Emerging Markets Seminar Reveals Key Concerns About Investing in Sub-Saharan Africa

The majority of delegates surveyed at a Global Emerging Markets Seminar said market liquidity and scale were significant barriers impacting foreign institutional investors looking to access Sub-Saharan Africa.
By Janet Du Chenne(59204)
The majority of delegates surveyed at a Global Emerging Markets Seminar said market liquidity and scale were significant barriers impacting foreign institutional investors looking to access Sub-Saharan Africa.

An audience survey of about 60 delegates, comprising investors and intermediaries, at the Standard Chartered event in London last week revealed the key barriers impacting foreign institutional investors looking to access the region. Market liquidity or scale was considered the highest, with 66.7% of the audience deeming this to be a significant barrier, while 23.1% deemed exchange controls to be a key barrier and 10.3% deeming exchange controls to be a significant barrier.

Sub-Saharan Africa’s capital markets have performed well, delegates heard, with year to date performance at 30-49% for Uganda, Kenya and Zimbabwe, 15-29% for Tanzania, Zambia and Mauritius, 5-14% for Botswana and Mozambique and fewer than 5% for Namibia and South Africa.

The growth of the capital markets in terms of infrastructure and custody coverage has also been significant over the last 10 years, says Standard Chartered. The infrastructure has developed from a low base in 1993 with only nine countries having a stock exchange, while fewer had opened their Government Debt markets to foreign institutional investors and none had a CSD or ATS.

Today, 29 countries are covered by a domestic or regional stock exchange in 18 Countries, 70% are have a Central Depository and ATS, all material market are supported by recognized custodians and there is increased compliance with G30 standards (i.e. T+3 / DvP / Same day funds / RTGS / ISIN).

Voting on the importance of foreign Investment to the growth and development of Africa’s sub-Saharan Markets, 59% of the audience said it was vital, while 34% said it was useful and 7% said it was neutral.

The audience heard that the capital market would likely be boosted by the introduction of central securities depositories in Malawi, Mozambique and Zimbabwe. These countries are in the first stages of setting up these infrastructures. Ghana, meanwhile, has two depositories running off different platforms with different technology, while Zimbabwe is spending $1.5 billion to automate its trading system and has appointed a Mauritian vendor for the upgrade.

On market activities, delegates heard that Mauritius and Nigeria are in the first steps of introducing securities lending to reduce failed trades, while Kenya has plans to do the same over a one to two year time frame. ETFs were introduced in Mauritius this year, while Ghana, Kenya, Tanzania and Zambia plan to introduce them in one to two years time. Zambia is in the first steps of launching a derivatives exchange while Kenya has early plans to set up such an exchange over the next year or two for fixed income and equities.

Voting on the likelihood of a pan-African securities exchange, 46.4% of delegates said this would happen within 10 years, 21.4% said this was unlikely, 17.9% said maybe and said it would happen within five years.

Current regional harmonization initiatives include those of the West African Capital Markets Integration Council in West Africa, which is targeting an integrated regional platform by 2018. Demutualization plans are also progressing in Kenya, Botswana and Nigeria, while the Zimbabwe project has just commenced and Tanzania and Namibia have five-year plan for demutualization.

Standard Chartered identified Mozambique as a new market with growth potential, with two companies planning IPOs in 2014 and the establishment of CSD in the future.

Angola has also exhibited fast economic growth from a low base after a civil war and has seen strong growth in oil and gas, but limited development in other sectors. A stock exchange for the country is targeted to open in 2016. Standard Chartered is also establishing a full on-shore presence in Angola. In February this year, the bank had signed an agreement to form a joint venture with Angolan state-owned insurance company ENSA. These expansion plans are subject to final approvals.

Securities services are on the agenda in these markets, Global Custodian understands.


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