Challenges and Outlook for African Exchanges: Where are we heading?

1. Challenges and Outlook for African Exchanges: Where are we heading? Presented by: Sunil Benimadhu Chief Executive, The Stock Exchange of Mauritius Ltd President , African Securities Exchanges Association 8 October 2013 • NeMa Africa 2013 • Tower Suite, Hilton London Tower Bridge, London

2. Presentation Outline The shift in the balance of economic power and Africa’s rise The changing world economic momentum: A gradual and yet irreversible shift of international asset-allocation in favour of African capital markets African stock market’s: facts & figures Challenges of African Stock Exchanges Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa African Securities Exchanges Association’s (ASEA) contribution to the African capital markets’ space Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to internationalise its platform

3. The shift in the balance of economic power and Africa’s rise Source: International Monetary Fund; The Wealth Report 2012

4. The shift in the balance of economic power and Africa’s rise

5. The changing world economic momentum: A gradual and yet irreversible shift of international asset-allocation in favour of African capital markets • Growth in the developed world looks anemic at best and international investors are on the look for superior returns outside of the traditional markets • Emerging Asia and Latin America have benefitted from the first wave of asset-allocation shift during the 1990’s and 2000’s • Africa is the last-growth frontier that will benefit from the second wave of asset-allocation shift • The setting up of dedicated Africa funds, Africa-focused structured products and PE funds is on the rise and will intensify • Fundamental shift to the current static perceptions of African Exchanges being fragmented and illiquid • Global brokers/liquidity providers who, have so far overlooked African stock markets, will growingly turn to these markets as the last financial Eldorado

6. African stock market’s: facts & figures

7. African stock market’s: facts & figures

8. How do African stock markets stats compare with those of a few emerging markets?

9. Challenges of African Stock Exchanges • Fragmented nature of financial services sector • Restricted market depth and breadth • Equity-Centric Exchanges • Liquidity issues • Unusually high transaction costs • Absence of an active and well developed domestic investor base (low institutional participation & less than 1% retail participation) • Manual Trading and Settlement infrastructure • Issues of efficiency and real-time availability of market information • Corporate Governance practices of Listed Companies • Protection of Minority Shareholders’ rights • Accounting and Disclosure standards • Transmission mechanism

10. Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa • At the micro market-level: • Active stimulation of the four P’s that characterise the Exchange space: - products, players, participants and partnership • Increase the number of local investors from the current 1% to at least 10% of the population • Diversify product base (corporate & government bonds, short-selling on liquid counters, single-stock futures on liquid stocks, introduce index-futures) • Slash transaction fees • Innovate by introducing turnaround trades • Reach out to the rest of the world and improve the availability of updated market statistics. Aggressively put African stock markets on the radar screen of international investors

11. Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa • At the micro market-level: • Bring the good companies to list on African Exchanges • Successful African companies should contribute to the growth of local capital markets and local economies, instead of systematically supporting the growth of the larger well-established markets • Sensitise listed companies about their role as public companies and improve the quality and frequency of their reporting • Link up our stock markets through technology so as to increase the intra-regional investment flows and broaden the availability of tradable scrips on our Exchanges • Ensure that quarterly reporting becomes the standard • Transform the Exchange’s website as a powerful source of historical and updated statistics

12. Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa • At the macro market-level: • African economies have so far built up their growth as suppliers of new materials and low value-added goods to western countries • There is, now, a substantial need for African economies to power themselves up to move-up the value-chain of products to become over time the supplier of high-value added products to the rest of the world • Continued improvement in business climate and further opening up of African economies to the rest of the world • Implementation of inclusive growths that propels the middle-class to the forefront of economic activity

13. Overcoming these challenges and setting the scene for a vibrant capital markets space in Africa • At the macro market-level: • Embracement of democratic principles and good governance at the highest decision-making levels • Substantial improvements in infrastructure ( roads, railway, ports, airports ) linking African markets • African Governments need to understand and actively support Securities exchanges/capital markets in the transformational phase of African economies and in the empowerment of the lower social classes

