How does the BRVM's growth potential help Côte d'Ivoire?

A considerable degree of dynamism was unleashed on West Africa’s stock exchange, the Bourse Régionale de Valeurs Mobilières (BRVM), with the economic comeback of Côte d’Ivoire in 2011 following over a decade of civil unrest. Recently, however, the country’s overall economic performance and that of the stock market have diverged. While the Ivorian economy has continued to expand and diversify, with an average annual GDP growth rate of 8.5% over the 2012-18 period, the stock exchange peaked in 2015 and has declined in subsequent years.

While integrating the stock exchange into the regional economy has not been without challenges, and some key economic sectors and member states remain poorly represented as a result, overall progress has been positive. The stock exchange has been energised by a number of changes that have been successfully pushed through – albeit slowly, in some cases, linked in part to the regional dimension of the BRVM. A rise in promotional efforts and cooperation have helped to raise the profile of the exchange, both within the region and internationally.

Although trading performance in 2020 is likely to be steered by a significant amount of caution from investors, especially as Côte d’Ivoire heads for presidential polls towards the end of the year, sector players view the post-election period as an opportunity for the market to pick up once again. More recent global economic developments, including the expected recessionary impact of the Covid-19 global pandemic, are also likely to undercut performance over the short term. Coupled with performance issues, these factors have led to some investors pointing towards a negative short-term outlook for the country. However, better returns are expected in the longer term, as the regional market is set to diversify and pick up in the years ahead. The recent launch of a board to cater to small and medium-sized enterprises (SMEs), as well as the listing of sharia-compliant bonds, signal the direction of progress for the stock exchange – which will be characterised by the formation of new instruments. These should go some way towards fulfilling the potential of the BRVM, and creating a healthier exchange with greater appeal for investors.

Structure & Oversight

The BRVM is a unique representation of the regional market, allowing companies and bonds from all eight members of UEMOA to list on one exchange – with Côte d’Ivoire joined by Benin, Burkina Faso, Guinea, Mali, Niger, Senegal and Togo. With the lion’s share of the union’s banking assets, Côte d’Ivoire’s economic developments have a strong impact on the exchange’s performance. As of late 2019 Côte d’Ivoire accounted for 40% of the combined GDP of all eight members, according to the Professional Association of Management and Intermediation Companies (Association Professionnelle des Sociétés de Gestion et d’Intermediation, APSGI). Moreover, 35 out of the 46 companies listed on the stock market as of December 2019 had operations in Côte d’Ivoire. And while each member country includes a satellite office, the exchange is headquartered in the country’s economic capital Abidjan.

Stock Market Composition

Financial services is the most widely represented sector on the exchange, with 15 firms – mostly banks – listed as of late April 2020. Industry accounts for the second-largest share of firms, with 12 listed companies, followed by the distribution sector’s seven operators and agriculture’s five firms. Additionally, there were four public utility companies represented on the exchange and two firms operating in the transport sector – with the remaining company classified as “other”. In terms of bond activity, as of April 21, 2020 the regional stock exchange had 62 debt securities listed, of which there were 42 government bonds, 13 regional bonds, four sukuk (Islamic bonds) and three titles for corporate debt. The BRVM closed that day with a combined equity and bond market capitalisation of almost CFA8.8trn ($15.1bn). Of the eight UEMOA countries, only Guinea-Bissau currently lacks representation on the exchange. At the end of 2019 Côte d’Ivoire had 35 companies listed on the BRVM, well above the number of companies from other member countries: Senegal and Burkina Faso both had three listed companies; Togo contributed two; and Benin, Mali and Niger each had one company present on the exchange. Despite having the largest number of companies on the market, Côte d’Ivoire was positioned second in terms of market capitalisation per country, with CFA1.749trn ($3.01bn). As in 2018, Senegalese telecoms operator Sonatel retained the largest single market capitalisation on the BRVM as of the end of 2019. This pushed Senegal into first position, with CFA1.792trn ($3.08bn) of market capitalisation, even though the country only has a total of three companies listed on the bourse.

Exhange Performance

End-year results for the regional stock exchange in 2019 maintained a negative trend, with both indices on the market continuing a downward trajectory that started in mid-2016. Overall, the BRVM’s Composite index finished 2019 with a 7.6% decrease, while the BRVM 10 – which lists the exchange’s 10 most liquid titles – decreased less markedly by 3.4%. Overall, the decline was somewhat softened compared to the 2018 results, which saw both indices lose more than 29% over the year.

