High Costs, Sluggish Listings Hold Back African Stock Exchanges

High Costs, Sluggish Listings Hold Back African Stock Exchanges

Written by Duncan Miriri | From Reuters

African stock exchanges should lower transaction costs and encourage new listings if they want to become more attractive vehicles for raising capital and lure new investment.

Shares on many Sub-Saharan African bourses have offered enticing returns in the past five years, but investors complain about a limited number of initial public offerings, high fees and poor liquidity.

Addressing those issues will be vital if the continent’s capital markets are to keep African companies growing and support entrepreneurs in the race to drag more people out of poverty, bourse chiefs, brokers and regulators said.

“African exchanges have to make access to the market much, much easier,” said Alan Thomson, a South African stockbroker at a conference this week on African stock exchanges in Kenya.

“In most countries you have to work through a broker there,” he said, adding that a limited number of licensed brokers and challenges hindering new entrants drove up costs. “It is very expensive to set up. Settlement is expensive.”

Commissions on some African markets are much higher than more developed exchanges. On the Nairobi bourse, brokerages often charged 2.5 percent, compared with the 0.5 percent that an average investor, rather than institution, might pay in London.

Low volumes are also partly to blame for driving up fees, as local brokers have to charge more on each trade to meet costs.

“We continue to be challenged by liquidity,” Oscar Onyema, chief executive officer of the Nigerian Stock Exchange, told Reuters at the conference at Kenya’s Diani coast resort region. “The markets are not deep enough.”

In a bid to boost volumes and offer investors more ways to manage risk, Onyema said the Nigerian exchange planned to start trading by 2016 in derivatives such as swaps and options on currencies, interest rates, equities and equity indexes.

Read more at Reuters