Who Owns Whom

Economist Adam Smith’s theory of the invisible hand refers to the unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically, which is evidenced in the latest WOW report on Trends in Fintech in South Africa.

Examples of fintech savings and deposits products are Jumo, Zoona and Prospa. Prospa provides a mobile savings wallet for low-income earning South Africans that makes it easy to save small amounts infrequently using prepaid vouchers. It then pools all savings on its platform, taking advantage of banks’ higher interest rates for larger savings balances.

An example in the insurgent segment is peer-to-peer (or social) insurance which represents a new innovative business model in the insurance industry. Peer-to-peer insurance players such as Fo-Sho and Pineapple give customers the choice of pooling their premiums to pay out claims when a member of the network encounters an insurable event and takes advantage of the notion that groups that have similar needs are willing to share risks with people with similar profiles. Some social insurers collect remaining premiums after expenses are paid and refund these to members.

While we are familiar with cryptocurrencies and new banks such as TymeBank and Bank Zero, new names mentioned in the report include Adumo, GetBucks, Lulalend, and Peach Payments.

Another area into which substitutes are creeping is traditional stock exchanges. The table below shows the number of listings on the 29 stock exchanges on the African continent.

Stock ExchangeCountryNumber of Listings
A2X MarketsSouth Africa83
Angola Debt and Stock ExchangeAngola27
Cape Verde Stock ExchangeCape Verde4
Maputo Stock ExchangeMozambique12
Botswana Stock ExchangeBotswana31
Tunis Stock ExchangeTunisia78
Bourse Regionale des Valeurs Mobilieres (BRVM)Côte d’Ivoire38
Cape Town Stock ExchangeSouth Africa11
Casablanca Stock ExchangeMorocco76
Dar es Salaam Stock ExchangeTanzania27
Egyptian ExchangeEgypt188
Equity Express Securities ExchangeSouth Africa7
Eswatini Stock ExchangeEswatini7
Financial Securities ExchangeZimbabwe1
Ghana Stock ExchangeGhana37
JSESouth Africa298
Khartoum Stock ExchangeSudan1
Algiers Stock ExchangeAlgeria5
Lusaka Stock ExchangeZambia24
Malawi Stock ExchangeMalawi16
MERJ ExchangeSeychelles55
Nairobi Stock ExchangeKenya62
Namibia Stock ExchangeNamibia39
Nigerian Stock ExchangeNigeria156
Rwanda Stock ExchangeRwanda9
Stock Exchange of MauritiusMauritius93
Uganda Securities ExchangeUganda17
Victoria Falls Stock ExchangeZimbabwe7
Zimbabwe Stock ExchangeZimbabwe55

The 1996 printed edition of Who Owns Whom featured over 800 listed companies on the JSE, and today that number is 298. In contrast, when I visited the Nairobi Stock Exchange in the same year, it had seven listings, and now it has 62.

A universal weakness of stock exchanges is that while their primary markets are issuers (companies that list their instruments to attract capital) and investors (who invest in these instruments), they are largely treated with disdain due to the lack of substitutes. Stock exchanges charge fees for market information such as share prices, volumes and information for vendors who provide decision-making tools to investors, and this cost is inevitably passed onto the investor. An analogy is going into a restaurant and being charged for looking at the menu, which the restaurant can only get away with if it is the only restaurant in town. But the JSE is no longer the only restaurant in town.

In the last decade, three other stock exchanges, namely A2X, Cape Town and Equity Express, have been established in South Africa, and issuers are voting with their feet as these exchanges have together attracted 101 listings. Due to regulatory constraints, it will be some time before these competing exchanges present a serious threat to the JSE, although A2X, which has attracted secondary listings of half of the JSE’s top 40 companies, has ambitions to achieve a primary stock exchange status more imminently.

A far greater threat currently is capital raising from private equity and venture capital companies, where there are no listing charges, and the process of capital raising is far less complex.

The figures bear that out. Research by the Southern African Venture Capital Association (SAVCA) shows that growth in the country’s venture capital industry remains robust. The 2022 SAVCA Venture Capital Industry Survey findings revealed that early-stage fund managers invested R1.31bn into 121 entities through 186 investment rounds in 2021.

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