The bourse’s performance in 2019 was replicated across several other African exchanges, particularly those within the West African region. For example, the Nigerian Stock Exchange dropped by 14.6% over the year, slightly above the 12.3% decrease experienced by Ghana’s exchange. Nonetheless, taking a longerterm view, the BRVM has undergone significant periods of improvement over recent decades. The BRVM Composite posted a 20.6% gain in the decade to 2010, before rising rapidly through to 2016. “In 2011-15 the BRVM more than doubled. This period coincided with the end of the crisis and the economic recovery in Côte d’Ivoire,” Soualio Fadiga, executive director of the APSGI, told OBG. “But the economy is not sufficiently represented on the stock exchange – market capitalisation is not even 10% of GDP.” This leaves considerable room for growing the capitalisation of the bourse. Alongside financial services, the public services segment is a key driver of exchange activity. Financial services accounted for 42.16% of the market at end-2019, accelerated by the entry of several banking institutions over the past six years, while 42.15% of capitalisation is contributed by the exchange’s four public utility companies – including Sonatel. Other sectors which are key economic contributors, however, remain relatively under-represented on the stock exchange. Agriculture, for instance, accounted for 2.76% of capitalisation at the end of 2019, despite being critical to the economy of Côte d’Ivoire and other countries in the region. “Although the cocoa business is a key sector for the country, there is an absence of Ivorian cocoa players on the exchange – even though they could be listed,” Fadiga told OBG.

Listings

Despite its challenges, the regional stock market has continued to attract new players. After experiencing some delays, pan-African bank Oragroup joined the BRVM in April 2019, becoming the 46th company on the exchange and the ninth firm to join since late 2014. The initial public offering (IPO) saw the bank float 20% of its capital on the exchange and raise CFA56.9bn ($97.8m), representing the largest IPO on the regional market to date. This is in line with the trend of recent years, whereby financial institutions have constituted the majority of new additions to the exchange. In December 2014 the Bank of Africa’s subsidiary in Senegal listed on the BRVM, joining its counterparts in Benin, Burkina Faso, Côte d’Ivoire and Niger. Société Ivoirienne de Banque, which is majority-owned by Morocco-based Attijariwafa Bank, joined the BRVM in late 2016, and the listing of Coris Bank International, based in Burkina Faso, marked the entrance of another international lender that year. NSIA Banque joined the exchange in mid-2017, which was followed by the entrance of the Ivorian subsidiary of regional bank Ecobank later that year.

Time to Adjust

Some analysts view the downward trend of the BRVM’s performance since 2016 as a necessary readjustment to prepare the market for the next cycle of expansion on the exchange. The downturn is also the result of a confluence of regional and global factors. Among these was the boom of the 2011-16 expansion period, which led to unusually high stock prices that were difficult to sustain.

After four years of strong gains, and fuelled in part by global uncertainty and a demand for increased liquidity, in mid-2016 many investors decided to sell their securities, which consequently led to the exit of a number of important foreign institutional investors from the regional equities market (see analysis). “This was felt on the BRVM, particularly after 2017, as these investors were key in adding volume and liquidity to the market,” Laureen Kouassi-Olsson, regional head for West and Central Africa at Amethis, told OBG.

The 2018 liquidation of SAF-Cacao also compounded the losses incurred by overvaluation and the withdrawal of some institutional investors. The Ivorian cocoa-trading company defaulted on contracts involving thousands of tonnes of cocoa from the 2016/17 season and left an unpaid debt of approximately CFA150bn ($257.9m). Given the dominant role of financial services on the exchange, the negative impact of the company’s collapse on the Ivorian banking segment was felt by the bourse.

Regulatory changes have also impacted the ability of insurance companies – which are often among the most heavily involved institutional investors on stock markets – to maintain their presence on the BRVM. More stringent regulatory financial requirements were established by the Inter-African Conference on Insurance Markets (Conférence Interafricaine des Marchés d’Assurances, CIMA) for insurers in Côte d’Ivoire and the other 13 markets under its purview. These adjustments included raising minimum capital requirements from CFA1bn ($1.7m) to CFA3bn ($5.2m) in 2019, which led to several CIMA players to relinquish their investment portfolios to free up the funds needed to meet the new threshold.

