Interview with Emmanuel Zamblé - Author and Capital Markets Consultant
"Understanding and Investing in the Stock Market"
Kindly give us a brief overview of your professional background and your achievements in advocacy for and the development of financial markets in Africa? I began my career at the Abidjan Stock Exchange in 1992 as a Senior Research Officer, in charge of Initial Public Offerings (IPOs) and company listing processes.
In 1998, I joined the Bourse Régionale des Valeurs Moblières (BRVM), as Director of Operations and Financial Information, having contributed to its establishment. My achievements during my tenure at BRVM included establishing a simplified framework securities transactions including capital increases, public tender and exchange offers, trading and delisting. I also spearheaded the development of a training manual on BRVM operations and established a database for the analysis of listed companies. The database enabled us to launch an award scheme « Les Palmes de la Bourse », for the top three listed companies every two years. I also had the privilege of representing BRVM on the technical committee for convergence and standardization as part of the ECOWAS Stock Exchanges integration project. These efforts culminated in the signing of an agreement between the Nigeria, Ghana and BRVM stock exchanges and the regional regulatory authorities to deepen cooperation and facilitate the exchange of information and consultations between West African countries. As a consultant in the capital markets industry for over 15 years now, I carry out research studies on the bond markets development in ECOWAS and the Arab Maghreb Union (AMU) regions, on behalf of International Financial Institutions (IFI)s. I am also working on the possibility of an integrated capital markets body for the Central African Economic and Monetary Community (CEMAC). I also contribute to training African finance professionals through international seminars and conferences. 2.
Why did you choose to focus on understanding stock exchange transactions? The stock exchange is of vital importance to the overall financial system.
It allows private and public entities, communities and governments alike, to obtain capital by undertaking an Initial Public Offering (IPO) to finance their investments.
The investor can grow their portfolio through dividends, interest payments on bonds, or capital gains from the sale of their holdings. However, despite having 29 stock exchanges and the existence of significant domestic savings rates, Africa still has difficulty in maximizing the potential of stock exchanges. With the exception of Johannesburg, Nigeria, Cairo and Casablanca, African stock exchanges have few listed companies. They are also characterized by low capitalization and transactional volumes. Their contribution to financing African economies therefore remains marginal. Stock markets are often perceived as reserved for specialists and the rich in particular, due to a lack of understanding of their operations. It is important to raise awareness of fundamental aspects of the operations of stock exchanges and products traded there in order to support the development of capital markets in Africa. This is why I chose to focus on this subject. I am convinced that a better understanding of stock markets and how they work can trigger the development of African capital markets for the greater good of the continent. 3.
Your publication has a strong educational connotation given that it aims to raise awareness of the general public on the concepts of financial markets, stock exchanges, including exercises and case studies. Could you briefly present the structure and outline of the book? The book, « Understanding and Investing in the Stock Exchange » consists of 13 chapters and 5 key sections. After initial chapters on the definition of stock exchange and its operations and an overview of stock market crises.
Section one introduces the various categories of issuers, investors and the types of traders in a Stock Market.
Section two looks at the various equity operations; Initial Public Offerings, the listing process, performance indicators;
The third section is on bonds, and describes the methods of bond issuance, technical evaluation, listing modalities and also introduces indicators for analyzing a bond;
Section four of the book describes Collective Schemes and derivative products;
The fifth section of the book describes the mechanism of closing securities transactions
At the end of the book, there is a listing of African bond markets and the main stock exchanges across the world as well as a glossary of stock exchange jargon. 4.
Do you think that stock exchanges can become a viable alternative to the dominant banking sector in Africa? What would it take for the industry to be accessible and adaptable to the economic needs on the continent? The banking sector and financial markets complement each other in their role of financing economies. Banks fund over the short and medium term by transforming the deposits and savings of their clients into loans. Financial markets, on the other hand trade long-term capital by issuing negotiable securities. However, due to the lack of deep financial markets and of the continent’s growing investment needs, a number of banks started funding in the long-term. Given the increasing presence of capital markets in Africa, they should now be providing long-term finance, and become a feasible alternative to bank finance. A number of conditions have to be met to achieve this, including: •
Size of stock markets has to be increased. This can be achieved by encouraging companies to turn to the markets to fund their long term investments.
