African capital markets are increasingly adopting disruption to make investing more transparent and accessible to a younger, tech-savvy generation, and see an increase in trading volumes.

Oscar Onyema was appointed the new CEO of the Nigerian Stock Exchange (NSE) in 2011, having previously been senior vice president of the American Stock Exchange. The exchange needed to change to increase transparency and make investing easier, and for this, Onyema turned to technology.
The NSE’s X-GEN trading platform was launched in 2013, offering better access to real-time data, thereby improving governance and transparency. Onyema described it as the fastest-trading platform in Africa.
Its impact was immediate. The average daily value of trade increased by around a third, to over $14 million in 2017. Other capital markets across the continent are following suit and adopting tech to make investing more transparent and accessible. The Nairobi Securities Exchange, for example, rolled out its Automated Trading System in 2014.
<blockquote>&#8220;Technology has enabled stock exchanges to enhance their surveillance capabilities contributing to transparency in the market,&#8221;</blockquote>
The Nairobi exchange followed this up with the launch of its own mobile app, which its head of brand and corporate affairs Waithera Mwai-Ireri says would “democratize” access to capital market-related information in Kenya. The app provides quick and easy information for potential investors and allows investments to be made in real-time.
Mwai-Ireri said the move was designed to make investing on capital markets accessible to a younger, tech-savvy generation.
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“The NSE app will enable investors to track market activity on a continuous basis enabling them to make real-time investment decisions. The app will spur interest in the capital market amongst the youth in the country, who make up over 75 percent of our total population,” she says.
The Nairobi exchange is a leader in Africa in terms of tech not only for its app, but its mobile-traded government M-Akiba bond. Mwai-Ireri said stock exchanges across the continent were seeing huge increases in trading volumes as a result of the use of technology.
“The use of technology has fast-tracked the development of Africa’s exchanges. Technology has enabled stock exchanges to enhance their surveillance capabilities contributing to transparency in the market,”
she says, adding she expected more exchanges across Africa to launch mobile-based applications in the coming years.
The younger, tech-savvy audience being targeted by exchanges such as those in Nigeria and Kenya may, however, have already found alternative ways of investing their money, away from traditional institutions such as exchanges and banks.
A platform tapping into a desire for alternative investments is South African company The Sun Exchange, which is also utilizing the increased uptake of cryptocurrencies. Using the platform, people use cryptocurrencies like bitcoin to buy solar panels, which The Sun Exchange then leases to businesses in Africa. Users earn income from these panels over a period of the next few years.
Founder and CEO Abraham Cambridge said improvements in efficient peer-to-peer payment systems and crowdsourcing has meant that entirely new investment models and platforms have become possible, solving problems that could previously not be solved. He said this trend will likely continue.
“Consumers are becoming increasingly skeptical of opaque and slow traditional banking. Modern day millennials will soon be the dominant investor group as they begin to inherit baby boomer wealth, and this group is used to instant gratification, transparency and a desire to change the way the world works,” Cambridge says.
“In addition, traditional financial institutions are becoming increasingly risk averse, which means that investments into startup businesses and innovative concepts, such as projects built around cryptocurrencies, find it extremely hard if not impossible to raise capital through these traditional means.”
He says the appeal of using cryptocurrencies for investments was that they are open and universal.
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“This means that previously unbanked customers, of which there are hundreds of millions across the African continent, can now engage financially with the rest of the world. In the case of The Sun Exchange, this means we can transact with the whole world using a single currency,” he says.
Smaller, micro-investments are also possible.
“As cryptocurrency can be broken down into over eight decimal places, nano-transactions at lightning speeds can now happen. This means that an investor can choose to place very small sums into projects and earn nano-payments out, with ultimate security and transparency,” says Cambridge.
It is this kind of flexibility and transparency major capital exchanges across Africa are trying to match with their own use of tech. Time will tell if this will work or if the opportunity has passed them by.
&#8211; By Tom Jackson

