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Speeches & Transcripts November 26, 2018

Keynote: The Crucial Role of African Securities Exchanges in Unleashing Africa's Vast Wealth

It is honor and privilege to give a keynote address at the 22nd African Securities Exchanges Association (ASEA) annual meetings and conference, being hosted in my home country Nigeria and by the Nigerian Stock Exchange (NSE).  I am pleased to reconnect with many friends and colleagues from my days at SEC Nigeria and thank you all for your efforts to deepen, broaden and improve the sophistication of African capital markets

I believe that we must unleash Africa’s wealth with a sense of urgency and that African Securities Exchanges must play a critical role in this respect.  I have therefore entitled my keynote – ‘The Role of African Securities Exchanges in unleashing Africa’s wealth.  I will start with a review of the current state global economy and Africa’s competitiveness, to explain why we need to have a sense of urgency.  I will then describe why African Securities Exchanges are at the epicenter of this task and present two examples for your consideration.

The Global economy is projected to grow by 3% on average, over the next three years.  As you would have noted, the global economy is fragile, even ten years after the devastating global financial crisis. While the US has been experiencing reasonable growth, this growth is unsynchronized with the rest of the world and is possibly under threat due to a fractured political environment and geopolitical risks such as the recent trade tensions.  This is evident in the recent decline in bellwether US stocks, with most stocks giving back most of their 2018 gains.  The European Union remains under threat with recent election surprises in Germany, Italy’s outstanding budget dispute with the EU and uncertainties with BREXIT, notwithstanding the deal approved over the weekend by the EU.  Various emerging market and African countries are struggling with more difficult financing conditions, debt burden concerns, weak commodity prices and the currently strong dollar. The greatest challenges of our time are however extreme poverty, inequalities, climate change, populism, protectionism, anti-globalization and extremist sentiments as well as uncertainties around the impact of disruptive technologies and other risks.

It is therefore important that African economies focus on strengthening their competitiveness especially given the importance of competitiveness in enabling sustainable and inclusive growth, fostering resilience to shocks and broadening opportunities for the populace. Much needs to be done as the recently released World Economic Forum Competitiveness Index, indicates that 17 of the 38 African countries assessed are amongst the bottom 20 countries.  Out of the 140 countries assessed, the top five most competitive African countries, Mauritius, South Africa, Morocco, Tunisia and Botswana were ranked 49th, 67th, 75th, 87th and 90th respectively. In other words, even our most competitive countries are not even highly ranked.

Also, sub-saharan Africa accounts for most of those living on less than $1.90 per day or of the world’s extreme poor, and the total number continues to rise in a period when other regions are seeing notable declines. Specifically, we estimate that the while 1 billion people, globally, lifted themselves out of extreme poverty from 1990 to 2015, the number of extreme poor in sub-saharan Africa grew from 278 million people in 1990 to 413 million in 2015, the year with the latest data. This is also more than 50% of the world’s extreme poor and if the trend continues, by 2030, 9 out of 10 of the world’s extreme poor will be living in Africa by 2030.

Yet, according to Martin Meredith, in his book, ‘The Fortunes of Africa: A 5000 -Year History of Wealth, Greed and Endeavor’ - “Ever since the era of the pharaohs Africa has been coveted for its riches.”  He also notes that “Legends about Africa’s riches endured for millennia, drawing in explorers and conquerors from afar. Stories in the Bible around the fabulous gifts of gold and precious stones that the Queen of Sheba brought King Solomon during her visit to Jerusalem in the tenth century BCE grew into folklore about the land of Ophir that inspired European adventurers in their quest for gold to launch a war of conquest in southern Africa 3,000 years later.”

Of European mariners, Martin Meredith writes “Their interest in West African goldfields has been stimulated as a result of the visit that the ruler of the Mali empire, Mansa Musa, paid to Cairo in 1324 while making a pilgrimage to Mecca. He was so generous in distributing gold that he ruined the money markets there for more than ten years. European cartographers duly took note. A picture of Mansa Musa decorates the Catalan Atlas of 1375, one of the first sets of European maps to provide valid information about Africa. A caption on the map reads ‘So abundant is the gold found in his country that he is the richest and most noble king in all the land. Modern estimates suggest that Mansa Musa was the richest man the world has ever seen, richer even than today’s billionaires.”

