Overview of BRVM: The Regional Stock Exchange for West Africa

Interview with Edoh Kossi Amenounve, CEO of BRVM (Bourse Régionale des Valeurs Mobilières)

Looking at things in a positive light, let’s talk about results. Despite the prevailing crisis, the BRVM has had a very strong economic growth. Where are you at now? To what do you attribute these results? What are the current results and what funds do you have?

Firstly, I would like to say that after 2011, the BRVM has made very strong progress in respect of the majority of its indicators, its capitalisation, the indices and the volume of transactions. We attribute this to the re-growth of activity in Côte d’Ivoire, after the post-electoral crisis, as well as to the reinforcement of the growth of the WAEMU’s main countries. They are some of the countries that have had a strong growth in just a few years – even higher than the African average. This has created a climate of confidence, a new found confidence in our economy from investors and international newspapers and as a result the stock exchange has benefited from it. From my point of view this is extremely important.

In 2011, we still had 3,000 billion of capitalisation. We are now reaching 6,200 billion of capitalisation for the BRVM. Our indices have progressed, already by 20% in 2012 and by 40% in 2013. This year, we have made progress beyond 10% so this shows that it benefits investors that have an interest in our market, there is confidence in the economic performance of our stakeholders and of our economy. That is not just the case for our investors. International investors equally welcome and look favourably on equity from the BRVM, which is extremely important.

In terms of prospects, we have implemented a new development strategy as we believe we should have a more achieving classification, on a par with our opponents, so that the African stock exchange moves to fifth place. We are working towards looking at the size of the funds of the eight countries in the WAEMU concerned with the BRVM and now our biggest challenge is working with new stakeholders. Now we have thirty-seven stakeholders. They are not in the WAEMU group of countries, but they are part of a regional stock exchange. It is essential that we work in such a way that big, average-sized and small businesses are interested in the BRVM and that by 2020 BRVM is the representative of all our union’s funds for the WAEMU countries’ businesses. This is very important for us and in any case it will show that from now on, the stock market is seen as a financial and essential instrument to accelerate growth in a country belonging to our union.

What is the message that you want to give, if you were no longer in the Côte d’Ivoire but in Senegal and outside of the group? What would you say to a business, an SME?

What I would like to say to a business or a manager of a business is that firstly a business is created to contribute to researching the economy- to create jobs and to contribute to economic development. In order for this to happen, the business must have the means. The business must expand. In order for the business to grow long term, the business is inevitably going to use different funding windows, for example private equity funds.

Ultimately, businesses need the market and the capital to reach a certain size – a size which is able to withstand national, regional and international competition. That is where we are at present. It is necessary that our businesses see themselves and their active sectors in regional and international competition. For that reason, the markets continue to be a financial source so businesses are able to reach the necessary size to support that competition. In reality there are numerous examples worldwide. Since businesses have really tried to develop, they automatically address the capital market.

I can understand that nowadays we have remained long enough in an economy of “debt” and it is very difficult. I understand that for a business, its first reaction is not to open up capital from redemption centres, because up until then the financial sector was dominated by banks and they monitored the size of their activities. It is necessary to go further than that and to develop. I think businesses should start by seriously looking at the financial market. Restrictions are often higher and we should get past this. We are talking about transparency, a loss of power and sometimes this restrains certain businesses approaching the capital market.

How do we go beyond this? I follow the market, for example I look at the criteria when observing the BRVM and other African stock exchanges. We ask for a capital advance as high as 20% but with an advance of 20% we do not lose control. Even developing countries go further and businesses in the stock exchange with a flotation open to the public of 80% or 90%. There is no need to be fearful as talking to shareholders is part of running a business and these shareholders have a positive impact on business. If you are alone, and have been managing your business for a long time, you miss the input that other shareholders can bring to you and your development. Moreover, unfortunately a lot of businesses do not survive due to the stagnation of their founders because they have never looked at working with others. Or they haven’t considered the basic principal of “capitalism and business”. In a capitalist world this means association- capital made available to the public, to several partners so that these partners continue the business venture, which I think is important.

