Seven African stock exchanges linked together on a single trading platform

In what can only be described as a historic breakthrough for the growth of capital market in Africa seven different stock exchanges have been linked together on a single trading platform. Launched on 18 November, the African Exchanges Linkage Project (AELP) allows seamless trading between Bourse Régionale des Valeurs Mobilières, a regional stock exchange shared by eight countries in West Africa; Bourse de Casablanca in Morocco; The Egyptian Exchange; the Johannesburg Stock Exchange; Kenya’s Nairobi Securities Exchange; Nigerian Exchange Limited; and the Stock Exchange of Mauritius. Together, these bourses account for over 90% of the continent’s market capitalisation.

So now an investor in South Africa, for example, can now buy shares in a Nigerian cement firm Dangote, while his Kenyan counterpart can similarly punt on Elsewedy Electric of Egypt on the same platform. By linking all these different stock exchanges together Africa is effectively expanded the size of its capital markets. This is a welcome development for African firms. They can now tap a much larger pool of debt and equity capital. If this cross-border trade in financial instruments takes off smoothly it could potentially make African bourse one of the most vibrant in the world.

AELP Link integrates the trading systems of the seven bourses and gives brokers access to live market data, allowing investors to seamlessly buy and sell listed equities, bonds and more. Investor orders in one market are channelled by a domestic stockbroker to a broker in the foreign market where the security is listed. Thirty-three stockbrokers from the participating exchanges have been connected to the platform as part of the project’s first phase.

While it has previously been possible for Africans to invest in markets outside their home country, it was a complicated procedure involving registering a foreign brokerage account and transferring money internationally.

AELP is spearheaded by the African Securities Exchanges Association (ASEA) and the African Development Bank (AfDB), while Dubai-based technology company DirectFN designed and implemented the trading system.

The initiative is aimed at improving the depth and liquidity of African exchanges. Apart from the Johannesburg Stock Exchange, which is by far the biggest and most active bourse, low liquidity remains the primary challenge in African markets. Liquidity refers to how quickly a company’s shares can be bought or sold without significantly influencing the stock price.

“This is a historic moment for Africa, to finally actualise the linking of stock exchanges across Africa after many unsuccessful attempts over the last two decades,” commented African Stockbrokers and Securities Dealers Association organising secretary, Willie Njoroge.

The project will, however, not directly resolve some of the issues holding back the continent’s capital markets, including high trading costs and difficulties in repatriating foreign currency. Other challenges include hesitancy from companies to raise money via an IPO and low levels of free float (the percentage of a company’s shares that are readily available for trading in the stock market), which negatively impacts liquidity.

Future phases of AELP Link are expected to include an automated cross-border payment system as well as the addition of more brokers and stock exchanges, such as the Botswana and Ghana bourses.

 

References

‘African stock exchanges link up to boost liquidity, foreign investment’, S&P Global Market Intelligence, 20 March 2019

‘Status reports: African exchanges integration project’, Arise News, 14 August 2020

‘AELP Link to boost trading between African exchanges’, AELP, 30 July 2021

‘NGX, 6 others to boost pan-African investment with AELP’, Nigerian Tribune, 02 August 2021

‘Dubai company to link NSE with top Africa bourses’, Business Daily, 04 August 2021

‘The African Exchanges Linkage Project (AELP): Phase 1’, AELP, December 2021

‘African Exchanges Linkage Project (AELP) goes live on cross-border trading’, JSE, 18 November 2022