Chris van Staden
Head of Securites Services Operations, Africa and Middle East
Nigeria has very specific problems related to the decline in oil price, and this has been exacerbated by various currency and policy decisions.(2) South Africa’s economy is under strain due to a combination of different factors including drought, declining political confidence, reduced business confidence and a commodity slowdown. Just because growth has been sluggish in these two markets though does not mean there is a universal slowdown(3) across the entire Africa region.
Flows into Africa
Easing access and building infrastructures
African markets were often seen as frontier, and there are problems with investing in such jurisdictions, namely low levels of liquidity, regulatory opacity and a lack of market depth, but this is likely to change. This is because a number of countries in the region are introducing positive market reforms to advance the needs of institutional investors and meet their regulatory obligations and reporting requirements. (11)
Institutions need guarantees that when they invest into a market, their money is recoverable in crises, and that the infrastructures are aligned with international standards and best practices. Major efforts have been made across Africa to bring markets in line with these expectations.
Ghana – through the Securities Industry Act – has introduced securities borrowing and lending, and Kenya will do so later in 2017. Over-the-counter (OTC) derivative trading is gradually being adopted in countries beyond South Africa and Nigeria, namely Kenya. Ghana is also looking at setting up an OTC regime although the Ghana Stock Exchange (GSE) has yet to implement the operational processes.
These OTC flows are small though, at least relative to US, European or developed Asian markets, and there is sharp industry disagreement as to whether CCPs need to be introduced in these markets.
In a market where OTC volumes are considerable, industry consensus, international best practice and regulation would infer protections in the form of a CCP are necessary. There is less unanimity around inaugurating CCPs in emerging economies which do not have scalable OTC markets, as it introduces costs that could potentially restrain growth and development.
East Africa through the EAC (East African Community) and West Africa via the ECOWAS (Economic Community of West African States) have both sought to enact regional harmonization programmes of securities markets modelled somewhat on the EU. Efforts have been ongoing to standardize rules around cross-border brokerage activities and dual listings of securities. A number of market infrastructures across Africa are involved in integration and standardization discussions. CSD linkages, for example, will make account openings and know your customer (KYC) checks simpler, although some markets are disinclined to consolidate into regional exchanges and CSDs, as they view such national infrastructures as a sovereign right. However, efforts around cooperation are making progress.
Securities settlement is one area where progress has been made, particularly through the accentuation of SWIFT connectivity and automation across East African CSDs including Uganda, Rwanda and Tanzania. Efforts are being made at Kenya’s Central Depository & Settlement Corporation (CDSC) to enable Swift connectivity and this is likely to go live in the second half of 2017.
In Ghana, Swift communication between the CSD and its settlement bank – the Bank of Ghana – is in place but there is presently no MT54X series SWIFT communication for securities between market participants, the exchange and the CSD. Discussions on MT54X Swift connectivity between stakeholders began earlier in 2017, but implementation could take time, and the costs of setting up such a system may be off-putting to some brokers.
Harmonization efforts are also in motion at stock exchanges, where there are ambitious plans to enable connectivity between exchanges in South Africa, Kenya, Nigeria, Côte d’Ivoire, Mauritius and Morocco through the Africa Exchanges Linkage Project (AELP). (12)
This initiative will help cement liquidity in these markets, although experts are conscious that divergent regulations across these disparate countries will present issues around governance and best practices.
A lot of work still to be done
Looking towards a bright future
(6) EY’s Attractiveness Program Africa (May 2017) – Connectivity Redefined
(7) EY’s Attractiveness Program Africa (May 2017) – Connectivity Redefined
(11) This Day – (May 10, 2017) – Convergence of Africa Capital Markets as Panacea to Illiquidity
(12) This Day – (May 10, 2017) – Convergence of Africa Capital Markets as Panacea to Illiquidity
(13) Reuters – Nigerian non-deliverable dollar naira forwards fall on central bank FX reforms
About the Author
|Chris van Staden|
Chris van Staden is Head of Securites Services Operations, Africa and Middle East Region for Standard Chartered Bank. Chris is also currently the acting Head of the Securites Services for the Africa and Middle East Region
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