Interview: Edoh Kossi Aménounvé
What difficulties are encountered by the BRVM in regards to attracting new companies and increasing market capitalisation?
EDOH KOSSI AMENOUNVE: The BRVM faces the same challenges that all African stock exchanges do in terms of new listings. In 2015 African exchanges recorded 28 initial public offerings (IPOs) across the continent,with 12 IPOs in South Africa and the rest spread across the other 24 stock exchanges – which is an average of less than one IPO per stock exchange.
In recent years the average IPO rate has not exceeded three per year in Africa. This means that there are real challenges in attracting new companies to many of the African stock exchanges.
The first challenge is that privatisations, which are normally the main source of IPOs, are not always realised by way of capital markets. Many states remain shareholders of companies operating in strategic sectors and they are not ready to sell their shares to the private sector, but would rather sell them to strategic partners. That is why we still have a small number of state-owned companies listed.
The second challenge is related to private sector involvement. Large companies do not always see the benefits of going public for various reasons, such as fear of losing control of their company, the additional work that being listed entails and the large number of shareholders to manage.
However, the key deterrent is related to information disclosure and governance matters to comply with the rules of the stock exchanges. All these elements have made it hard for private companies to join stock exchanges. Beyond that, we are an economy heavily dominated by the banking sector, meaning that the preferred financial instruments used by companies are bank loans and their own funds.
A third challenge is related to private equity firms that have invested in companies and want to exit. In developed markets, private equity firms are the main source of IPOs, but in Africa this is not yet the case. In this regard, the BRVM has a strategy focused on signing memoranda of understanding with fund managers operating in the region. Thus, we are working with many private equity firms to encourage them to exit their investment through the BRVM.
These elements give a clear view on why African stock exchanges experience few IPOs. In addition to that, most companies in our region are small and medium-sized enterprises (SMEs), and stock markets do not always offer appropriate instruments to finance them. That’s why we have observed only a small number of SMEs listed on African stock exchanges.
How does the BRVM plan to attract more SMEs to the exchange and support them in the process?
AMENOUNVE: SME financing is part of the BRVM’s strategy. For more than three years we have been working on creating a third board dedicated to SMEs. In this regard, we have almost finalised the technical and benchmarking studies, and identified the listing requirements and accompanying measures.
SME financing is a global issue in all economies, and in order to give them effective access to capital markets, there is a need to create an environment based on their requirements. This should involve states and public authorities, so as to create an appropriate investment environment for both issuers and investors, and set appropriate mechanisms with help of donors and stakeholders, together with security and rating mechanisms.
SMEs require both equity and bond financing, so it is necessary for the BRVM to allow them to raise sufficient capital both on the stock market by issuing shares and through issuing bonds.
In preparation, the BRVM plans to set up a $2m capacity-building fund to prepare SMEs, over the next three years, to access the capital markets. We also hope that the BRVM SME Board will be launched soon.
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