New Avenues

Although such withdrawals of capital are likely to decrease the BRVM’s appeal to some types of investors, they may illuminate new avenues of growth for others. “The BRVM was traditionally attractive for large-scale institutional investors because it was considered safe,” Kouassi-Olsson told OBG. “Now, with less strong performances, it will be interesting to see if that perception changes. I think there will be more African investors, since they are familiar with the risks and have a longer-term perspective.” The current performance of the stock market may present an opportunity: while both of the BRVM indices are down, the majority of currently listed firms have potential for robust performance. “Overall, shares are undervalued,” Arnaud Fulgence Djanhan, head of capital markets at Phoenix Capital Management, told OBG. “Current prices generally do not reflect the real value of companies”.

Bond Market

The BRVM’s bond issuances have increased over the years, and the segment now accounts for around half of total capitalisation. As of December 2019, bond capitalisation surpassed CFA4.7trn ($8.1bn) – more than four times the 2013 total of CFA1.1trn ($1.9bn). In line with the trend across many emerging markets, sovereign debt accounts for the majority of the BRVM’s bond issuances. Of the 38 sovereign bonds on the exchange, Côte d’Ivoire retained the largest presence by both count and value. The 19 Ivorian sovereign bonds, with varying maturities, were valued just under CFA2trn ($3.4bn). This expanded further with the issuance by Côte d’Ivoire of two rounds of sovereign bonds on the BRVM – one in April 2020 and one in May 2020 – which together raised CFA290bn ($499m) to help support the national economy following the impact of the Covid-19 pandemic. Meanwhile, the second-largest country on the regional sovereign debt bonds market was Burkina Faso, with seven bonds and a total capitalisation of just over CFA594bn ($1bn).

Bond capitalisation was also pushed upwards in 2016 by the listing of five sukuk from Senegal, Togo and Côte d’Ivoire at a total value of $1.3bn. By end-2019 there were four sukuk listed on the exchange, valued at CFA472.6bn ($812.4m). Although corporate bonds are also present, their weight remains limited, accounting for three titles and a capitalisation of CFA70.3bn ($120.8m) at the end of 2019. “According to local regulations, corporate bonds need either to be backed by a guarantee or to have an attractive rating to be listed,” Kouassi-Olsson told OBG. “Therefore, there are not so many companies issuing corporate bonds on the market at the moment.”

SME Listings

To encourage SMEs to list on the stock market, the BRVM launched a third compartment dedicated to the segment towards the end of 2017. The establishment of the SME-specific board is complemented by the Elite BRVM Lounge Programme. Launched in March 2018 in partnership with the London Stock Exchange and the Casablanca Stock Exchange, this programme aims to improve the management and reporting practices of SMEs in the region – and, ultimately, to guide them towards listing on the stock exchange.

Education & Technology

The listing of SMEs, in particular, will be accelerated by greater navigability of the investment environment. Financial literacy is also key to widening access. As such, the BRVM has taken steps to improve the region’s level of financial education. Efforts have included a BRVM-led programme to raise awareness of the stock exchange, which has seen over 10,000 people within the region benefit from training on the basic concepts of capital markets between 2015 and 2020. In a similar initiative, in mid-2019 a memorandum of cooperation was signed between the BRVM and the School of Science and Management at the University of Quebec to facilitate knowledge and technology transfer between the two. Advanced technology is likely to further enhance the exchange’s investment climate. In March 2019 the BRVM signed a deal with Nasdaq to integrate the US stock exchange’s market surveillance technology into the West African exchange. The goal is to ease the BRVM’s monitoring of trading activity, to ultimately create a stronger and healthier regional capital market – translating into a more secure and attractive investment destination.

Outlook

The BRVM has come a long way since its launch two decades ago. Nonetheless, as West African markets continue to undergo rapid economic development, much of the exchange’s full potential has yet to be realised. Côte d’Ivoire – given its strong presence on the exchange – will continue to play a pivotal role. In the short term, the exchange will need to grapple with a number of events in 2020. This will be linked in part to the presidential elections scheduled to take place in Côte d’Ivoire in the last quarter of the year, as well as from the global recessionary pressures likely to affect investment flows as a result of the Covid-19 pandemic. From a longer-term perspective, if capital markets authorities can leverage the economic opportunities presented across the overall region – to complement the transfer of funds within the regional bloc – this will help the exchange sustain substantial expansion.

Encouraging more listings will increase the diversity of the BRVM, which should help to bolster resilience against weaker performances by any individual company, sector or country going forwards. In recognition of the need to galvanise investors and to target greater participation among SMEs, the BRVM has invested in boosting financial literacy. These efforts are likely to improve the overall perception of capital markets in Côte d’Ivoire and the broader region, and should also enhance the ability of businesses to secure capital from a more diverse pool of investors.