Africa
19 March 2014
As Africa’s markets grow and its investors gain experience domestically, they are also looking to become a part of incoming and outgoing
investments on a global scale
Image: Shutterstock
Over the last 20 years, the African continent has seen significant development of its market structure. In what has been, economically, a relatively short period of time—the region has gone from strength to strength domestically, which has led to many African countries opening up their markets to foreign investors. This growth has also allowed some of the big international banks to roll out expeditionary securities services in Africa’s frontier markets, and begin facilitating the settlement and safekeeping of domestic assets.
A number of the more significant African markets now have central securities depositories (CSDs) in place of a traditional stock exchanges, and some of these markets have grown between 20 and 40 percent in the last two years alone.
Within sub-Saharan Africa and in support of regional financial integration, the Central Bank Governors in the SADC Development Community have initiated a project to integrate banking infrastructures. The project focuses on the cross-border movement of cash to ensure cash settlement obligation fulfilled while a number of the CSDs are working on securities settlement components that accompany the cash movement and potential CSD integration.
Monica Singer, CEO of the South African CSD Strate, highlights that South Africa has opened its door to other markets in Africa for the use of its infrastructure and technology, and is currently in discussions with countries in the region to provide CSD services.
In addition to attracting outside interest from international investors, a number of these countries have also been exhibiting domestic growth—with insurance, pensions and other asset management activity becoming prominent. This growth, in turn, has created a push for the evolution of domestic capital markets, as well as a call for standards from regulators and custodians.
While the economic powerhouse of South Africa still dominates the continent, some of the more developed frontier markets such as Kenya, Ghana and Nigeria are well ahead of the curve and showing rapid economic growth.
According to regional head of investors and intermediaries for Standard Chartered in Africa, Hari Chaitanya: “It is a great challenge to operate in such a diverse region. While people may call it Africa or even see it as some kind of ‘US of Africa’—this is not the case. Each country is so different and the sub-regional groups complicate matters further. Some initiatives, such as a number of the east African countries attempting to integrate and align their capital markets, could allow investors to trade between each other’s markets—but these are still in the early stages.”
Another initiative, AMEDA, is a non-profit organisation comprised of CSDs and clearinghouses in Africa and the Middle East. It acts as a forum for information exchange between members and a platform to promote best practices in services such as securities depository, clearing, settlement and risk management.
AMEDA’s goal is also to support local markets in their efforts to adopt securities market regulations and to help them bring their operational standards and procedures into line with international standards and regulations, while taking account of their specific circumstances.
The markets of west African countries Benin, Burkina Faso, the Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo are all linked by regional securities exchange, BRVM. Although these markets take marginally different regulatory approaches, they are all still serviced by the same exchange.
This kind of frontier growth has assisted in the development of domestic markets. Chaitanya continues: “Africa’s frontier markets are diverse and have their own distinct challenges, but these attempts to introduce common practices and interlink with each others’ regulators and exchanges are definitely a positive sign.”
Standard Chartered has grown substantially in Africa in the past few years alone. The company’s assets have increased by 200 percent in the space of two years, and they currently employ 120 people, up from only 70 in 2010. The bank has also begun to introduce new products such as trustee services in Uganda and Botswana.
The goal for banks such as Standard Chartered is to eventually use the same global platform across all 32 of its current markets, so as to ensure that the same level of service is delivered to clients, regardless of their location.
Commenting on custodians’ operations in places such as Africa, Andrew Duffin, head of sales and emerging markets for Societe Generale Securities Services (SGSS), says: “As a custodian bank, the ultimate objective is to deliver the same level of client protection universally and a standardised service irrespective of the market. If that means that, as a custodian bank, we have to work with the regulators, the lawmakers and the local market infrastructure—whether that a CSD or stock exchange—we will do that with a view to try and enhance the market and deliver that standardised service. That is what we want to achieve across Africa.”
Africa is also benefitting from the past experience of international players such as Standard Chartered and SGSS. These banks were operational during the past 30 years of economic growth in Asia and are, concordantly, able to share their experiences of frontier growth and connect with players from here to there so they can learn.
