The Stock Exchange of Mauritius: Driving the change process in Africa

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The Stock Exchange of Mauritius Driving the
change process in Africa

• Presented by
• Sunil Benimadhu
• Chief Executive
• Stock Exchange of Mauritius
• AMEDA, Maritim Hotel, Balaclava
• May 23rd, 2008

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Presentation Outline

• Quantitative assessment of the evolution of the
  SEM since 1989.
• Qualitative assessment An overview of some key
  milestone achievements.
• Constraints and challenges facing SEM Capital
  markets in Mauritius.
• Addressing the constraints and challenges
  Strategic priorities.

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Presentation Outline (continued)

• Scaling up the SEM and driving the change process
  in Africa Key initiatives
• The Mauritius Financial Services Centre 10 years
  from now Indicators of success

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Quantitative Assessment of the SEM
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SEM EvolutionValue-creationin some of the Top
Listed Companies
6
Broad equity market index performances among WFE
members Ten best performing broad market indexes
last year, in local currency terms (source WFE
2007 Market Highlights)
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Qualitative Assessment An overview of some
milestone achievements

• SEM is widely considered as a reference Exchange
  in Africa.
• First Exchange in Sub-Saharan Africa to move to
  fully-automated stock market infrastructure.
• SEM CDS have been very active and successful in
  exporting services to Exchanges and financial
  services institutions in Africa.
• CDS, in partnership with MIT, has automated the
  market infrastructure in Kenya, Botswana, Ghana,
  Tanzania and Lusaka (forthcoming)
• SEM was ranked No 2 Exchange in Africa after the
  JSE by Africa Investor in 2007, in terms of
  market infrastructure, modern flexible
  regulatory environment, and innovative
  initiatives to develop capital markets.

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Qualitative Assessment An overview of some
milestone achievements

• SEM JSE are currently the two Exchanges in
  Africa running a second market for medium-sized
  companies.
• SEM, JSE and Egypt are the Exchanges in Africa to
  be full-fledged members of WFE.
• First Exchange in Africa to demutualise.
• SEM is one of the three Exchanges in Africa
  included in the newly launched MSCI frontier
  emerging markets Index.

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What next?

• The key question that we have now to answer is
  What next?
• How do we leverage on our strong positioning
  within the region and Africa to scale up our
  activities and transform the SEM to not only
  better support economic growth but also to become
  overtime a regional powerhouse?
• More importantly, how do we position the SEM to
  capture a bigger share of the growing interest
  for African markets?
• Before answering these critical questions, we
  need, to look at the constraints, domestic
  challenges as well as the global challenges
  facing the SEM.

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Constraints and challenges facing SEM Capital
markets in Mauritius.

• Capital markets in Mauritius is currently
  essentially a single-asset class market.
• Capital market activities intricately linked to
  fortunes of local economy / local companies.
• Many of the flagship companies already listed on
  SEM
• Scope for future listings of meaningful local
  companies currently restricted to an additional
  universe of about 40.

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Constraints and challenges facing SEM Capital
markets in Mauritius.

• Free-float of large companies have substantially
  increased over the years (exceeding 80 in some
  cases), but those of the smaller ones are still
  at 30 of market cap.
• Banks remain a primary source of financing in the
  local context.
• Capital raising by listed companies have been
  fairly muted in spite of strong market appetite
  for equity (controlling shareholders not wishing
  dilution).
• Investors are on the look for new products.

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Constraints and challenges facing SEM Capital
markets in Mauritius.

• Absence of an active secondary market in
  government debt has severely constrained the
  emergence of a corporate debt market.
• Industry players are essentially local and have
  been servicing local investors.
• Product innovation has been lagging behind.
• Penetration opportunities in the region, while
  very real, remain largely untapped.
• Mauritian investors are growingly developing a
  global investment perspective and trend will
  intensify with further opening up of our economy.

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Global Challenges facing the SEM
Global Pressures
Emerging Growth Opportunities

Changing Business Models
Increasing Consolidation
Changing Economics
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Addressing the Constraints ChallengesStrateg
ic Priorities

• Review the current capital markets industry
  model to diversify services revenue streams.
• Enter new asset classes and diversify product
  offerings by moving up in the value-chain of
  products (derivatives, ETFs, etc.).
• Attract new foreign players to the market to
  scale up activities of the industry and foster
  product innovation.
• Increase our penetration and reach within the
  region so as to export services to the region.
• Share ensuing benefits of volume growth with
  stakeholders by bringing transaction costs down
  significantly.
• Improve operational excellence and trading
  performance.
• Strive for the emergence of a well-integrated
  financial services sector in Mauritius.

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Implementation of Strategic Priorities
Different options

• Setting up of a regional platform in
  collaboration with other exchanges of the
  Southern African region and trade on a single
  trading platform a much wider universe of
  products and asset-classes.
• Capitalise on the competitive advantage of
  Mauritius (totally open economy, no taxes on
  Dividends no capital gains tax, stable economy,
  efficient and flexible regulatory framework,
  modern stock market technology) to position the
  SEM as an obvious choice for the listing of
  African Securities and underlying derivative
  products

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Scaling up the SEM and driving the change
process Key initiatives

• Shift from a single asset-class Exchange into a
  multi-asset class Exchange A few concrete
  examples
• - Introduce and trade derivatives contracts on
  African products
• - Work with African institutions to construct
  sectoral indices and introduce derivatives
  trading on these sectoral indices
• - Introduce and trade ETFs on selected African
  indices
• - Leverage on the presence of Global Funds of
  a number of global companies to position
  Maurtitius as a Centre for the listing of Funds
  and GDRs.

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Scaling up the SEM and driving the change process
into a regional powerhouse

• Position Mauritius as a research and Data Centre
  for African securities / companies.
• Leverage on the market intelligence on African
  securities / companies to develop specialized
  asset-management business focusing on African
  companies.
• Attract more foreign institutions to set up
  business in Mauritius and use Mauritius to
  service a much wider regional client/investor
  pool.
• Enter into agreements with other Exchanges to
  trade ETFs other derivative products to
  capture the arbitrage opportunities that may
  arise due to Mauritius specific time zone
  location.
• Enhance SEMs visibility at the international
  level.

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The Mauritius Financial Services Centre 10 years
from now Indicators of success.

• Variety of product offerings and services.
• A properly integrated not artificially segmented
  centre, servicing Mauritius as well as the
  region.
• Presence of global providers of financial
  services.
• Operating as a fully open centre where all
  related services (including legal)are open to
  foreigners.
• World-class financial market infrastructure and
  systems.
• Quality human resource pool which is transferable
  to other efficient financial centres.
• Improved market liquidity, depth and breadth.

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The Mauritius Financial Services Centre (10
years later)
Servicing Africa and the rest of the world
Other Financial Services
CapitalMarkets
Banking Sector
Insurance Sector
Global Business Sector