14. ASEA’s contribution to the African capital markets’ space • ASEA’s current website (which is outdated) is being revamped to become a key source of daily updated information for the international investment community • ASEA is endorsing the important role of increasing the visibility of African markets at the international level • ASEA has launched an African index with FTSE • This African index should serve two key functions: • Emerge as an attractive benchmark for investors investing on African stock markets • Be used as a reference for the creation of an African ETF

15. ASEA’s contribution to the African capital markets’ space • ASEA should ensure that this African ETF is listed on the different African Exchanges tracked by this ETF • ASEA is gradually emerging as the mouthpiece of African stock exchanges vis-à-vis African governments and international organisations like the African Union, the African Development Bank and the World Bank • It is endorsing the role of enticing governments to support the development of vibrant capital markets in Africa

16. Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to internationalise its platform A statistical overview of the evolution of SEM since inception

17. Introducing the Stock Exchange of Mauritius: How is the SEM leveraging off Africa’s potential to internationalise its platform - Junior mining/exploration companies - Global funds -Global Business companies -sponsored/unsponsored Depositary Receipts - Exchange traded funds - specialist debt instruments - Structured products - Derivatives on foreign underlyings - No capital gains - No taxes on dividends - No exchange control - Ability to open and hold multi-currency accounts with banks (USD, EURO, GBP, ZAR, AUD, etc.) • Introduction of a multi-currency listing, trading and settlement platform (USD, GBP, EURO, ZAR) • Introduced a highly competitive and compelling listing framework for • Setting up of a new trading technology that: • Opens the space for foreign brokers/liquidity providers to connect directly to our trading systems • Cross-link our market with other markets in the region • Introduce the concept of remote membership to attract foreign brokers, foreign participants to our market and global order flows to SEM’s trading platform • Positioning SEM as an attractive capital-raising, listing and trading platform for African ventures • SEM offers a very attractive stock market environment:

18. Why SEM and what is the SEM’s Competitive edge as a capital-raising and trading platform for African ventures? • SEM is a multi-asset class internationalised Exchange platform that allows African issuers to list a wide spectrum of financial instruments and raise capital through a wide variety of modes ( shares, bonds, funds, Depositary receipts, convertible instruments, Exchange Traded funds ( ETF’s) ) • SEM facilitates international capital-raising by African issuers through its multi-currency listing, trading and settlement platform (USD, EURO, GBP & ZAR) • SEM has been a powerful value-creation platform for many companies that have chosen to list on its platform [USD total return range from 3,000 % to 7,540 % for Top 10 companies] • SEM has an Exchange architecture that opens us the global institutional investors’ space to African issuers. 40 % of annual market turnover is from global institutional investors • SEM is sub-saharan Africa’s ( ex JSE ) only WFE member Exchange and was awarded “ Africa’s 2011 & 2012 Most Innovative Exchange ’’ by Africa Investor at the NYSE • Clearing and settlement on SEM done in line with international standards • Potentially provides a 4% to 8% currency conversion savings to international investors trading in African securities • Hedges the international investors against African currency risks and eliminates need to resort to currency hedging instruments

19. Why SEM and what is the SEM’s Competitive edge as a capital-raising and trading platform for African ventures? • The SEM is positioned at the very heart of the convergence point of demand-side flows and supply-side opportunities for investments into Africa • The demand-side flows are those of the Africa-dedicated funds, Africa-focused structured products that are and will growingly be established in the Global Business sector (GBS) in Mauritius to invest in African ventures • Demand-side flows can also be boosted by attracting order flows from remote global brokers • The supply-side opportunities will emanate from Global Business companies + other companies incorporated in Mauritius for outbound investments into Africa • SEM’s highly flexible/cost competitive listing framework and its state-of-the art multi-currency trading provide the winning capital-raising platform that enables an efficient interaction of the above demand and supply forces • In a nutshell, SEM completes the value chain process that will position Mauritius as a one-stop platform for incorporation, structuring, listing, capital-raising and trading of African ventures

20. Recent capital-raising on the SEM

21. The SEM: A powerful value-creation platform for listed companies

22. Comparative Performance Analysis: SEM v/s a few other markets (2002 – 2012 )

23. Thank You