Building Francophone Africa’s capital markets

The Bourse Régionale des Valeurs Mobilières (BRVM), a stock exchange for eight countries that form the west African CFA franc monetary zone, has long had a reputation for lacking dynamism and offering few opportunities for investors, particularly foreign ones.

In part, this is merely a reflection of economic reality. Many members of the West African Economic and Monetary Union, know by its French acronym UEMOA, are small and poor, even by African standards. And the region still suffers from political instability, with Guinea-Bissau and Mali, neither of which has any companies listed on the BRVM, having experienced military coups in the past two years.

Growth story

Yet the bloc does have plenty of attributes to excite investors wanting exposure to sub-Saharan Africa. For one, it has a combined gross domestic product of about $80bn, double that of Ghana or Kenya. The economy of Côte d’Ivoire, the UEMOA’s biggest, was forecast to grow by as much as 8% in 2013, while Burkina Faso and Niger both expanded by more than 6%. Even the slower growing economies of Benin, Senegal and Togo, each of which is rising at 4% or more, have growth rates that no developed world country can match.

Edoh Kossi Amenounve, who became chief executive of the BRVM in October 2012, has set out to realise the bourse’s potential and make it more attractive to the world’s frontier market investors. He has plenty of work to do. The stock exchange, located in Abidjan, Côte d’Ivoire’s commercial capital, has $10bn of equities listed on it, making it Africa’s sixth biggest bourse by market capitalisation after those in South Africa, Nigeria, Morocco, Egypt and Kenya.

But it is blighted by a lack of liquidity. Only $4.5m of equities are traded on it each week, which is less than in Botswana or Zimbabwe. It is largely for this reason that frontier market funds in London and New York rarely invest on the BRVM. And when they do, few look beyond its two biggest companies, Senegalese telecoms group Sonatel and Togolese pan-African lender Ecobank.

Boosting turnover

Mr Amenounve admits that low turnover is a problem. “Compared with other exchanges in Africa, we are underperforming when it comes to liquidity,” he says. “Our daily volumes are very small. Our market capitalisation meets the criteria to be a frontier market, but our levels of liquidity do not. This is our big challenge.”

To deepen liquidity, the BRVM switched from a fixed to continuous trading system late in 2013 and extended its daily trading hours from two to six. It is encouraging companies to increase their free floats (they have to list at least 20% of their shares to be on the exchange) and to carry out stock splits, something which Sonatel recently did in a bid to make its shares more appealing to retail investors.

Among Mr Amenounve’s broader reforms is to get more companies to go public. With just 37 firms listed, and 31 of those being from Côte d'Ivoire, the BRVM scarcely mirrors the makeup of the UEMOA’s economy. Under Mr Amenounve, the bourse has spoken to governments about privatising state-owned entities through the stock market and begun to market itself more to businesses. “It’s traditionally the role of brokers to talk directly to the managers of companies,” he says. “But we think the exchange also needs to go and explain the advantage of listing. That’s what we started doing last year.”

He is particularly keen for the financial sector to be better represented. None of the UEMOA’s insurance firms are listed, and only eight of its roughly 110 commercial banks are. This might change if the BCEAO, the UEMOA’s central bank, hikes banks’ minimum capital requirements from their current level of about $20m, says Mr Amenounve. He cites Nigeria as an example, with increased capital requirements there over the past decade having resulted in banks becoming some of the largest and most traded stocks in Lagos.

“When Nigeria put capital requirements at a higher level, the banks had no choice but to use the market to raise money,” he says. “If you had similar regulations in our region, banks would be [more tempted] to come to the market.”

Target Kenya

The BRVM has had barely 10 initial public offerings (IPOs) in the past 15 years, and none in the past two. Mr Amenounve thus realises it will take time to lure more firms. But he hopes that there will be at least 50 on the BRVM within five years and about 80 by 2020. He even thinks that if some of the region’s miners and unlisted telecommunications groups – not to mention financial firms – launch IPOs, the BRVM could overtake the Nairobi Securities Exchange, which has more than $20bn of equities listed on it.

“Our ambition is to be among the top five African exchanges by capitalisation,” he says. “So, we have to pass Kenya. There are more than 500 big companies in Côte d'Ivoire and many in the other countries. If we can attract some of them, it would be a big change and increase the size of our market substantially.”

Mr Amenounve, who used to run a brokerage in Togo, says part of the reason the BRVM has a low international profile is that few of its companies court foreign investors. “Ghanaian and Nigerian groups do roadshows in places like New York and London,” says Mr Amenounve. “In the Francophone zone, we don’t have this tradition. That’s got to change.”

He adds that language is a barrier. BRVM-listed companies usually only report in French and brokers rarely publish English research. While stopping short of saying the BRVM will make firms publish their results in English as well as French, he says it would help if they did. “They don’t have that obligation, but it would make them more attractive to international investors,” he says. “Something else that’s important is for brokers not only to meet international investors more frequently, but to put out more research, particularly English research.”

The stock exchange is focusing on widening the local investor base, too. Banks tend to be the dominant buyers of stocks. To increase the number of retail investors, Mr Amenounve is promoting collective investment schemes and wants to introduce technology that will allow individuals to trade via smartphones.

With regards to institutional investors, the BRVM is pushing for regional governments to loosen regulations that heavily restrict insurance companies from buying equities or the few corporate bonds that are issued. “We’ve begun discussions with regulators so that they allow insurance companies to take more positions in stocks,” he says. “Traditionally, they have only bought government bonds. But it’s important that the regulator gives them the opportunity to buy more private sector securities.”

Integrating regional exchanges

The BRVM and its west African counterparts in Nigeria, Ghana and Sierra Leone set up a council in January 2013 to bring about closer ties between each other. As well as harmonising rules and regulations, Mr Amenounve outlines three major phases. The first, which will be to give the region’s brokers common licences, meaning they would not need separate ones for each exchange, could be implemented this year. “It will give investors the opportunity to have just one entry point for all the markets and reduce the cost of buying and selling stocks,” he says. “Technologically, it’s not complex. We think we can do it in 2014.”

In the following two years, the exchanges and regulators will then work to enable firms present on one exchange to issue capital directly on the others without having to list on them. “It would give companies access to a very large group of investors if they could raise money on all the exchanges, but without needing a visa from each of the regulators,” he says.

In the longer term, the BRVM hopes to create a single west African exchange, although that would only be possible if the Economic Community of West African States, a regional grouping of 15 states, achieved its goal of creating a single currency, which analysts doubt would happen before 2020, if at all. “The final stage of the integration will be the creation of one platform,” says Mr Amenounve. “We can carry out the first two phases quickly. The last will have to wait for a common currency.”

The BRVM has made plenty of recent progress. Turnover has doubled since 2011 and its all share index rose 30% between January and November last year. The rapid growth of the UEMOA’s main economies should ensure that this buoyancy is sustained. But Mr Amenounve knows plenty of reforms are needed to increase liquidity and the number of listings, as well as widen the exchange’s base of foreign and local investors. Once that happens, he believes the BRVM will start to play a much greater role in fostering the region’s overall economic development.

Edoh Kossi Amenounve is chief executive of the Bourse Régionale des Valeurs Mobilières.