Can the new Nairobi International Finance Centre (NIFC) compete with Johannesburg and Dubai to help finance trade and industry in East Africa ... and beyond? Acting CEO Oscar Njuguna believes that there is plenty of room for everyone.
The on-screen trades will continue to use paper settlement until a central securities depositary (CSD) can be put in place, Bazuin says in Windhoek. Bonds currently have to be traded over-the-counter (OTC).
The exchange hopes to be able to implement a CSD to facilitate automatic bond trading by the end of the year. The creation of a CSD, which would end OTC trading, has been held up by delays in the enabling legislation needed.
Namibia is southern Africa’s second-largest stock exchange behind South Africa, with which it shares a trading system for equities. The existence of a developed pool of pension fund savings means that Namibia has a “captive capital base ready to be unlocked,” Bazuin says. “Finding quality assets is the problem rather than capital formation.”
The government wants pension funds to invest more at home rather than abroad, but funds struggle to find liquid local investments. The country’s Government Institutions Pension Fund posted an accounting loss of about $575m in the year to March 2020 as it struggled to invest money locally.
- The GIPF was only able to invest 39% of civil servants’ savings in Namibia, versus the prescribed 45%.
- The fund has said that given the limited range of listed equities, investing more locally would mean putting too much money into Namibian government bonds.
The perceived risks of investing in Africa mean that bourses such as Nigeria which have performed well during Covid-19 are still ignored by many Western institutions, Bazuin says. “That’s our biggest challenge. We’re not on the radar for the biggest funds.”
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Exchange-traded funds (ETFs) are a way to remove country and company-specific risk when investing in Africa, he argues. Listed capital pools, which allow institutions and individuals to raise capital for potential investments, are another way to broaden the range of local listed investments, he adds. “The market has got the idea. We will see more of them.”
- Capital pools have no commercial operations or assets except cash, which is used to acquire existing businesses.
- Such pools have been traded on the Namibian exchange since 2017.
The African Continental Free Trade Area (AfCFTA) has the potential to reshape the Namibian culture of family-owned businesses and prompt new stock market listings, Bazuin says.
Many businesses in Namibia are family run and see no reason to seek outside capital or appoint a board, he says. Publishing information on their profitability levels could surprise some of their paying customers, he adds.
But African free trade means that such businesses are likely to face greater competition from companies outside Namibia which carry out cross-border expansion as a result of free trade, Bazuin says.
“That level of complacency will be shaken. The model will be gradually eroded.”
African free trade can challenge the assumptions of family-controlled business models and create new outlets for investment, especially in the case of Namibia, after it launches on-screen bond trading.
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