or de-list. Accentuate quality of listing rather than quantity to the regulators. The African Stock Exchanges Association or regional associations should set the lead in determining the standards. It may be important to agree the fundamental principles through which companies will be appraised.

IDEA 5 Implement a comprehensive market-wide survey of all listed company executives, asking them whether the stock exchanges that serve them are delivering value to the country and their company. Use the Internet to do this. Make submissions secure but anonymous. Issue a guideline on the things that the CEOs should consider given that they may not know what to expect of stock exchanges. The African Stock Exchanges Association or regional associations should set the lead. It’s important that the questions asked are standardised across markets. Who should do this? A private sector organisation financed by grant funding.

IDEA 6 African stock exchanges should engage the IODSA with a view to adopting the GAI (the core governance modules) in African markets for all listed companies. The IODSA should offer a significant discount for this. The stock exchanges should merely be a facilitator and not get involved. Make compliance mandatory and governance disclosures in annual reports aligned to the results of these initiatives. The African Stock Exchanges Association or regional associations to set the lead.

IDEA 7 Come up with minimum standards of online disclosure – just the basics – and ensure that they are enforced by the directors of listed companies. Do not allow the publication of any annual report without a statement by the directors as to whether the minimum standards have been complied with – just yes or no statements of compliance. Who should do this? The African Stock Exchanges Association or regional associations to set the lead.

IDEA 8 – perform a basic review of which stock exchanges are rent seeking equities investment data and NOT conforming to the core objectives of ensuring that investment information is available in a broad, non-exclusive and immediate manner. Who should do this? A private sector organisation sponsored by a grant from a development finance agency.

Unfortunately the African Stock Exchanges Association appears to be a talk shop that appears to have little influence over its members but my points are nevertheless made. There is nothing to stop individual stock exchanges from pursuing these ideas separately.

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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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Stock exchanges in most countries are in a unique position: they are monopolies in the supply of trading data. They add value to that data, package it and distribute it real time and in other forms etc. for a fee. Fair enough. But what about the basic information that an exchange should make publicly available, daily, for free, in an easily accessible format? Try accessing a market capitalization report (shares in issue X share price) on any particular day in any of the African markets. The information does not exist other than through a broker. Even then with brokers there’s no assurance that the information will be given to you.

My question. If there were to be minimum data on a particular day made available freely by stock exchanges would it be the following:-

• Status of listed companies – suspended etc.
• Share price
• Corporate actions
• Indices
• Shares in issue
• Volume traded
• Corporate announcements

I am talking here of the most simplistic availability of core data. I realise that if this data is to be processed and value added there is scope for the exchange to be compensated for this.

Many African stock exchanges need to formalize their information dissemination practices and it would be useful to have a good practice template through which the IR fraternity can judge them.

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The CEO breakfast on investor relations (IR) management, hosted by AIC on 15 September 2009, discussed some of the grey areas that still persist in Kenya’s regulatory environment with regard to online IR management, and whether this indicates a shift in the approach towards investor protection.

In a bullish market, one-on-one meetings between listed companies and their larger investors were well accepted by listed companies and created meaningful interaction. In the current bear market, however, many listed companies have begun to show apathy towards their investors, finds Gregory Waweru, an analyst with Kestrel Capital stockbrokers, warning that in a sluggish market, the communication of strategy becomes even more important. If costs are a concern in the current environment, then online mechanisms offer an affordable alternative. But so far, websites are not picking up the slack either.

Most companies in East Africa have not yet fully explored the potential of online communications. If, a few years ago, the lack of access to the internet had been a powerful restraint, this excuse is rapidly falling away: The first of several fibre optic cable ventures has become operational, and internet access will expand exponentially. The largest growth in access will be through handsets as the purchase of computers will still be out of many people’s reach, but digital means of communications will certainly reach a much broader audience.

Cost savings were a driving factor in how Safaricom, a key player in the mobile and data business, prepared for their first AGM: Safaricom have made extensive use of recent legal changes that allow the use of electronic means of communications, e.g. providing their annual report in a digital version rather than printing and dispatching paper copies for every single one of the more than 800,000 shareholders. The large number of retail investors may be a logistical headache for Safaricom, but digital means make it a lot easier to deal with this group of shareholders that has previously often been neglected for sheer cost reasons.

Transition in the Legal Framework

The US Securities Exchange Commission (SEC) has only allowed electronic means of communications with shareholders in 1995. But today, they are the standard, and hard copies of information have to be explicitly requested. In the UK, it is the opposite: Shareholder consent is required for the delivery of electronic communications.

In Kenya, electronic communications have not yet become mainstream in IR management, and the regulatory environment reflects this transition: Kenya’s Companies Act requires notices to be given to shareholders ‘in writing’. At first glance, this seems straightforward, but it does not actually define what qualifies as ‘writing’, i.e. it lacks clarity whether electronic means of communication are admissible. Amyn Mussa, a partner in law firm Anjarwalla and Khanna, also suggests that lawmakers need to look at the concept of ‘deemed delivery’ again, i.e. the question when it can be reasonably assumed that a shareholder has received the information sent by the listed company. The new draft Companies Bill, in contrast, is clearer: When information is e.g. posted on a company’s website, this is considered ‘deemed delivery’. This is, of course, much easier for the listed company – but may lead to a dilution of shareholder rights.

