JSE helps educate citizens, develop African peers
By Humphrey Borkum, Chairman of JSE Limited
During the debate on the nationalisation of the mines last year in one of my columns I advised the ANC Youth League that, instead of trying to run the country and nationalise the mines, they should be lobbying for a vastly improved education system which would empower our youth to better compete for jobs in the real world.
However once employment is attained in a modern economy it is only the start of an often challenging journey. There can be no doubt that to survive and prosper there is an increasing need to understand the complexities of the financial sector.
For 39 years through the JSE/Liberty Investment Challenge the JSE has been making a contribution in trying to demystify the stock exchange and the investment segment of the broader financial sector to scholars. This year we have close to 300 schools and over 37 universities and private colleges participating in the Challenge which consists of teams managing a virtual portfolio of R1 million. Each team is supervised by a teacher or mentor.
In 2007/2008 we went one step further by developing educational programmes for schools covering basic financial concepts and conducted a pilot project with 250 schools in Gauteng. Economic management sciences were included in the curriculum from Grade 9 and the JSE provided the learning materials and the teacher training. In 2009 we handed the project over to the Gauteng Education Department to continue with the programme. In 2009/2010 we took the same project to 50 schools in the Eastern Cape and 50 schools in KwaZulu-Natal. This year 50 schools in the Eastern Cape continue to benefit from our JSE Investment Education Project but it has been introduced in Grade 10.
The JSE has also played its part in an attempt to educate the general public on investment through structured public programmes: Power Hour lectures, company showcases, online courses and the JSE magazine. Presentations are also made to professional groupings such as doctors, lawyers and business associations plus stockvels, social clubs and burial societies. However there is a limit to how much one organisation can do on its own and we at the JSE have long felt that financial education programmes in South Africa were too fragmented.
We are now greatly encouraged that the National Treasury together with the Financial Services Board have undertaken to develop a National Financial Education Policy and Strategy. The JSE has been invited to participate on the committee of this initiative which encompasses over 40 organisations involved in financial services. The vision of this body is to increase the financial capability and thereby financial well-being of all South Africans.
The JSE will gladly provide its knowledge and experience to this important public-private partnership. As I rate the Treasury highly I have every confidence that the strategy will be competently implemented. It is anticipated that the first draft of the strategy will be presented to the Minister of Finance by 30 October 2012.
Our recent closing of the Africa Board of the JSE was part of our evolving relationship with African companies and the continent’s stock exchanges.
For the past 20 years the JSE as the largest exchange in Africa has been trying to assist in the development of capital markets and facilitate foreign direct investment into Sub-Saharan Africa. Investors are starting to realise that Africa is not only about oil and resources. Other attractions include energy, transport, telecoms, breweries, tourism, agriculture and financial services companies.
However Africa’s smaller exchanges have been challenged by a lack of liquidity making it hard for investors, particularly foreign institutions, to buy and sell shares. We therefore established our Africa Board in 2009 and we identified about 40 companies outside South Africa which could dual list on their local exchange and the JSE. We believed that foreign fund managers interested in investing in Africa would feel more comfortable investing via the JSE because they were familiar with our trading platform and stringent regulatory practices. We even offered to share our revenues with the local exchanges.
In short, various factors mitigated against the success of the Africa Board including political and turf issues plus the fact that the Africa Board was regarded as a separate entity even though it was in fact part of our Main Board. Moreover the Africa Board did not enable companies to be listed in their industry sectors and thus be measured against their peers. There was also the perception that the Africa Board had less status than a Main Board listing.
After consultation with the various stakeholders we have moved the companies listed on our Africa Board directly to the JSE’s Main Board and smaller and medium size companies will be encouraged to list on AltX. There are now 12 African companies listed on the JSE, nine on the Main Board and three on AltX.
Africa has 24 stock exchanges spread throughout the continent. The Southern African Development Community (SADC) has 10 exchanges, East Africa four, West Africa five and North Africa five. The biggest four are South Africa, Nigeria, Morocco and Egypt. Only four - SA, Mauritius, Morocco and Egypt - are members of the World Federation of Stock Exchanges (WFE).
Doing business in Africa requires patience, persistence and flexibility and we continue to remain optimistic about what we can achieve going forward. The JSE is increasingly developing good relations with a number of African stock exchanges. One new option may be to sign co-operation agreements with the various regions or individual stock exchanges much like our BRICS alliance on benchmark equity index derivatives.
Another option is to develop further debt and quasi-equity products. This could include depository receipts (DR’s) which are traded like shares and offer investors the same corporate and voting rights as holding underlying shares directly. These will enable African companies to raise capital on the JSE without a secondary listing. Freely traded in South African rands this will allow African companies to market themselves to both South African and international investors.
Like their national airlines many of the exchanges on the continent are arms of government and are usually controlled by their central banks. Unless they become independent of government they cannot fulfil their potential as exchanges and become members of the WFE. They are also unable to list themselves and thereby acquire the necessary capital to back the development of new products and increased trading. The vast majority of the 54 members of the WFE are listed.
In this regard it is interesting to note that the successful listing of the JSE in 2006 enabled our former CEO Russell Loubser and his team to grow the JSE into the well capitalised business it is today. The previous CEO’s Tony Norton and Roy Anderson were handicapped when they headed the JSE as it was still a mutual company owned by the members and run by the members for the benefit of its members. Whenever there was a surplus at the end of the year this had to be paid back to the members and thus could not be used to strengthen and develop the exchange.
With our recent experience of demutualising and listing we are well placed to assist in the growth of African exchanges. The more developed the capital markets on the continent are the more attractive they are to investors and therefore more investors should come our way. Assisting with building this capacity would certainly strengthen the relationship between us.
I can recall Russell Loubser telling shareholders at the conclusion of the 2009 year-end financial presentation: “One of my successors will be standing in this position in 15 years time still discussing IT technology and seeking new roads into Africa!”