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Monday, June 3, 2002

Casting Web on untamed Africa
Wambui Chege

Uphill taskTIRED of Africa's isolation from world markets, one African entrepreneur has launched a Web-based electronic trading system for investors with an appetite for the world's poorest continent.

Cameroon's Cyrille Nkontchou hopes his business - linking retail investors with brokers across nine African stock exchanges online - will resuscitate interest in the continent and attract much needed capital.

Sceptics scoff at the idea.

They say most of the world's leading investment houses have limited exposure to emerging markets like Africa which is dogged by conflicts and disease.

The continent accounts for just less than one per cent of total world stock market capitalisation but hardly attracts the equivalent proportion of funds.

Nkontchou, aged 34, remains undeterred and at the end of May launches a new initiative targeting institutional investors. His firm LiquidAfrica is marketing an Internet-based trading platform that he hopes will provide access to 18 of Africa's 20 bourses.

"We hope to attract institutional investors by providing them with a platform where they can access markets seamlessly and not only the markets, but information as well," he added.


Uphill task

But it will not be an easy task.

Since LiquidAfrica's debut last November, the uptake by retail investors has been slow because many African investors remain attached to the idea of buying into traditional assets like property and land.

The mere idea of channelling savings into intangible "paper-based assets" like shares is deemed by many as too mysterious and risky. Ignorance aside, a critical mass of middle-class investors is missing in Africa.

As a result, the firm has decided to focus on institutional investors.

"Our key target is to try and get those funds who potentially would be willing to invest in Africa but can't because of liquidity," said the former London-based head of sub-Saharan equity research at investment house Merrill Lynch.

Nkontchou is banking on LiquidAfrica's position as a one-stop shop for investors offering a chance to buy and sell equities, bonds and treasury bills.

Web access cuts costs for investors and is more reliable than trying to dial into the continent to secure a trade.

Liquidity is taken care of by a web-based platform - dubbed "expression of interest" - which he says matches institutional buyers and sellers electronically. A London-based broker Afrinvest will execute the orders.

Settlement should be done through the SWIFT system, widely used by banks for international banking transactions, by the end of May, Nkontchou said.

"Once we get SWIFT-enabled, we're really going to move trading in African markets to a world-class level," he said.

Ambitious plans

Bourses covered will be Algeria, Egypt, Tunisia, Morocco, Nigeria, Ghana, the French West African stock exchange in Cote d'Ivoire, Kenya, Uganda, Tanzania, Malawi, Zambia, Botswana, Namibia, Zimbabwe, Mauritius, Swaziland and South Africa.

Together they have a market capitalisation of around $260-300 billion, with South Africa accounting for the bulk.

Nkontchou argues that lack of information about markets has contributed to the continent's marginalisation and to counter that, the firm provided data and research on the remote markets.

But fund managers also cite poor regulation, a small private sector, sluggish economies and restrictions on portfolio investment by foreigners and foreign exchange controls in some territories as hindrances to investment.

Furthermore, only seven of the markets under LiquidAfrica's plan trade electronically.

Another potential source of capital for African markets is from private equity investors once their current investments in small African firms matures.

"There's a decent of pool of money available from these private equity firms and they've invested in firms which I believe are the future of Africa," Nkontchou said.

Privatisation moves across the continent — albeit sluggish —could also spur investment.

And just in case it does not all work out in Africa, LiquidAfrica plans to expand to other emerging markets in the Middle East, the Caribbean and eastern Europe. ""The idea is to target smaller under-developed, illiquid markets."

LiquidAfrica's investors include Modern Africa Fund Managers, a US-based direct equity investment fund whose investors include among others Citigroup, Microsoft and Societe Generale.