Regional stock exchange BRVM in Côte d’Ivoire sees growth

Headquartered in Abidjan, the Bourse Régionale des Valeurs Mobilières (BRVM) is the regional stock exchange that serves the capital markets of the eight members of UEMOA. The BRVM has experienced turbulent periods of growth and decline over its 25 years of existence. During the period that coincided with the civil and political unrest in Côte d’Ivoire, the BRVM showed limited progress in terms of trading activity and institutional development. In the early recovery years of the post-2012 era, the BRVM experienced substantial growth, recording a rise of 39.3% in 2013, its best annual performance to date. Growth continued in the following years, with the combined equity and bond market increasing by 11.2% in 2014 and 17.8% in 2015.

Bouncing Back

The exchange peaked in 2015 before its sharp fall between 2016 and 2020, falling by almost 50% in terms of market capitalisation, despite the economic growth experienced in Côte d’Ivoire in the same period. Following four years of decline, in 2021 the stock market was back on an upward trajectory, with the flagship indices experiencing their highest growth rates since 2013. The balance sheet of the regional stock exchange shows the evolution of capital markets within the past 25 years, as they increased their combined equity and bond market capitalisation from CFA1.1trn ($1.9bn) in 1998 to over CFA14trn ($24.1bn) in 2022.

Although the geographic composition of the BRVM has evolved over the years, Côte d’Ivoire, as the economic powerhouse of the region, shows a clear dominance on the stock exchange, both in the debt and equity markets. Similarly, the sector composition represented on the exchange does not fully reflect that of the country or the region. Efforts to encourage more listings and promote greater participation in the capital markets are under way and are likely to increase the diversity of the BRVM. Together with regulatory improvements and programmes aimed at further integration of regional markets, the BRVM is likely to improve its standing on the continent and attract both investors and listings in the upcoming years.

Structure & Oversight

The structure of the regional stock market has remained broadly unchanged over recent years, with 46 companies listed on the BRVM as of May 2022. In terms of sector composition, financial services are the largest group, with 15 listings, most of them banks. This is followed by companies operating in the industrial sector, with 12 listings; the distribution sector, with seven operators; and agriculture, with five company listings. Additionally, there are four utility companies listed on the BRVM, two operating in transport and the large construction firm SETAO.

Ivorian companies represent the majority of the listings on the BRVM, with 35. Senegal and Burkina Faso are represented with three companies each, and Togo has two listings. Additionally, Benin, Mali and Niger each have one company listed on the regional stock exchange. Guinea-Bissau is the only UEMOA member with no companies represented. In addition to the number of listings, Côte d’ Ivoire also accounts for the largest share in terms of market capitalisation. However, the country is closely followed by Senegal, which despite having three listed companies, is largely supported by the market capitalisation of Sonatel Sénégal. As of May 2022 the Senegalese telecoms operator was by far the largest company listed on the exchange, with a market capitalisation of CFA1.5trn ($2.5bn).

Unlike the equity market, the BRVM’s bond market has experienced substantial growth in the past years, with 101 bond securities listed as of May 2022. With 79 listings, government bonds were the largest category, followed by regional bonds, with 12. In addition, seven corporate debt titles and three sukuk (Islamic bonds) are also listed on the BRVM.

As of May 2022 the total market capitalisation of the equity market stood at CFA6.2trn ($10.7bn), while the bond market had reached CFA7.8trn ($13.4bn), bringing the combined market capitalisation to over CFA14trn ($24.1bn).

Trading Activity & Performance

The BRVM closed 2021 with a record increase, achieving its best figures since 2013. The BRVM Composite Index, which is calculated based on the performance of all the stocks listed on the exchange, was up 39.2% in 2021, greatly exceeding the 11.2% increase experienced in 2014 and the 17.8% increase seen in 2015. The last time this index crossed the 35% growth mark was in 2013, when it rose by 39.3%.

The combined equity and bond market capitalisation of the BRVM increased from CFA10.4trn ($17.9bn) to CFA13.3trn ($22.9bn) in 2021, equivalent to 28% growth. Within the combined figure, the equity market saw an increase of 39% in 2021, and the bond market recorded 19% growth, with the equity market reaching CFA7.2trn ($12.4bn) by the end of December 2021, up from CFA6.1trn ($10.4bn) in December 2020, and the bond market reaching CFA6.1trn ($10.5bn). In terms of volume, the regional stock exchange achieved a record performance, with 983,078 securities and an average of CFA2.9bn ($5m) traded daily.

In comparison to other African stock exchanges, the BRVM Composite Index ranked fourth in terms of performance in 2021, behind the Ghana, Zimbabwe and Zambia stock exchanges. The high ranking of the BRVM Composite Index in 2021 was fuelled by the overall performance of Ivorian companies, particularly Nestlé Côte d’Ivoire and Société Ivoirienne des Tabacs, which achieved the largest valuation increases of all listed companies in Africa.

