Healthy stock exchange markets are a major source of business capital globally. But not in Africa. A former Goldman Sachs banker and an IT consultant want to change this by simplifying institutional access to Africa’s many but small capital markets.

SecondSTAX, a Ghanaian fintech that provides access to stock markets for institutional investors, recently signed an agreement with the African Securities Exchange Association (ASEA) to unify Africa’s stock markets. Founded in 2020, SecondSTAX has raised $1.6 million in pre-seed funding from private investors and venture capital firms—including LoftyInc Capital, Orbit54 and STEMeIn—for its technology which provides access to debt and equity securities in Accra and Nairobi’s bond and equities markets. 

A Nigerian and Cote d’Ivoire expansion is in the works, Eugene Tawiah, SecondSTAX’s CEO, told TechCabal over a call.

SecondSTAX’s suite of investment tools includes an order management and execution routing system for brokerage firms and institutional investors. The platform also includes full access to data and company research from all of ASEA’s participating exchanges. In total, ASEA represents 32 exchanges in 37 African countries.

Stock exchange markets are an important source of capital for businesses and governments. Robust stock exchanges are often a sign of a healthy economy and provide private equity investors with an avenue to exit their investments in young companies. But African stock markets are far too small and inefficient to provide much-needed business capital. The continent’s small and illiquid capital markets are part of why tech firms optimise for IPOs in the London Stock Exchange, Nasdaq or the New York Stock Exchange.

Institutional investors, both local and foreign, invest in publicly-listed African companies. But lack of market depth, timely information and access limit their investment options. Investors also have to navigate onerous rules to find and invest in valuable companies across all of the continent’s 30+ stock exchanges. With a combined market capitalisation of around $1.6 trillion, most of the exchanges are often too small for especially foreign institutional investors to concentrate on a single market. 

“Most African exchanges do not have price discovery mechanisms… Until you sort that out, you just end up chasing your tail,” Tshepo Magagane, a South African investment banker, told TechCabal. Rob Stangroom, Harare-based chief executive officer of African Financials, an investor relations and communications company, agrees: “To start fixing things, information must become freely available on multiple levels,” he told African Business earlier this year. 

One exchange to rule them all

Connecting Africa’s markets for easy investor access and discovery is one solution. Since at least 2019, the African Securities Exchange Association (ASEA) has floated the idea of connecting all the continent’s exchanges and market information and making them all accessible to investors from one platform.

The African Exchanges Linkage Project (AELP) hopes to connect African stock exchanges, following a 2009 model in which the Colombian, Chilean, and Peruvian Exchanges created Mercado Integrado Latinoamericano (MILA). MILA is a programme that allows traders in stock exchanges in the region to purchase or sell securities in different countries. It has eventually become Latin America’s largest stock exchange. 

The African version, officially launched in late 2022, is led by the African Securities Exchanges Association (ASEA) and is supported by the African Development Bank (AfDB).  Thapelo Tsheole, president of ASEA, has said that a priority for his group is “to improve the efficiency and liquidity of Africa’s securities exchanges”. The lack of depth in African markets is one reason why tech startups and investors orient their companies to list in stock exchanges in the United States or London.

For its initial phase, AELP’s trading platform, ALP Trading Link, connected seven exchanges, including the Bourse Régionale des Valeurs Mobilières (BRVM), a regional stock exchange of the eight West African countries that make up the West African Economic and Monetary Union (WAEMU). ASEA says the initial connection of seven exchanges represented 2,000 firms with a combined market capitalisation of $1.5 trillion. Two more exchanges have since been connected to ALP Trading Link, bringing the total to nine interconnected exchanges out of 32 exchanges currently operating in Africa. 

Africa’s oldest stock exchange the eponymous Johannesburg Stock Exchange accounts for 81 percent of the market cap of Africa’s 32 stock exchanges. Photo: SABC News

According to AFSIC, the combined market capitalization of African stock exchanges is $1.6 trillion, a testament to the small size of public markets on the continent. Of this $1.6 trillion in market capitalisation, South Africa’s Johannesburg Stock Exchange (JSE) accounts for $1.36 trillion, followed by Nigeria’s NGX with a market cap of $66.7 billion in listed companies. Casablanca, Egypt and Nairobi’s bourses come third, fourth and fifth, respectively. 

In their 2019 report, attorneys at Winston & Strawn, a US-based finance-focused law firm, pointed out that stock exchange rules that prohibit investment from non-citizens or non-residents are a bottleneck for foreign investors. SecondSTAX says its platform will smoothen the KYC process for institutional investors across different exchanges, potentially allowing investors to book trades in other countries outside their domiciled region. 

To address foreign exchange concerns, SecondSTAX will add the Pan-African Payment and Settlement System (PAPSS) to its FX marketplace so that investors can book trades in multiple currencies. SecondSTAX already works with Aza Finance, VertoFX and Yellowcard in its FX marketplace.

“We are doing to [the equity investment] space what the likes of Flutterwave have done to payments,” Tawiah told TechCabal. “Tech is what drives financial services and we are happy to be providing the tools for this,” Duke Lartey, SecondSTAX’s COO, added.

Unlike payment fintechs which serve both individuals and businesses, retail traders cannot manage trades on SecondSTAX. Instead, retail investment apps like Bamboo and Chaka can use SecondSTAX to offer retail investors access to public companies across Africa. 

In addition to its selection of US stocks, Nigeria’s Chaka already allows users to trade a selection of stocks and exchange-traded funds (ETFs) that are listed on the Nigerian Stock Exchange. Bamboo founder and CEO, Richmond Bassey, told TechCabal on a call last year that his firm was exploring options to list local equities in Nigeria on their retail investment app.

Institutional investors are not the only ones searching for value in African stock markets; sophisticated retail investors also want in. Said Kasiva Mutsiya, a Kenyan investor who invests in London, Nairobi and the NYSE, “I would like to invest in Zimbabwe and Zambia if I get a dependable platform that gives me exposure.”

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