As a global leader and Africa’s largest exchange, the JSE is perfectly positioned to play a role in improving the way bourses function across the continent


Africa is a minor league player in the game of listed equity at present. The continent contributed only 1.5% to the volume of global new listings in the first half of 2014, according to consultancy EY.

On the other hand, the JSE is among the top 20 largest exchanges worldwide and rates as a global leader on many fronts.

The WEF’s Global Competitiveness Report has ranked the bourse first in the regulation of securities exchanges among 144 countries for the past five years. It also tops the list when it comes to the auditing and reporting standards to which local companies must adhere.

The 2014 report places SA third for its ability to raise finance through the local equity market and second for the protection of the rights of minority shareholders. This points to the soundness of the JSE, which has a corporate equity market capitalisation more than 11 times larger than any other African stock exchange.

The bourse is, therefore, ideally placed to help strengthen its fellow African exchanges, most of which lack liquidity, transparency and volume.


‘According to Goldman Sachs, the JSE remains the only viable, liquid entry point into Africa’s capital markets,’ says Donna Oosthuyse, Director: Capital Markets at the JSE. A country’s economic success depends on a deep and mature financial sector, which allows companies to raise capital efficiently to grow their businesses. It also lowers the cost of borrowing and offers an efficient means to pool savings. Strengthening stock exchanges across Africa is thus crucial to the development of the continent.

In its efforts to bolster African exchanges, the JSE’s strategy is to encourage companies on the continent to list on both their local exchanges and the Johannesburg-based bourse.

‘African exchanges fulfil important roles in their local economies but, given their size, there is scope for regional co-operation with larger exchanges to give issuers access to more investors and wider pools of capital,’ says Oosthuyse.

The dual-issuance model is ideal for debt and equity markets. ‘This model allows for listing debt or equity on both the JSE as well as the local market, allowing African issuers access to the deep capital pools that South Africa offers while benefiting from local market participation and international investment,’ she says.

The JSE is among the top 20 largest exchanges worldwide and rates as a global leader on many fronts

The dual structure will ensure that much of the investment in Africa – especially the significant spending on infrastructure development over the next decade or so – can be channelled through the SA exchange, and need not go off the continent, Oosthuyse says.

Global investors wanting to tap into the African growth story often struggle to do so through listed equity on most exchanges on the continent. Yet they are eager to access the investment opportunities that are provided by Africa’s high economic growth rates, rising middle class, young population, improving political climate and rapid urbanisation.

‘Dual issuance on the exchange will allow foreign fund managers mandated to invest in World Federation of Exchange markets the opportunity to take advantage of these opportunities as well,’ says Oosthuyse.

Many global investors have processes in place and the necessary approvals to trade on the JSE, making them eager to access the African growth story via the Johannesburg bourse, says Nicky Newton-King, CEO of the JSE.

Global investors want a well-regulated trading environment, access to timely and transparent market data and they want the peace of mind offered by knowing an exchange belongs to the World Federation of Exchanges. These were some of the themes that emerged from a Building African Financial Markets seminar held among exchanges on the continent in September 2014.

They also want liquidity and high trading volumes. This makes it challenging for African stock markets to attract global investment as they are fairly small in size, offer a limited number of stocks and are often very illiquid and thinly traded. For example, according to a report titled Investing in Africa by multi-manager firm Investment Solutions, the World Federation of Exchanges found at the end of 2011 that the total value of African stocks outside SA was only 0.94% of world stock market capitalisation, and 2.14% of all emerging-market stocks.

African markets tend to be dominated by a few large companies that represent a high proportion of the total market capitalisation. In Ghana, Ecobank Transactional Incorporated accounts for more than half the exchange’s market capitalisation.

Nevertheless, African listed equity markets are growing, with the number of exchanges increasing from five in 1960 to 28 at present, including two regional exchanges – one in West Africa and the other in Central Africa. However, SA, Egypt and Nigeria account for more than half of Africa’s listed equity, the report states.

Equity listings across the continent, particularly in East Africa, are expected to pick up over the next decade as private equity deals mature, according to Sandile Hlophe, head of transaction advisory services for EY Africa. He says a large number of initial public offerings (IPOs) took place on the JSE in 2014, as a consequence of the high number of private equity deals that occurred in the early to mid 2000s. One way in which investors exit these deals is through listing, he says.

‘Kenya and Tanzania are where South Africa was 10 years ago, with a spurt of private equity activity,’ Hlophe says. ‘So I expect IPOs to pick up seven to 10 years from now, while Nigeria is 15 to 20 years behind South Africa, even though a few companies show huge promise.’

The JSE is in talks with a number of large companies around the continent about dual listing on the Johannesburg-based exchange and in their own home countries.


‘Kenya and Tanzania are where South Africa was 10 years ago with a spurt of private equity activity’


However, it is competing with the London Stock Exchange, which is aggressively wooing African companies to cater to the strong institutional appetite for the continent’s growth story, according to the Financial Times.

In 2014, a number of African companies chose a second listing on the London Stock Exchange. For example, the largest IPO was Seplat Petroleum Development Company’s $538 million dual listing on the London and Nigerian stock exchanges, stated Thomson Reuters’ third quarterly investment banking analysis for the sub-Saharan Africa region in 2014.

Newton-King says there is no reason African corporates should list in London rather than in Johannesburg, as the JSE is as liquid as its English counterpart and has a big pool of capital.

‘The fact that we are smaller than London does help because then a company is listed within 400 stocks – not 4 000 – so it doesn’t disappear,’ she says.

The dual issuance model is also well suited to allow the flow of skills across African markets, adds Oosthuyse. Besides dual listings, the JSE is aiming to establish itself as a debt listings venue for Africa.

Newton-King says: ‘I think debt is also a big part of the continental story and that may well be easier to list than equity. It is less emotive than equity for some reason.’

Namibia listed a rand-denominated government bond on the JSE in late 2012 as its first step. ‘The bond was twice oversubscribed, indicating the demand from South Africa’s institutional investors for African sovereign debt listings,’ says Oosthuyse. Namibia is planning to sell another N$1 billion on the JSE in 2015.

The SA bourse has also started listing currency futures contracts tracking the exchange rate between the rand and the Zambian kwacha, Kenyan shilling and Nigerian naira. Currency futures allow investors, importers and exporters to protect themselves against currency movements in the African countries, says Oosthuyse.

‘The JSE worked on this strategy for two years and believes it makes sense for the JSE, as a major exchange player in Africa, to be involved in providing appropriate products to mitigate currency risk and exposure when dealing in Africa,’ she says.

The JSE can also assist African exchanges through sharing technology. It already does so with the Namibian Stock Exchange, which has been using the JSE’s trading technology and services, as well as an exchange of skills, since 1998.

The Namibian agreement ‘provides an indication of the services the exchange is able to offer its counterparts on the African continent with massive economies of scale benefits’, says Oosthuyse.

As Africa becomes increasingly attractive to global investors, it needs strong financial systems to channel these large sums of money. The JSE’s strategy for the rest of Africa is to play a big role in ensuring the continent has sound and functioning financial systems to capitalise on the opportunities.

‘The better developed Africa’s financial markets; the more attractive they will be to investors,’ says Oosthuyse.

By Gene Michelson
Image: Gareth van Nelson/HSMimages