RECENT DEVELOPMENTS IN AFRICAN CAPITAL MARKETS

1. RECENT DEVELOPMENTS IN AFRICAN CAPITAL MARKETS Africa Stock Exchanges Association Ghana Stock Exchange 27 – 30 October 2007 Ken Ofori-Atta Executive Chairman Databank Financial Services By

2. STRUCTURE OF PRESENTATION • Recent Stock Market Developments • Recent Credit Market Developments • Future Challenges

3. STOCK MARKET DEVELOPMENTS

4. INSPIRING RETURNS • Robust economic growth, falling interest rates, strong currencies etc have spurred robust returns in African stock markets in recent years. • Only Latin America has outperformed Africa over the past 5 years

5. INSPIRING RETURNS Sources: MSCI, ABRI

6. LIQUIDITY ON THE RISE • Increased local private and institutional participation in stock markets and new issues have improved liquidity significantly. • The value of trade outside South Africa has risen consistently from just US$2bn 5 years ago to US$46bn last year • Nevertheless, liquidity remains a big risk in Africa due to small floats and the small size of many listed equities. • The turnover ratio has also improved from an estimated 2.8% 5 years ago to 14.8% last year.

7. LIQUIDITY ON THE RISE

8. LIQUIDITY ON THE RISE

9. MARKET BREADTH AND SIZE ON THE RISE • Markets are growing in size due to new issues and improved valuations • Valuations have risen from single earnings multiples a few years ago to an average of 17.4x currently reflecting declining risk in Africa and higher growth prospects • Market capitalisation outside South Africa has risen from US$48bn five years ago to US$479bn currently

10. MARKET BREADTH AND SIZE ON THE RISE

11. GLOBAL APPETITE FOR AFRICAN ASSETS ON THE RISE • Strong economic recovery and improving political stability has spurred global interest in Africa’s financial markets recently • Africa (excluding South Africa and Egypt) is now being recognised as an asset class • Consequently, new public equity pan-African Fund managers are springing up alongside the traditional managers such Databank, Emerging Markets Management LLC and Blakeney Management

12. GLOBAL APPETITE FOR AFRICAN ASSETS ON THE RISE Old and New Pan African Funds

13. GLOBAL APPETITE FOR AFRICAN ASSETS ON THE RISE • Existing Africa Funds have performed strongly and this partly explains the rising appetite for African assets

14. GLOBAL APPETITE FOR AFRICAN ASSETS ON THE RISE • Ghana became first post HIPC country and sub-Saharan African country outside S.A to issue a sovereign bond of US$750m on the international capital markets. Bond was oversubscribed by 660% for original issue target of US$500million • Other African countries are expected to follow suit including Kenya and Nigeria • Nigerian banks have sold GDRs on the London stock exchange successfully • Foreign appetite partly accounts for hugely successful public equity issues in Nigeria, Ghana, Uganda and Kenya

15. LOCAL APPETITE ON THE RISE • The strong performance of African markets has also ignited significant local interest. • Several country specific local mutual funds have sprung up in recent years in a number of countries • Local appetite has also reflected in strong participation in IPO subscriptions in the markets

16. CREDIT MARKETS

17. YIELD CURVES HAVE BEEN EXTENDED • Yield curves in several countries have extended in recent years following improved economic stability and the desire to create benchmarks for private sector issuers • This has laid some foundation for the private sector to access long-term debt capital • With the exception of Nigeria, the private sector has not taken enough advantage of the extended yield curves to access debt capital markets

18. YIELD CURVES HAVE BEEN EXTENDED • Debt capital markets have generally not been liquid in Africa probably due to the absence of local credit rating, lack of trading expertise and poor marketing habits

19. NEW PAYMENT SYSTEMS ARE EMERGING • Africa is waking up to using new technologies for transaction processing • Mobile phone banking is growing fast in several African countries for making payments, deposits, checking balances, transfers etc • Some countries are implementing switching technologies to allow for e-card transactions

20. ACCESS TO CREDIT ON THE RISE • Micro Finance banks are springing up and providing access to small businesses • Some SSA countries have started implementing credit referencing platforms which will eventually transform credit from being collateralised-based to history-based • Banks have started issuing credits cards for the first time in some SSA countries such as Ghana and Nigeria and this is promising to change the entire consumer culture

21. BANKS ARE IN BETTER SHAPE • Macroeconomic developments and better governance structures have improved the quality of banks balance sheets across Africa • Nigeria style reforms are rubbing off other countries. Higher minimum capital requirements are being implemented or about to be implemented in several SSA countries • Several banks are transforming themselves into regional institutions, especially the Nigerian banks

22. CHALLENGES AHEAD

23. CHALLENGES • The need for national social security funds to become Pan-African institutional investors. This will require regulatory changes in several countries but will give a big boost to markets • The need to create a strong Africa domiciled investment banking industry to ensure rewards stay in Africa. E.g National pension funds outsourcing investment management services to Africa domiciled fund managers • How do we harness new technologies such as the mobile phone to improve access to capital market products to ordinary people?

24. CHALLENGES • How do we create a true Pan African Capital market? • Integration, cross-border listing, cross border electronic trading, African Depository Receipts? • Harmonise rules across the continent?