Even with transparency, things have evolved. There is a whole world of openings. Businesses, whether they like it or not, are being followed and are known on the internet. If there is a question about their sectors and activities, it is already covered by the media. You cannot really hide- transparency is there and it should be adopted, as it has a positive impact even on the financial side of a business. Businesses with more transparency cost less to finance than those that do not have it. If a banker slightly doubts your business, there is a bigger risk and you must pay more. Whereas if the banker sees you have transparency, that you are open and that you do not really have any problems in particular and you give the required information, the banker will charge you less.

The amount of transparency increases the understanding of risk on the business. The market gives them this opportunity and therefore businesses that follow the stock exchange cost less to finance as they adopt transparency and are subject to governance. They accept the challenge, they accept that their shareholders tell them what they think, which is a positive thing for business. This is the message I want to convey. It is essential to observe African businesses that are in regional and international competition. It is necessary to give long term financial means to withstand this competition, make a business durable in terms of its activities and make sure there’s a transparency as this is very positive for business.

Are there other costs? Does it cost a lot to enter into the market and is it a difficult process for those who don’t know anything about it?

In terms of costs you must to put things into perspective. At the end of the day, perhaps it is not obvious that the market is more expensive than other financing. Now, in a difficult process we can make improvements. The market is like two opposing poles. There are producers but also investors. Those who facilitate relations between the producers and the investors, (notably the authority for regulation of the stock exchange) must ensure that producers talk to investors, stating all the necessary conditions of transparency and that the information given out is reliable so that investors have confidence in business. It is normal for this to take some time.

I think businesses should accept going through this process as it reassures investors. It’s true that if you are going to see your banker in a few days time or in a few weeks you can perform a transaction but on the market you must address the public so that the public has information. All these elements can make it seem like a long process, however, when you know the market, things can work much more quickly. That’s why businesses close to the stock market find it easier to increase capital than those who are not, than those already in an urgent situation or those that really need to reinforce the capital of some businesses. This can happen very quickly with the market if investors already know of the businesses.

You have already started the process of having a road show of workshops. You were in Paris and next year you will go to New York, London, Dubai and Abu Dhabi. International investors already have a volume of 55% of transactions so what were your objectives going over there? Was Western Africa not attractive to you in the end? Isn’t that where the growth is happening so why do you need to relocate?

There are two or three things which I think are important. The investment process from a wallet is totally different than the process of direct payments or direct participation in a business. Investors must know about the stock market. The stock market must be “attractively accessible to investors” It is like that all over the world. It is necessary that the stock market is known, that investors know that on the market you can buy equity, under what conditions you can buy it and under what conditions they can leave the market. This is not always evident and international investors do not always know this. It is not always evident that an investor based in New York or Abu Dhabi would know how to buy on the regional financial market of the WAEMU. Investors have tools and valuations to follow equity. However, if no one has heard of you, no one knows how it works in your country, it is important to talk. It is not like an investment that you buy from your wallet or going on a search engine and typing in BRVM. We don’t have time for that.

Look at the indices created by MSIA and by SMP. I recall that last year the BRVM integrated two important international indices, the indices MSIA and SMP. These investors look at the evolution of these indices and ask themselves where are the most efficient indices and look to find out which markets contribute the most to the performance of these indices. Now they are interested in these markets. The WAEMU has triggered these road shows and that is exactly why we have integrated these two international indices and now we are on the radar for international investors. Now it is necessary to explain and present to them the acquisition process of equity in our country and present to them how it works in terms of brokerage, preservation, repatriation of dividends and interest on bonds.

Curiously, international investors discover that on another market, buying certain values as bonds in WAEMU in CF1 is like buying bonds from NOBO. This is extremely important. This is why there is increasingly a bigger desire for debt security in our country from international investors. We explain to investors what happens here. We try to show them a bit about economic performance, the long term perspectives for our economy and that attracts them to our environment.

