THE continent’s stock exchanges are a hard sell to African companies. Of more than 1.5-million businesses registered in Africa, only 1,600 are listed on the stock exchanges of the 23 states that make up the African Securities Exchanges Association (Asea).
At last week’s Asea conference in Johannesburg, delegates took a hard look at what Africa’s exchanges need to do differently to boost performance and relevance to attract investors and build assets.
Asea president and head of the Nigerian Stock Exchange Oscar Onyema suggested that new ways of engaging business leaders were needed, not just to talk about the benefits offered by Africa’s bourses, but for economies more broadly.
Poor corporate governance, he said, was responsible for most company failures in Africa.
The challenges of building up an asset base on a continent in which only about 2% of assets are traded are considerable. The weakness of the many stock exchanges across the continent is that most remain illiquid with little trade and few listed companies — and yet more and more countries want one. But many companies in Africa just don’t see the benefits of stock exchanges. There are multiple reasons for this.
One is the structure of Africa’s growing firms. Many are family-owned enterprises that are still controlled by the founding families even where they have become large conglomerates. They are generally reluctant to cede management control to shareholders or private equity firms and have no interest in complying with onerous corporate governance and financial regulations.
There are exceptions. Nigeria’s Dangote Group, which is still run by its founder, Aliko Dangote, is the largest company on the Nigerian Stock Exchange by market capitalisation. Another problem is the size of most companies in Africa. They are categorised as small and medium enterprises (SMEs) but most are of a size where survival, rather than adherence to western governance standards, is their focus.
Some exchanges, Kenya’s for example, have introduced boards to enable SMEs to raise capital and boost their profile. But the take-up has been slow.
Although bank lending is expensive in Africa, it remains the preferred way to raise capital. Companies often prefer to pay the premium than grapple with the intricacies of a stock exchange.
Asea event delegates talked about cultural resistance to transparency by companies that believe it is their proprietary information that keeps them ahead of the game.
A level playing field resulting from greater corporate disclosure is viewed as undermining their competitive advantage. Companies that are listed still often disclose the minimum for compliance purposes, which is out of kilter with the desire by exchanges for more disclosure.
These are all challenges that exchanges have to find innovative ways to tackle. The situation raises the question about whether Africa’s smaller bourses, in their quest to attract international investment, tend to adopt regulatory and operational standards and requirements that are out of kilter with their markets. Another challenge is the reluctance by many bourses to expand their offerings and exposure through greater regional integration. Size matters. This was a key message at last week’s event.
But sovereignty fears continue to undermine greater collaboration with other exchanges, despite initiatives that are under way in West and East Africa to link exchanges.
However, attitudes and business practices are starting to change in Africa’s private sector as the next generation of leaders, open to more modern business practices, step up. To tap into this change, stock exchanges need to change; to find innovative ways to reach out to the African private sector and attract the kind of capital that mobile banking has shown exists in these markets.
As one speaker said last week, "We need to step away from our traditional methods to reach nontraditional assets."
