The Rwandan bourse has created a segment for SMEs to enable them to tap
into capital markets to raise long-term funds to grow their businesses.
PHOTO | FILE
Reports
from the sector indicate that equity capital market (ECM) transactions
comprising Initial Public Offering (IPOs) or Financial Offers (FOs) by
African companies on African exchanges will continue an upward trend.
The same applies to debt capital markets (DCM).
The
major driver of growth expected is privatisation in countries such as
Nigeria, Morocco, Egypt, Tanzania and the West African region.
Growth
potential of capital market in Africa is huge. According to a recent
report, Africa is home to approximately 700 companies with annual
revenues in excess of $500 million.
Reports indicate
that less than 40 per cent of these companies maintain a listing.
Experts say that entry by these companies over the coming years will
contribute to deepening of the African capital markets landscape.
However,
the dynamics are such that achieving a successful IPO or FO is an
increasingly complex and time-consuming process. This is due to the fact
that there is an increased scrutiny from capital market regulators
looking to enhance the reputation of local markets. The main objective
by regulators is to protect yield-seeking investors.
Experience
shows that in order to raise money in an efficient and effective
manner, companies need to start the process early with the help of
independent capital markets advice.
African capital
markets is serving the top crust of formal business landscape — the
larger corporates. There is an urgent need for African capital market
stakeholders to spread the opportunity to embrace the other segments of
the African business landscape especially the small and medium
enterprises (SMEs).
Africa’s economy is dominated by
the SMEs. In the case of Rwanda over 95 of operating firms are SMEs. The
case of democratising Africa’s capital markets to include SMEs would
thus be a compelling prospect.
In the context of
Rwanda, in particular and Africa generally, it is important to stress
that deep, transparent and accessible capital market forms a critical
element of the entire financial sector.
Hence one of
the major challenges is how to make the Africa capital market to best
serve the SME sector. This is equally a unique opportunity for African
capital markets since statistics indicate that less than 5 per cent of
African population has access to African capital markets.
Facilitating
SMEs to access long-term funding would actually democratise the African
capital markets. Out-of-the-box thinking by African capital market
stakeholders is needed since serving the SME sector would require new
ways of thinking.
Making SMEs active participants in
the African capital markets would render Africa more resilient in the
face of economic shocks while strengthening the overall economy of the
continent.
The dominant sources of SME funding in Africa is commercial bank funding.
Better chances of growth
It
is time that African capital market leaders started looking at playing
more pivotal roles in funding SMEs in order to complement existing
sources.
Rwanda Stock Exchange (RSE) started the small and medium enterprise market segment (SMEMs) in 2014.
The
SMEMs counter is a practical path to enable SMEs to tap into capital
markets to raise long-term funds to grow their businesses.
The
RSE SMEMs is thus a counter from the demand side that can assist SMEs
to a public listing. Listing in the SMEMs counter at RSE can be said to
be a sure way of facilitating some of Rwanda’s ambitious growing SMEs to
scale up their operations.
From the supplier side the
RSE SMEMs counter will expose these ambitious Rwandan SMEs that are open
to new ideas of growth and doing business to a vast range of
international investors including African diaspora investors.
It
is safe to say that a Rwandan SME that carries out listing into SMEMs
has better chances of growing. The prospect of successful listing of
SMEs has potential of strengthening how a listed SME is perceived in the
market since access to finance will continue to hinder growth of SMEs.
RSE
has developed a mechanism for listing, which is unique to Rwandan SME
sector. The mechanism in place is obviously meant to boost prospects of
listed SME firms to grow over time with potential to be large enterprise
of the future.
In order to walk the talk, RSE has
started a three-month awareness campaign meant to take the capital
market to the door steps of SME sector in the country. The campaign is
meant to improve financial literacy of Rwandan SMEs and other corporates
through public education and outreach.
The objective
of public education and outreach branded by RSE management as “Access
and Grow” campaign is to enable Rwandan SMEs and other corporates to
acquire a full understanding of what it means to list in the RSE.
The
“Access and Grow” campaign is meant to educate target SMEs and
corporates on the likely advantages that comes with using RSE to raise
long term funds to grow their businesses.
Under the
three-month campaign, RSE targets to work with at least 100 Rwandan SMEs
countrywide to access RSE, and raise long-term funds.
The
climax of the campaign is an event dubbed “The RSE Listing Forum 2018”
meant to facilitate the 100 Rwandan SMEs choosing to embark on the new
journey to have a practical feel of the listing experience at RSE.
Celestine Rwabukumba is CEO of Rwanda Securities Exchange and chairman of East African Stock Exchange Association. rwabukumba@gmail.com
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