When key sectors of the economy are represented, the stock exchange can better play its role as an economic barometer. Integration of African markets would also increase market size, whilst improving liquidity and reducing transaction costs. •
Investor base should also be further developed by encouraging Collective Investment Schemes, which would give retail investors access to more market opportunities. •
Financial information of listed companies and bond issuers should be made accessible to the general public to increase market efficiency. •
In addition to basic products such as shares and bonds, African stock markets have begun trading derivatives; as is the case for South Africa. There should be a real market for risk management instruments for both issuers and investors. In the same vein, innovative financial instruments for SMEs should also be developed for the continent’s stock exchanges. 5.
The WAEMU regional stock exchange (BRVM) recently established an SME board.
In your opinion, what are the advantages for SMEs, the regional economy and prospects for such an innovative move? The establishment of the BRVM SME board is a notable achievement in the development of the sector. This decision has important advantages for both SMEs and the regional economy. SMEs will now be able to reinforce their equity capital by raising long-term capital on BRVM with the view to financing their investments. This will enable them to improve their solvency and liquidity ratios, which should increase their creditworthiness, thus potentially providing access to credit on more favorable terms. In short, the SME board will facilitate access to finance for growth for SMEs. In addition, regular posting of their financial information in the media, and with financial transactions in the stock market will improve their visibility and credibility with partners in and even beyond the WAEMU region.
A stock exchange listing allows companies to know their value at any given time and to be a reference point for unlisted peers in a merger-acquisition scenario for example.
Stock exchange listings are also the preferred exit channel for private equity investments in SMEs. Given that SMEs make up more than 80% of the economic fabric of the WAEMU region, the growth of SMEs through the stock exchange will contribute to economic growth, job creation and poverty reduction in the member countries.
The success of the SME board also depends on its attractiveness to SMEs.
Taxation and the cost of IPOs and trading in the stock exchange should all be competitive compared to alternative financing methods. In the long run, this third market segment of the BRVM should be an attractive option for companies with strong potential to fund their growth. 6.
From the point of view of policy makers and opinion leaders as well as sector regulators, and from your own experience of financial markets, what are the best strategies to promote financial literacy and knowledge of the stock market in developing countries? Financial and stock market literacy in developing countries can contribute to both poverty alleviation and economic growth. It helps households to better manage their resources and develop their own revenue generating activities, promotes financial inclusion and strengthens the dynamism of financial markets. The best strategies to enhance financial literacy should be those, (according to the OECD definition), that allow consumers and investors to improve their knowledge of products, concepts and financial risks yet enable them cultivate the necessary skills and self-confidence to make responsible financial decisions. Among other recommendations:
Incorporate the concept in educational curriculum, and financial education at the university level. Children and the youth are the social and economic players of the future. The concept of saving and investing, should be nurtured in them be it in terms of securities, life insurance etc. Their financial education will enable them grow into financially responsible citizens. •
Introduce financial education in teacher training and journalism classes; •
Encourage countries that are yet to have public institutions for financial training to do so; •
Organize awareness campaigns for the general population to improve their knowledge of financial products and risks; •
Promote individual share ownership through investment clubs. Such clubs bring together individuals who have decided to pool their savings together with the aim of buying stocks and investing in the stock exchange; •
Include financial education in media coverage and encourage the emergence of a financial press. To sustain these strategies and ensure their success, periodic gatherings should be organized to bring the masses to speed on the evolution of financial education in developing countries and communities of practice should be created on financial education and stock markets. 7.
What audience are you targeting with your book and what are your expectations in terms of knowledge dissemination on the topic of capital markets? The book, which is a mix of theory and practice, is for all who are interested in the stock market be they students, teachers, researchers, journalists, investors, bond issuers or capital markets professionals alike. It aims to contribute to a better understanding of stock operations and practices. My expectations in matters knowledge sharing on the topic of capital markets are therefore high. This book should reach the majority of economic agents, help them increase their knowledge of the workings of the stock market and enable them acquire the necessary skills for decision making in matters responsible saving and investment. As such, they can increase their operations in the stock market. I hope that through this book, I bring my humble contribution to the development of financial markets in Africa. I therefore invite all thought leaders and key people in the ecosystem, to use the book as a tool for sharing and disseminating knowledge on capital markets.