The West African bourse has struggled to be attractive, but new opportunities could help unlock a more vibrant future.
With a stock exchange spanning eight countries, a harmonised regulatory system and a currency pegged to the euro, the West African Economic and Monetary Union has emerged as something of a poster child for the continent’s much-heralded regional integration projects.
But despite the supportive attitude of policymakers and a “build it and they will come” approach to market infrastructure, the region’s bourse still struggles to find companies to launch on the exchange. Seventeen years after its establishment in Abidjan, the Bourse Régional des Valeurs Mobilières (BRVM) lists a modest 39 stocks and suffered a four-year drought in new floatings between April 2010 and December 2014.
“This is very difficult – to be sure that newly established companies and SMEs [small and medium enterprises] can go very quickly to the process of listing on stock exchanges”, says Edoh Kossi Amenounve, chief executive of the BRVM.
However, with the recent listings of Bank of Africa Senegal and Total Senegal on the exchange, there are hopes that the BRVM is finally moving in the right direction and that it could capitalise further on a new wave of African IPO activity. That activity amounted to $11bn in initial public offerings and follow-on capital in 2014, according to PwC, a figure equal to the combined money raised in the previous two years. At the end of 2014, BRVM had seen its own market capitalisation double
in three years to around $13.8bn.
Amenounve believes that the key to unlocking this new activity in the BRVM region lies with risk-taking venture capitalists and private equity backers who have flocked to the region to develop local firms. KPMG says that the emergence of middle-class consumers in West African countries should attract private equity to fast-moving consumer goods, financial services and other sectors – a potential future source of much-needed IPO activity.
“We are in a region where private equity is on the rise, so we think private equity funds can prepare some of the companies and SMEs to be listed in the future when they come to the end of their term of investment,” he says. “We are working to make sure there is a channel for them to come to the stock exchange…it can be a big opportunity for us.”
That opportunity is sorely needed in a region where large companies often look to banks to secure their financing needs. Amenounve argues capital markets have the upper hand when it comes to funding longer-term projects, but concedes that regional authorities will have to look to provide greater incentives if they are to tempt established but unlisted firms onto the exchange.
“Maybe one day we need to think about how we can ‘force’ some of the big companies to come to the market – companies like banks, insurance companies, and some big mobile phone companies – not force them but give them very good incentives to come to the market,” he says.
BRVM can already point to prestige listings in the form of Senegalese telecoms firm Sonatel, regional banking giant Ecobank and Ivorian soft-drink maker Solibra, but Amenounve says that the bourse is constantly making the case to governments and regulators for improved terms for listed firms.
“The subject of tax is tough because our partners don’t like government to give tax incentives to big companies that are important contributors to the fiscal budget. Companies that are not listed don’t want to have these kinds of distinctions between listed companies that benefit from tax incentives and unlisted companies which don’t have anything,” he says.
Amenounve believes that a strategy to woo new firms onto the market needs to move beyond short-term tax incentives, and should instead seek to educate firms on the advantages of seeking a listing – including the promise of greater international exposure. The chief executive claims that 50% of transactions on the exchange are now done by foreign investors from as far afield as London, Paris and New York.
That drive to attract international investors to the region goes beyond the equity markets and is a key ambition among policymakers looking to attract funding in the bond markets for sectors such as infrastructure.
Moroy Soumahoro, secretary general of West African Monetary Union regulator Conseil Régional de l’Epargne Publique et des Marchés Financiers, believes financial markets in the region can play a key role in driving the region’s development.
“Aid to development is dwindling every year and as a result financial markets are the main source of financing for states. The capacity of financing at a local level for long-term investments in infrastructure is very low. So we are trying to capture investments at an international level from institutional investors that have the means to absorb these levels, for example, pension funds,” he told BRVM’s London conference.
Meanwhile, Adrien Diouf, director of the Agence UMOA-Titres, the agency which supports the issuance and management of public securities in the West African Monetary Union, says that much more can be done to attract infrastructure investment.
“As far as diversifying our investors base, that is absolutely essential. The local debt market is dominated by banks, and they have a pure strategy of buy and hold. We can’t really blame them for this, but we need to act and go and meet investors, local investors, perhaps insurance companies that could have greater presence on our market, money managers, pension funds – they are very conservative players so we have a lot to do to involve them in a greater way,” he said.
Since 1998, $6bn has been raised in bond issues on the BRVM, and Amenounve is seeking to convince the regulator to make it easier for states and companies to avoid having to put guarantees in place before issuing bonds. He remains adamant that the regulator should play the role of both watchdog and cheerleader.
“You have to deal with them to be sure that they can support the market operation, to be sure that they are not only regulators, but also business-minded,” he says.
Given intense competition from dominant African exchanges in Nigeria and South Africa, Amenounve is under no illusions about the challenges of differentiating BRVM’s offering. One comment in particular reveals both the limits of the exchange and the distinctive role it hopes to forge in an already crowded marketplace.
“Returns on emerging markets now are too low compared to the frontier, or to the pre-frontier market. We consider our market a pre-frontier market, before going to a frontier market and then an emerging market.”