Perspectives

Rob Stangroom cautions that this new proposed legislation would imply a significant shift in the approach to shareholder protection: So far, the underlying principle is that the burden lies with the listed company to make sure – within reason, of course that the shareholder will receive the company notices. Under the new legislation, this burden would shift to the shareholder who would be expected to make an active effort to obtain information. This, he says, it not necessarily wrong: It may well be that the overall challenging infrastructure of reaching shareholders – unreliable postal services, high transport costs and so on – justify this shift. Safaricom’s approach would certainly suggest that the high costs of attempting to provide all shareholders with a hardcopy of the annual report would not necessarily be rewarded with commensurate success.

But it has its own risks: It is one of the fundamental principles of governance, Stangroom argues: The board need to give a reasonable return to shareholders for a given level of risk. In the Kenyan context, the question then arises whether costs savings resulting from simply expecting investors to find the necessary information will worth the possible risk – dilution of shareholder rights and possible litigation. More substantially, can a board adequately assess future risk in the face of such rapid technological changes in digital investor relations platforms? What would constitute significant savings today would no longer be expensive in a year or two. A board, he argues, should err on the side of caution.

Source: Ratio Magazine

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The following extracts from the 2009 ASEA conference in Abuja from This Day, a newspaper in Nigeria, illustrate that:

• ASEA needs a proper vision;
• ASEA needs resources and leadership;
• African markets will not grow until regulators facilitate that growth through actions;
• Markets exist for the benefit of listed companies and investors not the other way around; and
• Oft-repeated annual clichés do not build markets; and finally
• ASEA has not achieved anything significant.

I have taken the text out of This Day’s article ( a Nigerian newspaper) and added my 2010 New Year’s wish in the form of narrative that I would liked to hear from ASEA 2010 conference (where-ever that may be).

Here goes:-

What was said in 2009: “Regulations must be strong, enforcement efficient and effective while investor education must also be given priority to enhance market competitiveness.”

What I would like to hear in 2010: “Through the studies undertaken by our A, B C members during the year we have identified the following opportunities to improve enforcement and investor education: X, Y and Z. ASEA markets have agreed to implement A, B and C of these before next years conference. The person responsible for this is Mr X of Y stock exchange.

What was said in 2009: “For African securities exchanges to be strengthened and attract desired patronage, they should adopt globally accepted disclosure mechanism such as International Financial Reporting Standards (IFRS) and high corporate governance standards.”

What I would like to hear in 2010: “For African securities exchanges to be strengthened and attract desired patronage, they should be responsive to the needs to investors and listed companies. An online African wide consultation and feedback process will commence on 1 January 1 2010 and ending 30 September 2010 with results and recommendations being submitted to ASEA board prior to the next board meeting. US$X00 has been set aside for an independent third party to manage this process. The person and exchange responsible for the supervision of this process is Mr Smith of Y exchange.

What was said in 2009: “Demutualisation will leads (sic) to enhanced corporate governance practices and should be a priority for African stock exchanges.” 

What I would like to hear in 2010: “Demutualisation is being considered by the following markets, A, B and C. The positive impact of demutualization for investment promotion prospects, investor responsiveness and listed companies are as follows: A, B and C. You may contact Mr X of the Y stock exchange if you have any information requirements.

What was said in 2009: “Risk management procedures will be crucial to developing African markets”

What I would like to hear in 2010: “Through the studies undertaken by our A, B C members during the year we have identified the following opportunities to improve risk management procedures: X, Y and Z. ASEA markets have agreed to implement A, B and C of these before next year’s conference. The person responsible for monitoring this is Mr X of Y stock exchange.

What was said in 2009: “Liquidity is still an issue in Africa, due to small floats and small size of many listed equities.”

What I would like to hear in 2010: “The following statistics on the liquidity of all ASEA member markets show improvement over the previous year. Many thanks to Mr Smith of X market in compiling this information. ASEA encourages its members to adopt the following mechanisms to improve liquidity and float sizes: A, B and C. A file of tips to do this is available for download on our website.

What was said in 2009: “The establishment of a strong investment banking industry and usage of mutual fund (sic) to deepen the market is recommended.”

What I would like to hear in 2010: “This is a summary of the initiatives of each of the ASEA exchanges to promote and deepen their market structures: A, B and C. The delegates agreed that the following areas: A, B, C have the greatest impact and should be adopted in 2010. The person and exchange responsible for this feedback is (). The ASEA strategic plan for 2010 – 1015 is available to download here.

What was said in 2009: “Efforts should be made to list the large companies that are currently outside the markets via legislation especially telecoms and oil and gas.”

What I would like to hear in 2010: “The following efforts were made to make listing more attractive on our stock exchanges: by category. ASEA agreed that the single biggest area to promote listings is in X area.” The ASEA strategic plan for 2010 – 1015 is available to download here.

