By Simbarashe Manwere (FIFM), Equity Derivatives Trader, Lehumo Capital
As a matter of operating necessity, Africa has been compelled to shape up or ship out of the globalization rat-race. Management of change or change of management or both have become a necessity in the competitive quest to woo global capital from other emerging market suitors. Regardless of the age advantage on her side as a young and sizzling bride, Africa still needs to adorn herself with the necessary financial infrastructure reforms to win over the promiscuous heart of old capital as an investment destination of choice.
In East Africa, a good development has begun with Uganda’s regulatory reforms to put away her old garments of the open outcry trading system which has hitherto characterized the buying and selling of shares on the Ugandan Securities Exchange (USE). Even more progress has been recorded in Tanzania’s Dar-es-Salaam Stock Exchange (DSE) where brokers no longer have to transact from the physical trading floor as the deployment of the Wide Area Network has completely eliminated the open outcry system. Perhaps the best regional milestone has been the Nairobi Securities Exchange (NSE)’s current efforts to establish foreign exchange derivatives trading.
This rising sun of financial market developments continues to shed its light from East Africa to West Africa as it runs its course. That is why the Nigeria Securities Exchange (NSE) is also making radical changes to its regulations in a bid to fund its infrastructure projects. An even more dramatic turn of events is Zimbabwe’s change of heart from total estrangement from the global community to re-engagement with multilateral agencies the likes of International Monetary Fund (IMF), World Bank etc. These developments have the seen the Southern African nation make frantic bids to build up financial infrastructure in order to foreign direct investment. The Zimbabwe Stock Exchange (ZSE) is but one beneficiary of this transformative effort which seeks to eliminate the open outcry trading system and replace it with an online security trading system similar to other emerging markets. This glimmer of hope in Southern Africa’s supposedly problem child contrasts sharply with North Africa, where the Egyptian Stock Exchange has been voted as the most innovative exchange on the continent. The award was given by Africa Investor, an investment holding company at a ceremony hosted at the New York Stock Exchange where some of the most outstanding investment companies were in attendance. To sum up, every cardinal corner of the continent is experiencing financial market reforms driven by the need to catch up with the breakneck speed of technological innovation.
Then arises the question: Is the continent ready for these changes? Julia Balogun and Veronica Hope Hailey (2013) in their book Exploring Strategic Change suggest four types of strategic change which institutions should effectively manage.
The Four Types of Strategic Change
| Realignment | Transformation | |
|---|---|---|
| Incremental | Adaptation: change can be accommodated within current organisational beliefs and assumptions (re-alignment rather than transformation). Can build on existing routines and capabilities in small steps (incremental rather than discontinuous change) | Evolution: change involves a radical paradigm shift (transformation) achieved step by step over time (incremental change) through organisational learning or logical incrementalism with transformational change in mind. |
| ‘Big Bang’ | Reconstruction: change can be rapid and traumatic without changing embedded beliefs and assumptions | Revolution: change involves a radical paradigm shift achieved rapidly and discontinuously |
For most African countries, the Big Bang approach has been used in the implementation of financial infrastructure reforms. In contrast, South Africa’s launch of currency futures on the Rand/Naira, Rand/Shilling and Rand/Kwacha currency pairs in (3 October 2014) the second half of 2014 appears to be an incremental change that has been done within the context of existing organizational beliefs as the JSE already has other existing futures contracts on different products. Such change is easy to deal with.
Questions are being raised in East Africa on whether the markets are ready for derivatives trading; a point which suggests that the launch of online securities trading platforms is being done as a Big Bang reconstruction. If indeed the markets are not ready, it means the underlying beliefs have not been changed, and the change is really traumatic in such situations. The ideal situation is for an evolutional approach where the paradigm shift takes place incrementally without traumatizing stakeholders involved. But with competition from other emerging markets, there is no such luxury of time to go the step-by-step route of evolution.
There is an optimal way to manage these strategic changes which policy makers should bear in mind. In this day and age where the extractive nature of capitalism is being debated and proposals for inclusive capitalism being advanced, African policy makers should ensure that the general population is ready for innovative financial market products like derivatives. And that can only be done through capacity building.
The financial markets are notorious for the propensity to reward the super-rich who, by virtue of their financial muscle, are able to turn equal opportunities into uneven power plays in their favour. Evidence from the United States claims that two thirds of the $15billion gained since the recession has gone into the hands of only 5% of the richest American families according to Paul Buchheit (2013) of De Paul University. This was similarly echoed on the 27th of May 2014 by the International Monetary Fund (IMF) Managing Director, Christine Lagarde at the London conference on Inclusive Capitalism organized by Lady Lynn de Rothschild. She reported that the 85 richest people in the world control as much wealth as the poorest 3.5 billion poorest people scattered over all the five continents.
The opening up of financial markets in Africa should be accompanied by an opening up of the mindsets of the general public on how the financial markets are powerful tools of more equal wealth distribution. Without adoption, or perhaps enforcement, of that inclusive approach to capitalism, the markets will be used as tools to enhance the increasingly yawning gap between the rich and the poor.
_____________________________________________________________________
Lehumo Capital (Pty) Ltd is a privately owned financial intermediary services provider.Our primary focus is broking in equity derivatives, investment research, portfolio management and advisory services to high net worth individual and corporate clients.
Lehumo is a Northern Sotho word for “wealth”, representing an abundance of resources available at our company that enable our clients to improve their financial well-being.
At Lehumo Capital, we view clients as business partners-and our role is to help you achieve your financial aspirations and goals by using our expertise,discretion, efficiency and attention to detail.
We combine savvy market perspective with exceptional judgement and technical skill to consistently deliver quality advice and service.
Contact Simba at simbam@lehumocapital.co.za or 011 783 4700
