Renée Bonorchis
17 May 2006
Johannesburg — IT's take two for the JSE's forays into Africa. Having courted some of the continent's larger exchanges unsuccessfully, the JSE has changed tack and decided to target companies that would benefit from a listing on the JSE rather than attempting to build a pan-African stock exchange for the continent. This month, Noah Greenhill, the Sandton-based exchange's business development manager, and others take to the road to visit firms throughout Africa. A key issue will be to avoid coming across as a new wave of financial colonisers.
"We don't want to go and colonise Africa, we want to go and partner with companies. At this point we want to go and listen," Greenhill says.
Previous meetings have made it clear they must be careful.
"Last year we met with the exchanges. There was definitely a wariness on the part of the exchanges. That has to be managed," Greenhill says.
It's not just the JSE that thinks this is a good idea. Jackie Tong, chief operations officer for Ernst & Young Africa, says her firm is also reorganising to get its practices in Africa to work closer together to benefit from growth opportunities in the region.
She is also working with the JSE to identify opportunities for the exchange. "Certain regions have more growth opportunities. Nigeria is one, and one area would be its banking industry. It's going to get sizable, and then it's going to get even bigger, so it's ripe for the JSE to go and chat to people," Tong says.
Other untapped markets will come from African governments looking to privatise businesses such as airlines, she says.
Listing is, of course, about more than developing a profile. Ultimately, it's about capital-raising and Murray Stewart, global banking director at Deutsche Bank in SA, says the JSE's success will depend on the growth opportunities in Africa for African companies. If large companies throughout the continent want to raise capital and can do that more cheaply and easily elsewhere, then the JSE will not be the market place of choice.
The continent's larger exchanges, such as Nigeria, Egypt and Mauritius, are all dwarfed by the JSE, which accounts for 80% of the combined market capitalisation of the entire African continent. They have hardly welcomed the JSE's advances.
Tong says companies in Africa have learnt many lessons and the JSE cannot just take what works in SA and try to apply it.
"You have got to go and learn how things work elsewhere. Bureaucracy is one big challenge in the rest of Africa. In SA it's a pretty western environment and it's always a rush.
"In the rest of Africa there's no sense of urgency, so you must be clear on what you want and when you want it. You need attention to detail to get things done on South African time."
The JSE's actions may have far-reaching consequences for the continent as a whole. Investors in SA will be able to explore other countries through the JSE if these initiatives pay off and it will make it easier for Africans to invest in African companies.
"If we could get a couple more Telkoms out of our continent, it would create a different image for Africa," says Tong, referring to the privatisation of SA's fixed-line telephone network which, on listing in 2003, became one of the world's best-performing telecoms stocks. Since 2003 the stock has risen more than 450%.
Of course, the thing that worries many investors, particularly those from outside of the continent, is the talk of corruption, but neither Tong nor Greenhill let this gremlin scare them off.
"You could get a good company in Zimbabwe that has been overlooked because of the economy of that country," Greenhill says. "We are starting with sub-Saharan Africa, which will include seeing companies in Nigeria, Zimbabwe, Zambia, Mozambique and Botswana.
Mining, energy, oil, tobacco and retail are all possible targets.
The JSE isn't the only exchange to have spotted the opportunities in African countries. Apart from the grab for resources coming from India and China, Greenhill says the JSE is competing for listings with the likes of AIM in the UK, the Toronto Stock Exchange and the Australian Stock Exchange.
Next week AIM, London's alternative market with more flexible listing regulations than the main bourse, is hosting an "Africa Day" and showcasing African companies to UK and European institutional investors.
In just 10 years, AIM has managed to attract over 250 foreign companies.
"And don't underestimate the exchange in Dubai either -- it's aggressive and it has lots of cash," says Greenhill.
Looking for growth close to home is not unique to South African companies. After a decade and a half of concentrating on established European Union markets, Polish, Czech and Hungarian companies are looking for opportunities to invest in growing markets in central and southern Europe and further east to Ukraine and Russia.
In a similar vein, Standard Bank and SABMiller have tackled offshore markets, realising that one of their strengths is figuring out how to do profitable business in third-world countries.
The JSE is trying to fend off foreign rivals by offering African companies dual listings rather than stealing them away for a primary listing. This offers investment opportunities to domestic investors in those countries.
Going into Africa might make commercial sense, but it's a continent that still offers challenges when trying to conduct business. From military coups, the jealous guarding of oil pipelines, violent civil wars, to bribery and corruption, those that venture into Africa's depths need to go in with both eyes open.
JohannesburgGreenhill says the JSE will not automatically exclude areas rife with political and economic struggles. On the other hand, investors must make their own choices about what type of country risk is acceptable, he says.
Oando, a Nigerian oil company, was an inward listing that approached the JSE and listed in late November.
It hasn't yet tried to raise capital. Deutsche Bank's Stewart, who was part of the team that handled the listing, says he is still hopeful Oando will try to raise capital in SA. "That will be a true test of how South African institutions regard African companies."
The JSE is also targeting companies with interests in Africa.
"We're working very hard on two companies that are listed on the Toronto Stock Exchange with operations in SA," says Greenhill. He doesn't say more, but one company that fits his description of having 80% of its net asset value in SA is junior platinum company AfriOre.
The move into Africa is another JSE development project for Greenhill, who launched AltX, the alternative exchange for smaller companies and which now has 18 actively traded companies.
Sure enough, the JSE's march into Africa has been a slow starter, but for an exchange that is almost 120 years old, what's a year or two between markets?
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