Tech scene in Cape Town, South Africa

Trading On Technology

Competition in Africa’s leading stock exchange market is facing a difficult birth. Next year, South Africa could have three stock exchanges, but the Johannesburg Stock Exchange (JSE) has taken the fight against the competition to court.
The Financial Services Board (FSB) granted ZAR X a license to operate on the August 31, paving the way for the first new stock exchange in South Africa for over a century. In a Goliath versus David battle, the JSE filed an urgent application to the FSB Appeal Board to suspend its decision to grant ZAR X a stock exchange license. The Appeal Board dismissed the application.
In a statement, the FSB said Judge LTC Harms, Deputy Chair of the FSB Appeal Board, stated that there was no evidence that the JSE would suffer harm or prejudice.
“He said the JSE’s application was based on the possibilities of harm to the financial system of the country and its investors, which was speculative,” the FSB said.
As ZAR X prepares to launch, Etienne Nel is the man of the moment. He has the mammoth task of taking on Africa’s biggest stock exchange from a small office block in Bryanston, Johannesburg, far from the glamour and glass towers of the JSE in Sandton.
“I’ve basically spent my whole life as a stock broker and in 2011 I co-founded an OTC platform called Equity Express. The explosive growth that we had in that business showed us that there was a very distinct need in South Africa to actually have another stock exchange, away from the JSE, that gives investors another platform to transact on,” says Nel.
In many ways it’s a featherweight taking on a world heavyweight champion. The Johannesburg Stock Exchange is ranked among the top 20 exchanges in the world. ZAR X will have to box clever to survive.
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The competition at the dominant JSE has deep roots. It was formed in 1887 during the first South African gold rush. As the days when people chalked up the trades on a blackboard by hand disappeared, the JSE outgrew its former building in downtown Johannesburg. Today the JSE’s market cap is over a trillion dollars. In the last 20 years it has changed fast.
De-regulation swept away piles of paperwork. June 10, 1996, saw the trading floor become electronic and on July 1, 2005, the JSE became a company in its own right.
Today, the JSE handles over 300,000 trades a day, which are worth $1.4 billion.
As its Capital Markets Director, Donna Nemer is responsible for every trade.
“We just have to make sure that as we add new entrants in the market and, as the market evolves, that we don’t lose the standing that we have in the capital markets as a whole,” says Nemer.
An area that ZAR X believes it could steal a march on the JSE is its trade settlement system. An investor using ZAR X’s T+0 (trade plus zero) settlement model can get their money on the same day. It takes three days for an investor using the JSE’s T+3 settlement model.
“We operate on a T+0 model and there is no real reason for anyone to be operating on T+3 anymore. I mean, Australia is on T+2 and they already have plans to go to T+1. We just decided that T+0 is the way to go,” says Nel.
“Our trading regime that we’re accustomed to is one that is called DVP (Delivery Versus Payment) and in those exchanges you exchange the cash and the trade at the same time. In our case it takes three days and I believe our investors wouldn’t want it any other way,” says Nemer.
So how is this big fight going to play out? Owen Nkomo, the owner of an investment management and stockbroking company, is sceptical about the young contender. Nkomo doesn’t know how ZAR X will achieve its T+0 settlement model.
“I imagine it’s going to be very difficult. If they can do it, that’s going to be a very big advantage. People don’t want to wait for shares once they buy them. There are ways of achieving it and if they do then wow, it will work in their favor,” says Nkomo.
ZAR X’s T+0 settlement model helped win over one of the oldest and largest grain producers in Africa, Senwes, in the South Africa’s North West province.
For the last 107 years, Senwes has been growing its way to a sizeable turnover of about $750 million. It’s the biggest trader of white maize in the world and turns out 1.5 million tons a year. After more than a century of tradition, this company is trying something as new as its business is old. It’s taking a chance by listing on a brand new upstart stock exchange.
“An important factor for us in choosing the model that ZAR X has presented is the fact that the investment risk is low because of the trade plus zero rule that they apply. This means that any investor that wants to invest has to have the money upfront,” says Elmarie Joynt, the Group Legal Counsel and Group Company Secretary at Senwes.
So could the grains of Senwes be the grains of hope for South Africa’s first new exchange for a century, or will ZAR X end up being ground to dust by going through the mill of court cases? Investors across Africa will be waiting anxiously to find out.