Reflecting the exchange’s broader performance, the BRVM 10, the flagship index that lists the BRVM’s 10-most-liquid titles, closed the year with an increase of 17.3%. The value of transactions on this index stood at CFA722bn ($1.2m), up 293% compared to 2020. The BRVM 10 comprises seven Ivorian listings, including SIFCA Group, Compagnie Ivoirienne d’Electricité and Unilever Côte d’Ivoire, as well as Senegalese and Burkinabe telecoms companies Sonatel and Onatel, and Togolese Ecobank.

Accounting for the lion’s share of the BRVM in terms of market capitalisation and number of listings, the economic outlook of Côte d’Ivoire has a crucial impact on the region’s capital markets. “The performance of the BRVM should be correlated with the economic activity in Côte d’Ivoire, since a good majority or the companies listed are Ivorian. This dominance is particularly felt if we only look at the industrial sectors, compared to financial services and telecoms, where representation from other UEMOA countries is fairly strong,” Omo-dele Egue, managing partner at Kemol Capital, told OBG.

The regional stock exchange’s performance has been reflected in the capital gains of investors. A total of CFA1.4trn ($2.4bn) was distributed to investors during 2021 in dividends, interest on bond securities and repayment of bond loans.

Legal Changes

In March 2022 the BRVM adopted a code of governance for companies listed on the exchange in cooperation with the International Finance Corporation. The code will serve as the sustainability and corporate governance guidelines for listed companies, and is expected to impact the region’s economic actors through its core principles, particularly in relation to shareholder rights, gender equality and social development.

Another important initiative is the African Exchange Linkage Project (AELP), a flagship initiative of the African Securities Exchanges Association (ASEA) and the African Development Bank to facilitate cross-border trading of securities in Africa. The pilot phase of the AELP was planned to start with seven stock exchanges before being opened to all the stock exchanges on the continent. Nine stock exchanges are now involved in the pilot phase: the BRVM, the Johannesburg Stock Exchange, the Egyptian Exchange, the Casablanca Stock Exchange, the Nigerian Exchange, the Nairobi Securities Exchange, the Stock Exchange of Mauritius, the Ghana Stock Exchange and the Botswana Stock Exchange. With the launch of the first phase planned for the second half of 2022, stakeholders are currently at the stage of implementing the technological platform that will enable the routing of stock exchange orders and transaction confirmations among the brokers of the stock exchanges participating in the pilot phase.

In addition, changes to the regulatory framework governing private equity in UEMOA are also under way. The reforms were approved by the Regional Council for Public Savings and Financial Markets and are in the adoption stage. They aim to enhance the investment climate through the implementation of attractive tax measures and the relaxation of entry and exit requirements. “This was something the private equity players had been requesting for years and would be a real step forwards,” Aurélie Pujo, senior partner and general counsel at Paris-based investment fund manager Amethis, told OBG. “The reforms to be adopted provide the necessary environment for private equity, with structures and facilities to set up funds and formally define the concept of professional investors.”

Further anticipated developments include the second phase of the West African Capital Markets Integration project, which entails the harmonisation of regulations to allow qualified West African brokers to participate directly in markets across the region, as well as upcoming reforms to help promote the mortgage and securities markets.

Regional Equity Market

Following its robust performance in 2021, the BRVM equity market stagnated somewhat in the first half of 2022. As of May 2022 the BRVM Composite Index was down 0.3% year-on-year, while the BRVM 10 Index showed a minor increase of 0.6% compared to same period in 2021. Within the individual sector indices of the BRVM, transport experienced the largest decline, with a drop of 7.2%; followed by the distribution sector, which was down 2.7%; and the industrial sector, which decreased by 1.3% year-on-year.

In a similar manner, price-to-earnings (P/E) ratios have lost their attractiveness somewhat compared to 2021 but remain well below their averages in previous years. As of May 2022 the BRVM’s overall average P/E ratio stood at 8.3. Within the individual sector indices, agriculture had the lowest monthly average P/E ratio, with 5.9; followed by financial services and transport, both with 7.3. Reflecting broader index trends, the industrial and distribution sectors had the highest monthly average P/E ratios, with industry recording a ratio of 28.1 and distribution reaching a ratio of 31.5. Taking into account the BRVM’s growing international attractiveness over the past decade, an estimated 25-27% of the regional exchange’s equity market is traded by investors from outside the region.

Among the listings on the BRVM’s equity market, Senegalese telecoms operator Sonatel remains by far the largest listing, with a market capitalisation of CFA1.5trn ($2.5bn) as of May 2022, followed by several banks. Among them, Société Générale Côte d’Ivoire is the largest, with CFA447bn ($768m); followed by Burkina Faso’s Coris Bank International, with CFA304bn ($523m); the local subsidiary of Togo’s Ecobank, with CFA242bn ($416m); and Société Ivoirienne de Banque, a subsidiary of Morocco’s Attijariwafa Bank, with CFA230bn ($395m). Apart from banks, Burkinabe telecoms operator Onatel, Togolese banking group Oragroup and Ecobank Togo are the largest players listed on the BRVM. Among companies listed in other sectors, SIFCA Group’s agriculture and agro-processing company Palmci, Nestlé Côte d’Ivoire and Total Côte d’Ivoire are medium-sized players on the stock exchange. As of May 2022 the total equity market capitalisation of the BRVM stood at just over CFA6.2trn ($10.7bn).

