JSE takes honours in financial World Cup but SA does badly
By Humphrey Borkum, Chairman of JSE Limited
As South Africa is a daily player in global markets I always look forward to reading the World Economic Forum’s annual Global Competitiveness Report. This is the real World Cup where South Africa Inc competes with 138 other countries across a wide range of criteria. The comparison is not merely against developing countries but against all the top developed countries in the world.
There was some good news and bad news in the 2010 report. The good news was primarily in the financial market development category where I am proud to say that in the regulation of securities exchanges South Africa (and therefore the JSE) came first; protection of minority shareholders sixth; the soundness of our banks sixth; financing through the local equity market and the availability of financial services both came seventh. Our accountants can also take a bow as they obtained a first for strength of auditing and reporting standards.
Congratulations are due to all the main players in the financial services arena in both government and the private sector. If we maintain our high global standards and hold our line against the insular, ill-informed and populist rhetoric that swirls around our body politic, we will help South Africa in its’ quest to enjoy a viable economic future.
On the bad news front SA slipped nine places overall to 54th this year. We came 137th for the quality of maths and science education and 138th on the business impact of HIV/Aids.
As laid out in the report, in order of importance, the five most problematic factors for doing business in SA are: Inefficient government bureaucracy; Inadequately educated workforce; Crime and theft; Restrictive labour regulations and Corruption.
This brings me to the recent public service strike. It was with some disbelief that I witnessed striking public service workers demonstrating outside the JSE on two occasions in September. It is the taxes from the 400 well run companies listed on the JSE that helps pay their salaries while most of their R800 billion Government Employees Pension Fund is invested on the JSE. What on earth were these people doing demonstrating against us?
At world economic forums the JSE is one of South Africa’s great ambassadors. The successful World Cup put us on the front foot with this endeavour but the nature of the recent strikes, threats to media freedom, various calls for nationalisation and the dodgy granting of some mineral rights have put us into a decidedly defensive mode. These actions provide foreign investors with a good excuse to invest elsewhere in the world.
JSE Limited’s results for the six months to end June show revenue climbing 14,5% to R623,3m and net profit after tax increased 13,1% to R207,6m. These positive results were due largely to increased volumes of trade caused by volatility of local and world markets. The JSE was again the home for large scale foreign direct investment with foreigners investing R19.1 billion in South African equities and R36,2 billion in local bonds. The liquidity on the equities market rose from 48,8% to 53% for the period. As a predominantly fixed cost business with technology
and people comprising the main overheads the JSE expenses increased 13,3% to R293,2 million largely due an increased headcount as a result of the acquisition of the Bond Exchange of South Africa (BESA).
Six new company listings occurred during the period – five on the main board (including Wilderness Safaris on the Africa Board) and one on AltX – compared with four for the same period last year. This is in line with listings numbers on member exchanges of the World Federation of Exchanges.
We at JSE Ltd are always looking to diversify our revenue stream and we now have nine different profit centres with equities trading (29%), risk management, clearing & settlement (16%) and technology services (15%) being the main contributors. However, an astute observer may have picked up that, as a result of our BESA takeover, our interest rate market now contributes three percent of revenue. Predominantly due to interest rate differentials our bond market is pumping at the moment with foreign trading in bonds in August alone being over R12 billion and, for the year to end August, more than R67 billion has come in – an increase of 450% over the same period in 2009. With our drive towards a centralised, technology driven interest rate marketplace the JSE is assured of another steadily growing revenue stream.
There has been much debate about black ownership on the JSE with many divergent numbers bandied about. An independent research house (Trevor Chandler & Associates) was therefore commissioned by the JSE to obtain a more accurate picture of black ownership using actual shareholder data obtained from the share registers of listed companies. Emerging from this complicated research it would appear that black South African investors own 18% of the available share capital in the top 100 companies listed on the JSE. These companies represent 85% of the total capitalisation of the exchange. The methodology and results were verified by AQRate Verification Services, one of the founding members of the Association of BEE Verification Agencies. This is the first study of its kind and no doubt the methodology will be further refined in the future. However we will now be able to use this research as a benchmark to measure our progress going forward.
The JSE has two main stakeholders – issuers and investors – and through our Showcase programme we frequently facilitate meetings between investors and our listed companies. If we are holding a mining company’s showcase, a week or so prior to the event, we might hold a mining education showcase for investors. For example, if you are considering investing in a platinum company, it’s a good idea to know the difference in potential between the Merensky and UG-2 reefs. The same applies to all the other sectors.
If you wish to attend one of these showcases click onto ‘Events’ on the JSE website (http://www.jse.co.za/) and become a well informed member of the JSE investment community.
This article first appeared in Business Report