Financial markets across the world are becoming more and more integrated even though the issue of geography in finance still matters.
Stock exchanges are increasingly working to trying to overcome national barriers in ways that allow them to create alliances across borders for the purposes of trading.
Firms are also constantly striving to overcome market segmentation by adopting financial policies such as cross-listing.
The benefit of cross border listing in enhancing liquidity and access to finance is enormous. This notwithstanding, West African countries are still struggling in standardizing their capital markets to enable cross border listings.
In this article, we will explore the challenges the obstruct cross border listings in the West African sub-region and also recommend some measures that will aid in surmounting the challenges.
Challenges of Cross Border Listings in West Africa
The challenges confronting cross border listings in West Africa are basic and fundamental and totally surmountable with commitment from critical stakeholders. A major one is the lack of harmonization in regulation across markets regarding financial reporting, prospectus disclosures, corporate governance, rating considerations and free float and valuation requirements.
There is also a lack of uniformity of standards across markets. When we talk about harmonizing these standards, we can identify items like the regulation, financial reporting, prospectus disclosure, essentially what you need to put in the prospectus documents including corporate governance standards and principles. In addition to these challenges, there is also lack of market depth and issues relating to currency fungibility.
There is also the issue of lack of active market making by traders, limited availability of instruments (ETFs, depositary receipts, derivatives, etc.), limited transparency in the pricing of trades, and information asymmetry across countries in the sub-region.
In addition to these, there is also illiquidity, driven by limited free float, and lack of access to financing or leverage. All these challenges act as hindrances between Ghana and a fully effective cross-border listing.
Capital hesitancy is also high in the sub-region. In order for the cross-border listing to be possible and thrive, there must be an inflow of foreign capital.
Unfortunately, there seems to be a lot of hesitation on the part of foreign partners to push funds into the local market. The key reasons for the hesitancy of foreign capital inflow into domestic markets include the lack of robust continuing disclosure standards.
This is as a result of unattractive returns on investments and “Risk-off” investor posture towards EM and African markets. Another key reason for the reluctance of foreign capital inflow is limited access to current real time information. Unless these issues are dealt with head-on there will be little chance of having a cross border listing.
Improving Access to Finance Via Cross-Border Listings
Addressing the challenges that confront cross border listings in West Africa requires a holistic approach administered by collaboration and consultative efforts to improve access to finances.
First of all, it is necessary that there are coordinated efforts between Ministries of Finance within jurisdictions to encourage potential issuers to pursue cross-border listings. Another area that should be considered is leveraging AfCFTA’s payment platform, Pan-African Payment and Settlement System (PAPSS), is one key example of a tool that could facilitate regional integration.
Another profitable partnership to consider will be a collaboration between West Africa Securities Association (WASRA) states. WASRA may consider increased collaboration between member countries on issuer solicitation, information sharing, regulation and reporting standards, as well as concessions on fees and levies.
Furthermore, WASRA states can leverage tax incentives to attract issuers to consider cross border primary listings within the sub-region.
Waivers and/or discounts (including withholding tax on interest, capital gains tax on disposal, stamp duties on securities and guarantee instruments, secondary market trading commissions, tax neutral treatment for SPVs used in securitization and similar structures) could be explored to entice potential issuers to list on cross-border primary markets.
There is also the need for technical support. Regional bourses may explore collaboration with multilateral institutions, supranational, DFIs, and partnerships with global stock exchanges. Investor education is needed to enumerate the benefits of investing in cross border listings.
Head, Investment Banking, Stanbic Bank Ghana