This does not mean that by doing this we want our businesses to be “dominated by international investors”. On the contrary, we also work with investors from our country so that they are interested and participate, to their advantage, in our market. We are doing road shows in Paris, London and New York but before that we went to the eight countries of the WAEMU to have open days to communicate with institutional investors, insurance and pension companies for our benefit. We work with two funds. These days an African stock market cannot just be a domestic market; it must be open on a world wide scale to attract investors from all over.

How do you go from being in sixth position in Africa to a much stronger position? Is it by watching other stock markets?

There is an indicator which we often use which compares the capitalisation of the market of the countries concerned. When we compare the capitalisation of the BRVM to countries of our union, it is at a reliable level in comparison with other countries. If we increase it, the market will become more representative of the size of our funds. This should lead us to fifth place, the fifth economy in the continent and fifth in comparison with the eight countries of the WAEMU. Working on that is very important in order for us to rapidly increase. We have eight countries, thirty seven shareholders; we even have 6,000 billion worth of capitalisation. Imagine all the countries of the union bringing five to ten businesses in the next ten years onto our market. We are going to reach fifth place, if not higher, in the African stock exchange.

Talk to us about private equity funds and the process. How do you attract funds? Why should one be on the stock market?

Nowadays on a world wide scale, 30% is already funded by the release of private equity. In Africa it is 20-25%. This is a normal source of feeding the stock market as private equity funds are not designed to stay in a business indefinitely. They are released after 5 to 8 years. However, these funds should be released in an optimum way. They have three ways of being released – either by selling them to founders of a business, by selling them for another fund or being released by the market.

Currently, these funds are more and more important and are present in our environment. They fund investments making size more and more important. It is no longer evident that founders buy them again because this requires rather large resources. It is not evident that other funds are re-purchased either, as the market is becoming a source which should be observed.

We have a business which has been followed by a private equity fund for seven years, and it is a business which is almost ready to respect the stock market’s regulations because there is already a certain amount of governance, an improvement in governance, transparency and the distribution of financial information. It is really a natural candidate for the stock exchange. That is why we look to work closely with the private equity funds so that these funds can leave the stock exchange. This is in our mutual interest. These funds need to be released and we also need to feed the stock exchange. So if we can put our energy into working and facilitating the funds being released from the stock exchange, it will be better for the stock exchange and private equity funds. I think we will receive a more and more favourable welcome with these funds and we are excited to work with them so we can start to assist them with their release.

Do you collaborate with other stock exchanges?

We work with other stock exchanges because we are convinced that (beyond the in-depth study of the regional or national market which is the case for the BRVM) we need a bigger platform for big African businesses that are in continental and international competition. Despite all our efforts, there are certain very large businesses that need to be a bigger size to facilitate their transactions. That’s the future path. I think we integrate our funds for a reason. There is no reason why different stock exchanges shouldn’t integrate to accompany the dynamics of regional or continental integration. That is why we have started, after much consideration, to work with our counterparts (from Nigeria and Sierra Leone, etc.) to envisage making a larger platform for the businesses of this region.

Could you tell us a bit about the long term strategy for the stock exchange? Ideally what do you hope to achieve in four years time?

Our long term strategy is that by 2020, 2025 or 2030 the BVRM is truly representative in the WAEMU group of funds. In terms of capitalisation, to make the size of our market represent at least 50% or even 60% or 80% of the GDP in our union. This is a very important objective that we wish to achieve. Long term we want the BRVM to be a veritable instrument which is the financial catalyst and the true long term facilitator of different areas for our economies. We want the stock exchange to be the place where you look to advance long term and accelerate growth in funds and also to be able to finance development structures. I think we are capable of this. This means that we do not just want an attractive stock exchange which attracts business but we want to be able to play an important role in the acceleration of growth in the WAEMU.

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