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Deepening and democratising African capital markets

Deepening and democratising African capital markets

The London Stock Exchange has had strong links with Africa for many years. Its co-head of emerging markets Ibukun Adebayo describes a range of initiatives the group has launched to help develop African capital markets to Dr Desné Masie

The London Stock Exchange Group’s co-head of emerging markets strategy, Ibukun Adebayo, has been instrumental in spearheading many of the group’s Africa initiatives over the past few years, including the creation of its Africa Advisory Group and Companies to Inspire Africa, an initiative to stimulate intra-African capital raising and investment. He has overseen the launch of green bonds in Morocco, Kenya, and Nigeria alongside governments and multilaterals, and supported the development of offshore local currency bond markets.

Adebayo, who has been with LSEG for 13 years, originally joined to oversee its primary markets listings business covering India, where he had previous experience. He says that a respect for diverse cultural differences is vital to his current role of ensuring that the LSEG has a cohesive strategy across key emerging markets in Asia, the Middle East and Africa. 

“I think it is fair to say that I probably spend most of my life on a plane,” he says. “But this is really important in understanding the essence of a place… as practitioners in these countries, it is really important to understand these [cultural] subtleties and the things that do bind us together as people, in order to do business more effectively.”

Historic links

Facilitating resurgent global investor interest in Africa requires connecting the continent to international financial markets. Africa offers investors unique diversification opportunities for their portfolios as well as new and sometimes lucrative sources of alpha investment returns. The London Stock Exchange has benefited from the UK’s deep historical, political, and commercial links with the African continent, and this has supported the momentum behind several of its Africa initiatives.

“The London Stock Exchange has been very fortunate to have linkages with the continent for many, many years. The first listing of an African stock on the London Stock Exchange happened over 80 years ago. Interestingly that company is still listed on the exchange today… One of the things that has been important to us as an organisation is to continue to be relevant to the continent as it continues to change. We firmly believe that well-functioning equity markets are the best way for a country to democratise its wealth and meet its goals around social development and economic growth.”

The bourse enjoys strong links with its counterparts on the continent. It has close historical ties with the Johannesburg Stock Exchange, and works closely with exchanges in Kenya, Nigeria and Morocco. Each of these countries has its own separate and unique challenges, which the LSEG takes into account in collaborating on capital markets strategies. The LSEG’s Africa Advisory Group, which was set up in 2016, is a vehicle which enables the group to benefit from the advice of industrialists, investors and policymakers from across the continent.

The LSEG is also focused on stimulating intra-African investment through the launch of its Companies to Inspire Africa report, which aims to bring the attention of Africa’s most inspirational and dynamic private, high-growth companies to a global market. The 2019 report features 360 companies from 32 different countries across the continent boasting an average compound annual growth rate of 46%.

Companies included in the publication, which aims to tell their stories in the broadest and most objective sense, are able to showcase their investment opportunity to a new investor audience.

Green bonds

The LSEG has pioneered the issuance of green bonds on the continent, the most recent being a Ksh4.3bn ($42.5m) bond issued by Nairobi-based property developer Acorn Holdings last October to build sustainable student accommodation, which was cross-listed on the International Securities Market of the London Stock Exchange.

Green finance initiatives like these are still in their infancy in Africa, and Adebayo is keen to emphasise that African countries may require bespoke arrangements in their transition to green finance, given the varying levels of market depth on the continent. The potential is significant – environmental, social and governance (ESG) measures are increasingly becoming a requirement for capital investment from institutional investors such as pension funds and insurers.

Offshore local currency bonds

As well as green bonds, the LSEG has facilitated offshore local currency bonds for Africa. Although there have been concerns that Africa is taking on too much debt, Adebayo says that it remains a necessary asset class in the economic transformation plans of aspirational African countries.

“Debt is fairly liquid in the secondary market after it has been issued… there has been a drive to develop complementary forms of financing for African issuers, and local currency debt issuance in an offshore market. This has many benefits for issuers and sovereign authorities as well as investors. For an issuer, it mitigates exchange rate risk associated with the international capital markets,” Adebayo says.

Eurobonds typically have their coupons repayable in US dollars or sterling, exposing often volatile African currencies to exchange rate risk in these transactions. But with local currency bonds, the whole transaction is done in the local currency, which not only hedges against currency risk, but also internationalises currencies and facilitates a better understanding of the currency profiles of particular sovereigns. 

Local currency bonds also support intra-African investment, which will become increasingly important as the African Continental Free Trade Area gathers momentum. The LSEG hopes to provide a familiar brand for first-time international investors who want to access high-yielding debt opportunities on the continent, but may be uncertain about country risk.

Besides facilitating market infrastructure, technical assistance and institutional arrangements for Africa’s capital markets, the LSEG also aims to supports companies who want to go public to get up to speed on requirements and global standards.

“The LSEG remains committed to working alongside our African counterparts in accessing capital in innovative ways,” says Adebayo.   

To hear to the full interview with Ibukun Adebayo listen to our podcast Deepening Africa’s Capital Markets with Ibukun Adebayo of the London Stock Exchange Group

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Written by Desné Masie

Dr Desné Masie is the chief strategist at IC Intelligence, and a fellow in international political economy at the Wits School of Governance. She was a director of the Investec Investment Institute, and a senior editor at the Financial Mail.

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