Download Demutualizing African Stock Exchanges

Demutualizing African Stock
Exchanges: Challenges and
Opportunities
Presented at the 9th Annual ASEA Conference,
Cairo, September 10-12, 2005
By
Sam Mensah
SEM International Associates Limited, Ghana
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Objectives
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Evaluate factors driving demutualization
Relevance in African context
Establish preconditions for
demutualization
Assess readiness of African stock
exchanges to demutualize
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Reasons to Demutualize
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Improved governance
Investor participation
Competition
Globalization and consolidation
Unlocking stock exchange value
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Implications of Demutualization
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Regulation
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Financial Viability
Process
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• Relationship with regulator
• Self-regulation
• Role of government
• Role of other stakeholders
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Preconditions for
Demutualization
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Sufficiently liberalized financial market
Market justification based on a critical
mass of trading activity that supports
financial viability
Support of government in managing
process
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African Stock Exchanges
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Small markets by international standards –
Market capitalization to GDP as low as 4% in
some markets
Low liquidity
Limited listings
Preponderance of listings by subsidiaries of
multinationals has “domesticated” listings i.e.
no incentive to migrate or cross list
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Other Factors Affecting
Performance
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Macroeconomic Setting
Regulatory framework
Market infrastructure
Human resource base
Investor base
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Noneconomic Factors in Africa
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Government objectives for creating stock
exchanges are important:
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Emerging market fever
A badge of inclusion
Geography
Populist symbolism
Politics of economic reform
Stock exchanges are national institutions
driving policy objectives of government
Government policy critical in demutualization
decision
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Assessing demutualization
drivers for Africa
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Relevant drivers
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Not so relevant drivers
• Improved governance
• Investor participation
• Competition
• Global consolidation
• Resource mobilization
• Unlocking stock exchange value
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Assessing Preconditions
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Markets are still not sufficiently liberalized, e.g.
Ghana
Of 20 exchanges, only about 7 are likely to be
financially viable as demutualized exchanges
Governments who support exchanges
financially are not in a hurry to demutualize if
policy objectives are being met in mutual form
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Conclusion
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Larger and financially sustainable African
markets may be ready for
demutualization
Majority of stock exchanges should
move cautiously
Demutualization should be seen as longrun objective
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In the meantime…
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Some benefits of demutualization can be
captured by reengineering of mutual
stock exchanges
• Corporate governance: increase
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representation of nonmembers
Continue to improve trading and post-trade
technology to stay competitive
Pursue ongoing market liberalization
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And finally….
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Avoid donor pressure
Seize control of the demutualization
agenda
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