Africa’s stock exchanges meet but size holds them back

AS THE trading bell rings, a handful of brokers, in crisp scarlet jackets, gather around a whiteboard at the Rwanda Stock Exchange in Kigali. There are only seven listed companies, and it takes just a couple of minutes to write up the day’s bids. But Celestin Rwabukumba, its chief executive, is excited for the future. “If it works elsewhere, then why not here?” he asks.

Why not indeed? Johannesburg, with a market capitalisation of nearly $1trn, is in a league of its own. But sub-Saharan Africa has many small exchanges, lots of them created in the 1990s to help privatise state enterprises. Most struggle to attract new issues. Seven of the eight domestic listings on the Uganda Securities Exchange came from government divestments. Older exchanges, in Kenya and Nigeria, are dominated by big firms: a third of Nigeria’s market is the Dangote Group, a conglomerate with interests from cement to salt.

Stock-exchange leaders were in Kigali this week for the annual conference of the African Securities Exchanges Association. Much of the talk was about coaxing smaller, family-owned businesses to list. But many owners are loth to cede control or open their books to scrutiny, not least from the taxman. An initiative by Nairobi’s bourse to ease listing requirements for small and medium-sized enterprises has attracted just five companies since it launched in 2013.

So privatisation remains the staple. Botswana sold off its national telecoms company this year, the biggest-ever new offering there. Another source of listings is local units of multinationals. MTN, a South African telecoms giant, is preparing to list in Nigeria, part of a settlement with authorities after breaking SIM-card rules. Tanzania has ordered eight telecoms operators, including three with international backing, to float 25% of their shares in 2016.

Liquidity is an even bigger challenge. Shares rarely change hands: outside South Africa, annual turnover is typically less than 10% of market capitalisation. In Nairobi, which relaxed rules on foreign ownership last year, foreign investors accounted for three-quarters of trading in the three months to September.

Some hope to stir up interest with new products. Nigeria has eight exchange-traded funds (ETFs), which track market benchmarks. Nairobi will roll out a host of derivatives next year. Even little Swaziland has its eye on ETF trades.

Regional integration can also help, pooling listings and liquidity into larger markets. Eight west African countries, which already share a common currency, list shares on the Bourse Régionale des Valeurs Mobilières (BRVM) in Ivory Coast. East African exchanges are working on a common trading platform. But governments view stockmarkets as national symbols. New regional exchanges are unlikely. “It’s like having an airline,” sighs Geoffrey Odundo, boss of the Nairobi exchange.

Nigeria and Kenya have the heft to forge ahead, but smaller exchanges could struggle. In a new paper, economists from Erasmus University, Rotterdam, and City University, London, examine 59 nascent stock exchanges around the world. They find that those which start out small, with few listings and low turnover, tend to remain so. Strong banks and growing savings increase the chances of success.

In short, exchanges must wait for economies developed enough to sustain them. In the meantime private equity, which between 2010 and June this year made deals worth $23bn in Africa, will offer an alternative to a public listing. Eventually investors may see the stockmarket as an exit strategy. Back at the Rwanda Stock Exchange, Mr Rwabukumba is playing the long game: “You have to start somewhere.”