Boxing In Africa’s Biggest Market

The Dar es Salaam Stock Exchange (DSE) PLC was set to list on its own main board on July 12 after raising TZS10.1 billion ($4.6 million) in an IPO. It received bids totalling TZS35.8 billion, or 4.8 times oversubscription, for its TZS7.5 billion offer of 15 million shares at TZS500 each which closed on June 3. The DSE had a “green shoe” option to take up to 10% extra and applied to Tanzania’s Capital Markets and Securities Authority to boost this to 35% with the result that it was able to take an additional TZS2.6 billion. Staff took up their full allocation of 3% of the shares.
The Tanzanian bourse is set for a boost in activity after telecoms firms were ordered to list up to 25% of their shares within six months from July 1, in terms of the government’s Finance Bill 2016 and an amended Electronic and Postal Communications Act in June. DSE CEO, Moremi Marwa, said there would be enough liquidity: “The combined 25% of all telecommunications companies’ balance sheets is about $1 billion… Our current market capitalization is TZS22 trillion and annual market turnover is exceeding TZS750 billion. Treasury bonds and bills issued per annum at DSE normally exceeds TZS2.5 trillion and they are normally oversubscribed, meaning there is more liquidity to invest in less risky assets than instruments available.”
The DSE plans to use IPO proceeds to enhance its core operating system, introduce new products and services and for “strategic and operational purposes”. One in two Tanzanians have learned to use mobile financial services, according to a FinScope survey, and investors can use phones to apply for some DSE share offers.
In May, the Botswana Stock Exchange issued a tender for its valuation as it becomes demutualized, for-profit company, BSE Ltd, and works out how to convert the proprietary rights owned by stockbrokers and its government subvention. The Casablanca Stock Exchange is also demutualizing and mulling an IPO – its shareholders include banks 39%, brokers 20% and the Caisse de dépôt et de gestion (CDG) 25%. Johannesburg and Nairobi were Africa’s first securities exchanges to complete the steps through demutualization, IPO and self-listing.
Enko Capital runs the $83-million Enko Africa Private Equity Fund, which focuses on pre-IPO investments, and says Kenyan IT company, The Copy Cat, which operates in four East African countries, and Nigerian interior design company DO.II Designs are considering IPOs. Nigeria’s government is working on privatization of eight state-owned companies: Port Harcourt Refining Company, Peugeot Automobile Nigeria, Nigerian Ports Authority, Nigerian Telecommunications, Nigerian Railway Corporation, Bank of Agriculture, Federal Airports Authority of Nigeria and the Bank of Industry.
Innscor Africa Holdings spun off and listed Axia Corporation on the Zimbabwe Stock Exchange (ZSE) in May. Axia has three operating subsidiaries – logistics and warehousing Distribution Group Africa, furniture and appliance retailer TV Sales &amp; Home, and auto spares retailer Transerv – and $40.6 million market capitalization. Innscor’s previous unbundlings and listings were Simbisa Brands in November and Padenga Holdings in 2010 as the conglomerate focuses on light manufacturing. It was the ZSE’s second listing in 2016 after GetBucks in January.
West African utility group, Eranove, postponed its IPO and listing on the Paris-based Euronext exchange. Its owners include private equity firm Emerging Capital Partners (56%) and insurer AXA (19%) and its four core subsidiaries which supply water and generate and distribute power in Côte d’Ivoire, and distribute water in Senegal.
Miguel Azevedo, Citigroup’s Head of Investment Banking Africa, says the IPO drive will continue in 2017 as capital-raising moves from debt to equity. Bond sales have been hit by rising yields and declining local currencies.
“Sometimes entrepreneurs, all they want is debt, no equity, just debt. This crisis showed them that this can be very expensive. It makes sense to bring in some more equity,” says Azevedo.
His tips for exciting industries include consumer goods, banking, power and infrastructure.
“I see the growth profile of the continent, and in the blocs, is still there. The opportunity in Africa is still there.”
He forecast that multinationals expanding in Africa would aim to take significant positions in companies, rather than outright purchases.
“The base case is buying around 50% with an agreement to buy the remainder.”
Private equity will remain very active and there could be more consolidation among leading firms.

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