Being relatively late to the industry has allowed African frontier markets to learn, not just from neighbouring South Africa, but from global domiciles as well. For example, when recently Nigeria rolled out new trading systems, it chose to use the same as is used in New York. It is this breadth of reference that potential markets in Africa can look to, with a view to being considered as a truly international securities domicile.
A number of the more significant African markets now have central securities depositories (CSDs) in place of a traditional stock exchanges, and some of these markets have grown between 20 and 40 percent in the last two years alone.
Within sub-Saharan Africa and in support of regional financial integration, the Central Bank Governors in the SADC Development Community have initiated a project to integrate banking infrastructures. The project focuses on the cross-border movement of cash to ensure cash settlement obligation fulfilled while a number of the CSDs are working on securities settlement components that accompany the cash movement and potential CSD integration.
Monica Singer, CEO of the South African CSD Strate, highlights that South Africa has opened its door to other markets in Africa for the use of its infrastructure and technology, and is currently in discussions with countries in the region to provide CSD services.
In addition to attracting outside interest from international investors, a number of these countries have also been exhibiting domestic growth—with insurance, pensions and other asset management activity becoming prominent. This growth, in turn, has created a push for the evolution of domestic capital markets, as well as a call for standards from regulators and custodians.
While the economic powerhouse of South Africa still dominates the continent, some of the more developed frontier markets such as Kenya, Ghana and Nigeria are well ahead of the curve and showing rapid economic growth.
According to regional head of investors and intermediaries for Standard Chartered in Africa, Hari Chaitanya: “It is a great challenge to operate in such a diverse region. While people may call it Africa or even see it as some kind of ‘US of Africa’—this is not the case. Each country is so different and the sub-regional groups complicate matters further. Some initiatives, such as a number of the east African countries attempting to integrate and align their capital markets, could allow investors to trade between each other’s markets—but these are still in the early stages.”
Another initiative, AMEDA, is a non-profit organisation comprised of CSDs and clearinghouses in Africa and the Middle East. It acts as a forum for information exchange between members and a platform to promote best practices in services such as securities depository, clearing, settlement and risk management.
AMEDA’s goal is also to support local markets in their efforts to adopt securities market regulations and to help them bring their operational standards and procedures into line with international standards and regulations, while taking account of their specific circumstances.
The markets of west African countries Benin, Burkina Faso, the Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal and Togo are all linked by regional securities exchange, BRVM. Although these markets take marginally different regulatory approaches, they are all still serviced by the same exchange.
This kind of frontier growth has assisted in the development of domestic markets. Chaitanya continues: “Africa’s frontier markets are diverse and have their own distinct challenges, but these attempts to introduce common practices and interlink with each others’ regulators and exchanges are definitely a positive sign.”
Standard Chartered has grown substantially in Africa in the past few years alone. The company’s assets have increased by 200 percent in the space of two years, and they currently employ 120 people, up from only 70 in 2010. The bank has also begun to introduce new products such as trustee services in Uganda and Botswana.
The goal for banks such as Standard Chartered is to eventually use the same global platform across all 32 of its current markets, so as to ensure that the same level of service is delivered to clients, regardless of their location.
Commenting on custodians’ operations in places such as Africa, Andrew Duffin, head of sales and emerging markets for Societe Generale Securities Services (SGSS), says: “As a custodian bank, the ultimate objective is to deliver the same level of client protection universally and a standardised service irrespective of the market. If that means that, as a custodian bank, we have to work with the regulators, the lawmakers and the local market infrastructure—whether that a CSD or stock exchange—we will do that with a view to try and enhance the market and deliver that standardised service. That is what we want to achieve across Africa.”
Africa is also benefitting from the past experience of international players such as Standard Chartered and SGSS. These banks were operational during the past 30 years of economic growth in Asia and are, concordantly, able to share their experiences of frontier growth and connect with players from here to there so they can learn.
Being relatively late to the industry has allowed African frontier markets to learn, not just from neighbouring South Africa, but from global domiciles as well. For example, when recently Nigeria rolled out new trading systems, it chose to use the same as is used in New York. It is this breadth of reference that potential markets in Africa can look to, with a view to being considered as a truly international securities domicile.
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