Today, the world still covets our natural resources, our growing consumer markets, and our economic potential. Indeed, Africa is the world’s youngest continent with 60% of its population below the age of 25. Of the 2.2 billion people that will be added to the world’s population by 2030, 1.3 billion, will come from Africa.  Equally, Africa’s youth population is expected to double to 1 billion by 2050. Indeed, Africa’s most important wealth is its people, if properly harnessed.

I believe that we must build infrastructure and particularly climate smart infrastructure. We must diversify African economies beyond commodities and extraction of natural resources as areas of opportunity abound in Africa including in agriculture, manufacturing, services - education, health, hospitality, financial services, entertainment, retail, sustainability, technology (particularly emerging technology and Fintech). We must foster innovation and entrepreneurship. Securities exchanges are at the epicenter of the ecosystem to enable all this happen. This is because securities exchanges are visible symbols of the multi-dimensional roles that capital markets play in society.  As you know capital markets, mobilizes savings and is therefore a source of medium to long term finance for financing key government priorities such as infrastructure and for new business and expanding existing businesses.  They also provide various vehicles for wealth creation for institutional and retail investors and for domestic and foreign investment flows alike. They enable merit-based allocation of resources and wealth distribution.  They also foster transparency, accountability and good corporate governance. They promote innovation, entrepreneurship and job creation. Let me share two examples to illustrate my point.

The opportunity that Africa’s energy deficit presents - As you know, about 600 million people in Africa live without access to electricity. Average electrification rates in SSA is about 35% and even lower than 20% in remote areas. Africa currently has about 176 GW of installed capacity while Spain alone has 105 MW). Significant untapped renewable potential exists in solar, hydropower, geothermal, wind etc. Potential solutions include privatizing and listing the 39 power utilities that are not commercialized and most of whom are not financially viable. You already have a few examples of such listings including the that of Uganda’s sole power distributor Umeme which was listed on the Ugandan Stock Exchange in October 2012 and cross listed on the Nairobi Stock Exchange., subsequently. The Actis- backed power distribution utility successfully raised funds to repay high interest debts. Such privatization programs can relieve fiscal space for governments, and funds released can be deployed to often starved sectors such as education and health.

African Securities Exchanges can help finance Sub-Saharan Africa’s electricity sector capital investment needs, estimated by McKinsey to be $835 billion from now until 2040. Financial structuring can support regional integration solutions such as power pools that could save more than $40 billion in capital spending and save the African consumer nearly $10 billion per year by 2040. African Securities Exchanges can take lead in promoting renewable energy generation solutions. You can also support innovative off grid solutions and mini grids as well as disruptive technologies such as battery storage. Since storage of solar energy remains a challenge, the World Bank Group launched a battery storage initiative in September2018. It is a new, $1 billion, first-of-its-kind global program to accelerate the deployment of battery storage for energy systems. It will help countries leapfrog to a new generation of energy technology. The program is expected to mobilize another $4 billion from concessional, public, and private sectors. The application to Africa could be immense as the program has the potential to finance 17.5 gigawatt hours (GWh) of battery storage by 2025 – more than triple the 4-5 GWh currently installed capacity in all developing countries.

While Africa has immense potential in solar, solar investments are still primarily funded by development finance institutions. The biggest hinderance to the growth of African solar power is access to capital, and exchanges should be able to attract and incubate solar listings of all sizes. Clearly, securities exchanges have a role to play in ending Africa’s energy problems

Entrepreneurship - Securities Exchanges must also nurture entrepreneurship and micro small and medium scale enterprises(MSMEs) as they are strong drivers of economic development, innovation and employment. Albeit, they lack access to finance.  Nurturing only 0.1% of the 44 million MSMEs that Africa has means that African Securities Exchanges can potentially list 44,000 companies in the near future.

African Securities Exchanges must also be proactive advocates for the appropriate enabling environment for the private sector.  Such advocacy should be given the same attention as provide financing vehicles. It should advice on the macroeconomic environment as well as provide intelligence on global trends best practice government policies, competitiveness and potential opportunities that governments can support.

Finally, collaboration is key including in respect of integration of trading and settlement systems which will bring scale, reduce costs and increase efficiencies. Sharing of knowledge and expertise as exemplified by ASEA is also crucial.

I hope that I have energized ASEA and the individual securities exchanges in Africa to develop strategies and plans that will unleash Africa’s wealth and broaden economic participation so that Africa can realize its true potential.

Thank you.