African stock markets look at regional integration

A major priority area that has been set by governments in East Africa has to do with the integration of capital market activity in the East African Community (Kenya, Tanzania, Uganda, Rwanda, Burundi) and building a platform on which a regional stock exchange can be set up.

It also appears that it will not necessarily be a merger of stock markets, but an effort of the various securities exchanges to create a platform where shares in one region can be traded in the various member countries. The regional exchange will be similar to the BRVM, the stock exchange serving West African countries such as Benin, Burkina Faso, Guinea Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo.

According to Dr James Ndahiro, the chairperson of the Rwanda Stock Exchange, East African countries should form a single stock market by 2015. He was recently quoted in the Standard saying that the growth of stock and capital markets would help East African countries liberate themselves from dependence on foreign aid. “Companies cross-listing their stock and offering shares to citizens of the five countries without discrimination was one step . . . We saw it in the Safaricom initial public offering where all citizens of the countries in East Africa bought shares as local investors. This was good because it encouraged flow of investment in the region,” he said.

In Southern Africa as well, discussions have been put forth on the possibility of integrating stock markets. In a recent report in the Herald, the government of Zimbabwe is expected to reach a conclusion whether to join the rand monetary union (RMU) or to continue with the multi-currency system. Joining the RMU would imply that the South African rand would become the official currency in Zimbabwe. Current member states of the RMU include southern African countries such as Lesotho, South Africa, Swaziland and Namibia. It is envisaged that the use of a common currency in the region would pave the way for an integration of capital markets.

On another note, South Africa’s Johannesburg Stock Exchange (JSE) has made some strides with its Africa Board in an effort aimed at encouraging the dual-listing of leading African equities on the JSE. Already, an advisory committee has been set up and was launched in Accra, Ghana, and comprises nine members from several African countries. The task of the committee is to promote the business, goals and objectives of the JSE Africa Board to the main stakeholders in the investment community. So far, the JSE Africa Board has had two listings (Trustco and Wilderness Holdings) since it formation in 2009.

Clearly, various regions in Africa are at different levels in as far as the integration of capital market activity is concerned. It appears that it is rather a long-term goal for most stock exchanges in Africa, given the various levels of sophistication of capital markets. However, we believe integration initiatives are positive as they promote financial inclusion, capacity building, the harmonisation of financial laws and regulations, and also integrate financial market infrastructure.

Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.