How Tech Is Helping African Stock Markets To Evolve
African stock markets have a reputation for being inefficient and corrupt, and in the best case scenarios inaccessible to ordinary people interested in making investments.
Yet tech is being employed across the continent to address all these challenges, with the most recent initiative being the launch of a mobile app by the Nairobi Securities Exchange (NSE), designed to make information about stocks and shares accessible, and enable investors to follow market activity and make investment decisions in real-time.
“The newly launched NSE app will democratise access to capital market-related information in Kenya. The mobile based application will enable the NSE to meet the growing demand for faster, convenient and easily accessible information among our investors,” said the exchange’s head of brand and corporate affairs, Waithera Mwai-Ireri.
“Additionally, the app will enable us reach over 41 million Kenyans who have access to smartphones and internet connectivity in the country.”
The hopes is that by making information and potential investments available to more people, the number of people making investments will increase, especially among young people. Mwai-Ireri said that technology was helping stock exchanges across the continent to adapt and grow, while becoming more transparent.
“Stock exchanges in the continent have experienced significant growth in trading volumes through the use of technology enhancing turnover and improving liquidity levels in the country,” she said.
The Nairobi Securities Exchange has adopted tech in other ways, such as by rolling out the latest version of its Automated Trading System – which matches trading orders from different sources – in 2014, and its mobile-traded M-Akiba Bond. Mwai-Ireri expects more exchanges to follow suit in adopting tech.
Another country that has done so is Nigeria. A corruption scandal a few years ago saw the president and CEO of the Nigerian Stock Exchange (NSE) lose their jobs, and the exchange has had to battle hard to win back public trust. To do so, it has increased transparency and made investing easier through the use of tech.
New CEO Oscar Onyema rolled out a new X-GEN trading platform in 2013, which incorporates technologies such as the NASDAQ OMX XStream matching engine. It also supports various kinds of trading, and offers investors improved access to real-time data.
The impact has been huge, with the average daily value of trades increasing by around one-third. Onyema believes the roll-out of the system was an historic milestone and positions the exchange as one of the biggest in Africa.
However, in spite of these positive developments at exchanges, old perceptions are hard to shake. And Africans with smaller amounts to invest are still put off from investing, instead choosing alternative methods.
Tech making African stock markets more accessible
One of those is Kenyan startup Abacus, which allows users to make micro-investments in small periods of time. CEO Joel Macharia says tech is opening up new ways of investing for Africans, leaving the traditional capital exchanges behind.
“On the one side, techies looking for projects are picking financial services and trying to innovate on the existing systems and processes. On the other side, traditional players looking for growth are investing in new platforms,” he said.
Macharia believes the growth of tech-driven financial services is creating new opportunities and asset classes that were previously very difficult to commoditize, unless at scale.
“Technology has allowed individuals to participate, as it lowers the operational cost of handling thousands of small transactions. For instance, the operational cost of executing a trade worth $8, the smallest possible trade at the moment, via Abacus, is pretty much the same as one worth $8,000,” he said.
“This allows us to extend trading, saving, and other investments to low transaction-size clients that would not have been profitable to serve.”
In addition, the growth of mobile and internet penetration and literacy and mobile money is allowing platforms to reach new markets with marginal investment in infrastructure.
“Previously, providers of such services would have had to set up branches to tap new markets,” Macharia said.
At the moment, regulation in this space is the traditional securities regulation – anti-money laundering, cybercrime and data protection, and money transfer regulation. Macharia expects to see regulation increase and be revamped to adapt to the changing circumstances.
“The Capital Markets Authority of Kenya is working on a regulatory sandbox to allow alternative investment platforms such as ours to work with the regulator in determining whether traditional regulation fits, or if there is need for additional or alternative regulation,” he said.
Tom Jackson is co-founder of Disrupt Africa, a news and research company focused on the African tech startup ecosystem.