What was said in 2009: “There must be conscious efforts to attract and sustain foreign investments into Africa since prospects for long-term investments abound on the continent.”

What I would like to hear in 2010: “Since prospects for long-term investments abound on the continent and information is the life blood of markets ASEA has, through a consultative process with market players from X date to Y date and managed by Z independent consultancy, adopted minimum voluntary standards of information dissemination for its listed companies. ASEA concluded that Africa’s long term opportunities cannot be appraised as such without adequate information.”

What was said in 2009: “There was need for African exchanges to integrate their markets for improved liquidity, access to greater capital pools, and efficient operations. 

What I would like to hear in 2010: “The prospects for market integration will not be mentioned ever again until A,B,C,D,E and F markets address the basics of exchange control, equality of investor treatment and information availability. The attached annual report, kindly prepared by H exchange, is a succinct summary of the restrictive exchange rate regimes adopted by ASEA member countries.

What was said in 2009: “The adoption of compact technology should be a way of reducing the cost of acquisition as this will enhance the integration of trading platforms.”

What I would like to hear in 2010: Something that is coherent.

What was said in 2009: “The participants identified implementation capacity as a major constraint to executing large capital projects – and therefore sees Private Public Partnership (PPP) as the future of infrastructure development in Africa.”

What I would like hear in 2010: “ASEA recognises that it cannot achieve its objectives on its own and will first achieve A, B and C in order to ensure that it becomes a credible enough organisation for it to partner with private sector resources.

These are my New Year wishes for ASEA and African stock exchanges.

Happy New Year!!!

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In further evidence of the absence of the African Stock Exchanges Association’s (ASEA) capacity to deliver meaningful vision to African capital markets the NSE sought financial assistance from the private sector to fund the ASEA 13^th annual conference held in Abuja in early December 2009. The request came just three weeks before the event.

The conference, touted as the highlight of the activities of ASEA, has been advertised from the beginning of the year. One would assume that, if ASEA had meaningful relationships with its members and Africa’s more than 1,300 listed companies, some form of sustainable funding could have been raised and applied to greater benefit. The objectives of ASEA have not been pursued effectively and therefore ASEA and the NSE find themselves short of cash.

I guess the National Institute of Investor Relations (NIRI) link in the USA is a parallel organisation that has similar objectives to ASEA but within the investor relations field. The organisation in its early years pondered at great length on how to structure its membership, what to charge and what to do in order that it had as broader support as possible. It worked and the organisation now has over 4,300 members worldwide and is a leading organisation in participating in the interface between regulators and market practitioners and listed companies. ASEA has over 22 African stock exchanges, over 300 brokers and over 1,300 listed companies from which to solicit funds in exchange for investment into activities for the benefit of its members and markets as a whole.

I can think of more than a few products that ASEA could offer listed companies, brokers and exchanges in Africa in exchange for some nominal funding or “membership fee”. Let’s look at some numbers:-

If Africa’s 22 stock exchanges each donated US$20,000 per annum (on average – with the smaller markets paying a lot less) and if 50% of Africa’s + / – 400 brokers paid, on average US$750 a year, and say 50% of Africa’s 1,300 listed companies paid, on average, US$1,000 a year then ASEA could raise US$980,000 per annum for market development and improvement initiatives. These initiatives could have, as their beneficiaries, those organisations that subscribed to ASEA.

Add to the above revenues from advertising to the dedicated stakeholder base that would result from the progressive products ASEA would offer.

ASEA’s activities should be outsourced to the private sector. I will give you an example of why. A topic on the agenda at the Abuja meeting is addressing the illiquidity of Africa’s capital markets.

So all of the regulators and market officials, the ones responsible for perpetuating high levels of illiquidity, are tasked with the responsibility of addressing illiquidity in Africa’s markets. Those responsible for the status quo are asked to debate the way forward. In a single sitting. In Abuja. There is no evidence of active dialogue with the listed companies themselves, investors or capital market practitioners prior to the conference. Or at the event for that matter – the conference does not attract a broad base of stakeholders. The meeting is not an accumulation of the views and professional opinions of the dialogue of hundreds of stakeholders over the year. It’s an event where the most likely outcome will be rhetorical and clichéd calls for promotion of a greater number of listings to increase “liquidity”.

This is what the ASEA should do. Sort out their website and make it truly interactive. Adopt say three annual themes. Get member exchanges to provide meaningful data, which aggregated, is attractive to a broader range of stakeholders. Get those stakeholders commenting on the three annual themes. Use the feedback to have a round table discussion at the annual conference and then set concrete and achievable goals for ASEA to pursue.  

It’s simple but ASEA can’t achieve this because the organisation is poorly structured and no-one is applying their mind to what ASEA should be doing to have a meaningful impact.

 OK say that you think that it’s not possible to co-ordinate African markets through the ASEA. Say it’s just not doable. Fair enough. Then disband ASEA and take a regional approach but you can’t have it both ways.

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