East African stock market chief executives are considering a policy shift to allow them issue debt instruments in hard currency to open competition with commercial banks over the issuance of foreign currency denominated loans to companies largely involved in international trade.


The proposal which regional central banks are still jittery to approve, seeks to allow companies to raise fresh capital from the capital markets by issuing bonds denominated in hard currency and particularly the US dollar.

The East African Stock Exchanges Association (EASEA) says this will cushion issuers and investors from massive exposure on local currency risks where foreign investors and companies dealing in international trade absorb exchange rate risks.“For capital markets instruments I do believe that (issuance of capital markets instruments in hard currency) all of us in EASEA we are discussing that and I’m sure we are even going to be discussing that in our technical committee of the African Securities Exchange Association (ASEA) of which I’m the vice-president. We have been discussing that but most countries are jittery, central banks are reluctant,” EASEA chairman Celestin Rwabukumba told The EastAfrican.“As far as we are concerned as EASEA it is a matter that central banks must approve. But the issue is most of our economies do not allow people to issue instruments in hard currency except governments which can issue Eurobonds. Banks are allowed to trade in hard currency, however, capital markets are not allowed which I find counterproductive actually,” added Mr Rwabukumba, who is also the vice-president of ASEA and chief executive of the Rwanda Stock Exchange (RSE).

Currently, debt and equity capital raising instruments on regional exchanges including bonds, initial public offerings (IPOs) and rights issues are offered in local currencies. The regional lobby group,EASEA, says discussions over the use of hard currency are currently at different levels.“These discussions are at different levels. We as market people of exchanges we have realised that by the way we should accommodate that market issue (use of hard currency). If one can get a loan from a commercial bank in hard currency why can’t we issue a bond in hard currency in the capital market?” Mr Rwabukumba asked.“Sometimes investors are wary of local currency exposures,” he added.

Mr Rwabukumba says discussions over the use of hard currency in capital markets instruments are also taking place within the technical committee of the African Securities Exchanges Association (ASEA) that brings together 25 exchanges serving 37 African countries.

ASEA in collaboration with the African Development Bank is working on a project to link African stock exchanges electronically to reduce transaction costs in stock market trading across the continent.

The e-platform (The AELP Link) was launched in December 2022 enabling seamless cross-border securities trading among seven African stock exchanges representing 2,000 companies with roughly $1.5 trillion market capitalisation.

The first phase of the AELP connected seven stock exchawnges across 14 African countries including Morocco, Egypt, Nigeria and Kenya.

Others are Mauritius, South Africa and the West Africa Economic and Monetary Union, which comprises Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

ASEA and AfDB on June 28 2023 signed an agreement for a $600,000 grant to expand the number of linked African exchanges from 7 to 15 under the second phase of the African Exchanges Linkage Project (AELP).

The project seeks to link African capital markets, thereby promoting cross-border securities trading, increasing liquidity and diversifying investment opportunities for investors.

AELP’s second phase will provide investors access to over 2,000 securities listed on up to 15 capital markets through a cross-border securities trading platform tailored to the needs of regulators, central depositories, policymakers, and stockbrokers.

The objectives of the AELP align with the African Union’s Agenda 2063 and the African Continental Free Trade Agreement’s goal of establishing a liberalized market to ease the movement of capital and investments and deepen the continent’s economic integration.

AfDB also supported the first phase of the project that involved setting up of an infrastructure interconnectivity platform involving seven stock exchanges and 31 stockbrokers. © Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).