Debt Market

The regional stock exchange’s debt market reflects the geographic trends observed in the equity market. With 53 sovereign listings out of the total of 79, Ivorian bonds represent the largest share of the BRVM debt market as of May 2022. Côte d’Ivoire is followed by Burkina Faso, with 10; Mali, with seven; Niger, with four; Benin, with three; and Senegal, with two. Additionally, 12 regional and seven private bonds are listed on the BRVM. Three sukuk from Côte d’Ivoire, Senegal and Togo are also listed, bringing the total market capitalisation of the BRVM debt market to around CFA7.4trn ($12.7bn).

“In contrast to the equity market, the debt market of the BRVM, particularly the primary market, is very vibrant and has experienced consistent growth over the past decade, led primarily by Côte d’Ivoire in the sense that it makes regular issuances. All the countries in the UEMOA region recorded high GDP growth rates in the past decade, including Côte d’Ivoire, and sovereign debt has been a key element of this growth,” Soualiou Fadiga, executive director of the Professional Association of UEMOA Management and Intermediation Companies, told OBG. “Before the establishment of the regional capital market, multilateral institutions were by far the biggest source of funding. Now states are finding it increasingly easy to raise funds locally in local currency, compared with previous efforts to raise funds internationally,” he added.

Planned Listings

Initially announced by thenPrime Minister Amadou Gon Coulibaly in November 2017, telecoms operator Orange Côte d’Ivoire’s planned initial public offering (IPO) had been postponed due to unfavourable market conditions. In April 2022 it was reported in the media that the negotiations were well under way, and the IPO was planned to be launched in the second half of 2022.

SME Financing

Small and medium-sized enterprises (SMEs) in Côte d’Ivoire account for 98% of companies. However, their contribution to GDP stands at around 20%, according to the national SME agency, Agence Côte d’Ivoire PME (CIPME), which was created by the government in 2014 and began operating in 2017. Historically, insufficient access to finance has been the main obstacle contributing to the low economic contribution and capacity development of Ivorian SMEs.

The regulatory and operational framework for SMEs improved with the creation of an SME-specific board on the BRVM in 2017, as well as alterations to the central bank’s financing window and the government’s efforts to render SME financing free of provisions starting from 2020. However, most SMEs have yet to benefit from these developments. The BRVM’s SME platform has not seen listings in recent years due to eligibility and balance sheet requirements. A low level of financial literacy on the part of SMEs has translated into a reluctance to engage in capital markets. However, the evolving microcredit market is poised to become an important source of funding for SMEs, and institutions have scaled up their operations from nano-loans to bigger microand mezzo-loans worth up to CFA200m ($344,000).

The discrepancy between the lending requirements of commercial banks and the capabilities of Ivorian SMEs remains a considerable obstacle to development, according to Salimou Bamba, director-general of CIPME. “The business models of formal banks are not quite aligned to the economic realities of the country. The level of organisation and business management of SMEs needs to be enhanced in order to adapt to bank standards. For example, they are often unable to provide the necessary documentation for an investment like purchasing new machinery. They also need more managerial knowledge and resources in order to be able to prepare a business plan,” Bamba told OBG.

In addition to limited access to business development services and skills, the collateral requirements of banks also pose a challenge for SMEs, which often lack land titles and encounter problems with property regulations and identification, particularly in rural areas. “SMEs in Côte d’Ivoire historically lack the equity size required to justify bank leverage. For example, transaction-based instruments can be developed to address the specific needs of SMEs for contract finance,” Oloufemi Cédrick Montetcho, regional investment officer of Oikocredit, told OBG.

Outlook

The global inflationary environment is likely to impact monetary policy both in Côte d’Ivoire and across the West Africa region. The relevant authorities are aiming to tame price increases, potentially through tighter monetary policies. A predicted rise in the cost of credit, combined with an increase in prices of raw materials and oil, could have a negative impact on corporate growth dynamics and in turn, affect stock market activities.

Fortunately, while the first half of 2022 saw signs of stagnation, the momentum that drove market performance in 2021 is expected to continue. In addition to prospects of new company listings and increased transactions on the BRVM, forecasts are positive, projecting that the regional exchange will close the year with a market capitalisation of CFA6.4trn ($11bn). Furthermore, efforts to engage UEMOA capital markets in the West African Capital Markets Integration initiative and wider African stock exchange projects are expected to come to fruition in 2022, laying the foundation for a more resilient stock market ecosystem on the continent.