African Business Review
Saturday, November 10, 2012
As a new phase of investment and growth is heralded in by the Somali territories, the foundations are already being laid for the country to have its own stock exchange. The plans are welcomed and discussed here by Abdirashid Duale, the Chief Executive Officer of Dahabshill Group
Like many in the Somali business community, I was heartened to hear last month that the Somalia Stock Exchange Investment Corporation (SSE) has signed a Memorandum of Understanding with the Nairobi Securities Exchange (NSE), laying the foundations for Somalia's first ever stock exchange.
This is a resounding endorsement of the Somali private sector’s past achievements and even greater future potential.
A well-functioning, formal stock market would boost investors’ confidence and help to drive business growth and job creation. While the Somali territories still have some way to go before it can become a reality, as a long term goal I think the idea of a national exchange is of great value.
The signatories to the MoU cited the example of existing bourses in East Africa, and stressed the Somali business sector is now strong enough to warrant from its own exchange. For now, the plan is for it to be located in Nairobi until conditions are favourable for the transfer of operations to Mogadishu.
The NSE’s Chief Executive Officer (CEO) Peter Mwangi said the Kenyan exchange would be responsible for the technical development of the Somali bourse, providing expertise and identifying suitable partners.
Mwangi also pointed out the NSE’s central role in developing and integrating the region’s capital markets. Working with the East African Securities Exchange Association (EASEA), its aim has been to facilitate investment and distribute efficiency gains throughout East Africa’s growing economies.
Political unrest
We hear a great deal in the international media about political unrest in the Somali territories, and there is no doubt that this proposal raises important questions about whether the existing financial and legal infrastructures are ready for such a step.
But provided the economy continues to develop along with foundations for good governance, we should be optimistic about a formalised Somali market for securities.
I use the word ‘formalised’ because an informal market for shares, on which major companies’ stock is routinely traded, is already active.
The Somali people’s natural commercial flair, assisted by remittance income from the global diaspora, has enabled remarkable growth in several sectors despite the upheavals of the last two decades.
Livestock, money transfer, telecoms and, increasingly, energy have all seen the emergence of dynamic and competitive firms that have underpinned the resilience of the economy.
Our company, Dahabshiil Group, which spans money transfer, telecoms and import/export, is the largest private employer in the Somali territories and includes one of Africa’s largest remittance businesses – Dahabshill Money Transfer.
Somtel, a telecoms firm acquired by Dahabshiil in 2008, specialises in advanced mobile telecoms and mobile internet as well as high-speed broadband technology.
As a fast-growing firm within a burgeoning sector, Somtel is a company that we would consider floating on an official Somali exchange.
Capital gains
Before 1989, there were just eight stock exchanges in Africa – today there are 29. Market reforms have been a major factor in this development, as has the increasing integration of global capital markets.
To what extent liberalisation has benefited poorer African nations is the subject of debate, but there is strong evidence to suggest that capital markets can accelerate the growth of developing economies, and that they have had a positive impact in sub-Saharan Africa.
Functioning stock markets can be effective conduits for investment by mobilising savings and allocating them more efficiently. The higher the volume of trade, the more liquid a market is and the easier it is to sell shares.
Reaping the benefits
Due to the high costs of issuing and listing securities, the common experience of the less established African stock markets has been large firms reap the benefits while smaller firms find it harder to participate.
As a result, most of the newer exchanges list only a few large companies. Although returns have often been very good, many bourses – particularly those of the East African Community (EAC) member states – struggle with low market capitalisation and low liquidity.
Through the EASEA, the EAC countries have worked to overcome these difficulties via increased regional integration. With a 58-year history and over 60 listed firms, the NSE has been the main force behind this process.
Under its guidance, the exchanges of Tanzania, Uganda and Rwanda have taken steps to align their regulatory and market infrastructures with Kenya’s in an effort to deepen East Africa’s capital markets and encourage investment.
Somalia, of course, is not an EAC member (although an application was made earlier this year) and the formation of a Somali exchange will present unique challenges.
But the fact that the NSE has committed itself to the project from the start is a positive sign. Like Nigeria and Johannesburg, Nairobi lies at the centre of a regional market and is the dominant force behind capital market integration in East Africa.
Provided they are part of that harmonising process, smaller exchanges can enjoy many of the benefits that follow – including increased trading efficiency and reduced barriers to cross-border financial flows – regardless of their countries’ membership status.
I am encouraged by assurances that the exchange will be open to all investors, local and international, and will serve as a bridge between Somalis and the rest of the world.
Changing landscape
It is this, ultimately, that will drive success in this venture. The Somali diaspora will play a crucial role in the proposed stock exchange. Diaspora investment accounts for around 80 percent of the start-up capital of Somali businesses and has been the main force behind 20 years of economic development.
The Somali territories are changing. A genuine proposal to form a stock exchange is a hugely positive step that feeds into that narrative.
Mogadishu, so often the focus of negative coverage, is entering a new phase: people are buying houses, industries are growing, and the number of visitors is rising.
If successful, the Somalia Stock Exchange would be a triumphant new chapter in that story and would do much to showcase the huge investment potential of the Somali territories.
My hope is that a vibrant and dynamic stock exchange will be operating on Somali soil in the not-too-distant future, promoting growth, jobs and opportunity for all Somalis, regardless of where they come from and wherever they live in the world.
Abdirashid Duale is CEO of Dahabshiil, the largest remittance company in the Horn of Africa and one of its largest private employers. He is rated as one of the 50 most influential Africans by the Africa Report. For further information please visit www.dahabshiil.com.