AfCFTA: Five questions to better understand the integration of Africa’s stock exchanges

By Aurélie M'Bida
Posted on Tuesday, 13 December 2022 09:30

Chief executive of MTN Nigeria, Ferdi Moolman (C-R) and chairman of board, Pascal Dozie (C), sound the closing gong flanked by other executives of the board during the ceremony to list MTN shares on the Nigerian Stock Exchange, on May 16, 2019, in Lagos. (Photo by PIUS UTOMI EKPEI / AFP)

Operational since 18 November and officially launched on 7 December, interconnecting seven of the continent’s 30 or so stock exchanges marks a decisive step in the African economic and financial integration project.

The objectives that go hand in hand with implementing the colossal project of integrating African stock exchanges, the first phase of which has been launched, include accessing long-term financial resources, developing and deepening local capital markets to give African economic operators the means to produce and grow.

On 7 December, in Abidjan, on the sidelines of the 25th annual conference of the Association of African Securities Exchanges (ASEA), the AELP platform, which helps connect some 30 licensed brokers within seven participating exchanges, will be officially launched.

1. How did the African stock exchange interoperability project come about?

In line with AfCFTA, the interconnection of stock exchanges forms part of Africa’s major economic and financial integration projects. Under the African Union’s auspices, the idea of creating a single continental stock exchange has gained ground. This challenge – which is complex given the difference in size and fragmentation of the financial centres concerned, as well as the obvious reasons of sovereignty – took shape in 2015 with the African Exchanges Linkage Project (AELP).

The ASEA-led project, funded by the Korea-Africa Economic Cooperation Trust Fund (Koafec), which is managed by the African Development Bank (AfDB), AELP connects stock exchanges while maintaining the jurisdiction of each. But the technology that connects them allows the exchanges to “talk” to each other and provide a single platform for viewing the African order book.

“We said to ourselves: if we want African stock markets to be liquid, deep and attractive to local, continental and international investors, these exchanges must talk to each other,” says Félix Edoh Kossi Amenounvé, CEO of BRVM and also president of ASEA.

2. How does the system work in practice?

The principle – at least for the 25 African stock exchanges that make up ASEA – is to develop exchanges between the various markets in order to improve their global competitiveness and provide an adequate platform to establish a network for information exchange.

Launched with seven exchanges on 18 November – the Regional Stock Exchange (BRVM), Casablanca Stock Exchange, Egypt Stock Exchange (EGX), Johannesburg Stock Exchange (JSE), Nairobi Stock Exchange (NSE), Nigerian Exchange Limited (NGX) and the Stock Exchange of Mauritius (SEM) – the system has pooled data and listing systems so that investors can view continental supply and demand for all listed companies at the click of a mouse.

The platform allows exchanges to continue to operate as usual. The difference is that the brokers participating in the project must have correspondents in the jurisdictions in which their clients wish to trade. This is known in stock exchange jargon as sponsored access to an exchange. The domestic broker is sponsored by the broker in the country where the transaction will take place. The former transmits its clients’ orders, which are executed by the broker in the country where the chosen company is listed, while the sponsored broker takes care of settlement and delivery.

3. Won’t intermediation fees (brokers) on transactions explode?

“In the current modus operandi, the two brokers will share the fees or brokerage commissions as practised in the country of destination of the operation,” Amenounvé told us.

There is therefore no additional cost for the client. On the contrary. When volumes are higher, investors will naturally push prices down and brokers will be able to reduce their brokerage commissions, he says.

4. Are there models elsewhere in the world?

ASEA and the AfDB have been inspired by what they learned abroad, particularly in Asia. The Association of Southeast Asian Nations (Asean) launched such an interconnection space, but it did not work. Examples can also be found in Latin America as well as Central and Eastern Europe.

“Learning from all this, we wanted to start with the most simplified form. Hence this interconnection, which, thanks to technology, makes it possible to have a common space for visualising the African order book,” says the Togolese financier.

He continues: “It works the same way with international investors.” The model is modelled, in a way, on the intra-African market in order to encourage capital inflow to African stock exchanges, and incentivise African institutional and retail investors to invest in the continent’s markets.

5. What are the next steps?

Beyond expanding the system to more exchanges, the project timetable is far from set. Phase 1 is launched, the platform is operational and brokers are connected. Phase 2, which is more focused on integration, is intended to go beyond sponsored access.

“We want some brokers to have a single African licence and a common African passport,” says ASEA’s president. These brokers, who are selected on the basis of criteria predefined by the regulators concerned, should be able to go directly to any stock exchange without having to be sponsored by a local broker.

The third and final sentence is that of the African Stock Exchange, when regulators will be able to have a mutual visa recognition agreement. “That is, a visa issued in Nigeria for a bond issue is recognised in Côte d’Ivoire and vice versa. A visa issued in Ghana, for an IPO in Ghana, is recognised in Côte d’Ivoire, Kenya, South Africa…”, says Amenounve. This last phase is expected to open up the space, allow for larger operations and lead to a single global market. As soon as issuers are able to access savings in all other countries, there will be a single market.

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