Interview: Kadi Fadika-Coulibaly

What have been the major trends in stock growth performances in 2013?

KADI FADIKA-COULIBALY: One of the interesting picks in 2013, construction firm Société d’Etudes et de Travaux pour l’Afrique de l’Ouest, might seem odd to investors, as its stock has experienced very little activity in the past 10 years. However, since 2012 there has been significant infrastructure construction, so investors ought to take notice. Otherwise, there are more obvious securities like Nestlé and Unilever, which suffered during the crisis and are at their lowest.

As buying power and consumer demand for quality increases, these players’ products ought to fare well against cheaper, lower-quality counterfeited goods. As for financial stocks, Société Générale de Banques en Côte d’Ivoire’s (SGBCI) profits are up, as well as margins and dividends. SGBCI has been the sector’s main driver, along with Ecobank which now has 13% to 14% of the market’s capitalisation. The Bank of Africa Burkina Faso has distributed a record dividend to its shareholders, and the prices of these bank stocks have risen by 17%, 71% and 60% since early 2013.

How can the transaction quantities of local stocks be improved, and how can the framework of the Regional Securities Exchange be strengthened?

FADIKA-COULIBALY: The exchange is dominated by institutional players and has a young stock market culture. Additionally, some stocks have risen sharply, and Sonatel’s stock price split was welcomed as it has opened up access to small investors, thereby boosting transaction volumes. This year the market is also moving from a fixed-quotation system to a continuous quotation system, which should also increase the volume of transactions for liquid securities. As a consequence, the bourse’s will be lengthened, allowing for more transactions to occur per day.

The Regional Council for Public Savings and Capital Markets (Conseil Régional de l’Epargne Publique et des Marchés Financiers, CREPMF) represents the eight states of the West African Economic and Monetary Union and regulates the markets. By bringing new rules authorising more financial products, it will develop the market. Regarding financial infrastructure, the short-term objective should be to separate the management of the exchange and the central depository, so that the bourse is only the operator enabling transaction execution and without any kind of oversight of the depository. The central depository is seeking regulatory change, as currently only brokers have client information.

To what extent is more depth and dynamism being encouraged on the local debt market?

FADIKA-COULIBALY: The Banque Centrale des Etats de l’Afrique de l’Ouest is looking to boost activity and innovation on the secondary bond market, as current activity is mainly on the primary market. It would be more beneficial to have activity during the life of a bond rather than having the buyers systematically holding until maturity. There has been success in having information on daily yields available on Bloomberg or Reuters, for example, with data visible to international debt investors wanting to evaluate their portfolios daily.

Regulation by the CREPMF is quite tight for debt emitters, as there is a 100% collateral requirement on bond issues, so many companies prefer to seek financing from banks. However, financial rating agencies provide information on reimbursement capacity that can lessen the impact of collateral costs on interest rates.

Furthermore, in order to attract foreign investors to the regional exchange and improve net profitability the secondary market needs more depth and liquidity, and this can be achieved through improved administration, more primary dealers and market makers, fiscal advantages, and the removal of exchange controls.

Also, having reached the heavily indebted poor countries completion point in 2012, Côte d’Ivoire cannot issue over $200m in debt on global markets. As a result, long-term financing capacity from local institutional investors has been freed up under recent new regulation laws.