Capital Raising Opportunities For Smes On Stock Exchanges in Africa
Capital Raising Opportunities For Smes On Stock Exchanges in Africa
FOREWORD: ASEA 1
Enabling SMEs to fuel Africa's economic growth
INTRODUCTION 4
Unlocking the continent’s socio-economic
growth potential through SMEs
CONCLUSION 24
RECOMMENDATIONS 25
FOREWORD
FOREWORD
1
https://www.weforum.org/agenda/2015/08/why-smes-are-key-to-growth-in-africa/
2
http://www.banking.org.za/what-we-do/sme/financial-institutions-hurdles-to-sme-financing
https://www.world-exchanges.org/home/index.php/news/world-exchange-news/world-federation-of-exchanges-publishes-joint-report-with-milken-institute-on-sme-exchanges
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1
ABOUT THIS REPORT
T
his report is based on a survey conducted by the ASEA SME Facilitation Working Group. As a starting point for the survey, the
group developed a questionnaire consisting of 21 questions targeted at all 27 ASEA member exchanges. The premise being to
establish whether or not most of the member exchanges have boards that encourage and facilitate SME listings, and to determine
how different these listing requirements are to that of their main boards. Derived from the survey were specific and significant questions
posed such as:
Of the 27 ASEA member exchanges, 15 exchanges participated (56%), from the following member countries:- Botswana; Cameroon;
Egypt; Kenya; Mauritius; Morocco; Mozambique; Namibia; Nigeria; Seychelles; South Africa; Sudan; Swaziland; Zambia and Zimbabwe.
https://www.world-exchanges.org/home/index.php/news/world-exchange-news/world-federation-of-exchanges-publishes-joint-report-with-milken-institute-on-sme-exchanges
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2
CASE STUDY
3
INTRODUCTION
UNLOCKING AFRICA’S
SOCIO-ECONOMIC GROWTH
POTENTIAL THROUGH SMES
T
he United Nations predicts that by 2050, Africa’s total of five job opportunities. These numbers are significantly higher
population will double to 2.4 billion and with that when informal SMEs are included.
will come the need to dramatically increase job opportunities.
SMEs are the backbone of the economy and play a significant
SMEs not only create new jobs, but create thriving private role in generating employment, nurturing a culture of
sectors, expand the tax base, contribute to innovation, entrepreneurship, supporting large-scale industries and opening
drive entrepreneurship and enhance competition and productivity. new business opportunities.
According to the World Bank5, formal SMEs contribute up to 60% CAPITAL – THE KEY CONSTRAINT TO THE
of total employment, and up to 40% of national income (GDP) GROWTH OF SMEs
in emerging economies. Furthermore, most formal employment is Like all businesses, SMEs need capital to start up and keep going
generated by SMEs in emerging economies, which create four out until they become profitable. However, accessing adequate and
http://www.worldbank.org/en/topic/smefinance
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4
INTRODUCTION
timely financing on competitive terms, is a major stumbling block The truth is SMEs can only grow and contribute positively in the
to many SMEs. economic growth and development of any given country, if they are
well supported by the state and also by other business institutions
For example, a survey by South Africa’s World Wide Worx6, in that country.
found that business owners have often cited cash flow woes at the
top of the list of their challenges and daily fight for survival. The OPPORTUNITIES FOR CAPITAL RAISING ON
reasons were listed as: SMEs start with less capital than they need, AFRICA’S STOCK EXCHANGES
are unable to adequately manage their cash flow, receive late Listing on the SME boards of African Stock Exchanges is another
payments from debtors, and many have large overheads. alternative to accessing capital for SMEs. SME boards generally
offer more cost effective and longer-term capital compared to
Small business owners who need funding to get their business banks.
off the ground have historically been underserved by the public,
private and banking sector. Traditional lenders such as banks Through ASEA, African exchanges are looking to collaborate and
require collateral against SME loans - with the result that the many engage in order to:
SMEs who lack collateral, are unable to have their loans approved. • align better to facilitate more capital raising across member
stock exchanges;
According to the World Bank7, over half of the formal SMEs in • create best practices across member exchanges;
emerging markets globally, do not have access to the capital they • streamline listing requirements;
need to grow. Rather than being able to access traditional loans, • highlight and share successes across exchanges.
they rely on personal funds and loans from friends or families, – a
fact that hinders their growth. Unfortunately, SMEs are often deterred from capital markets by
the costs associated with listing as well as pre- and- post listing
Overall, approximately 70% of all micro, small and medium-sized requirements (continuing obligations) of securities exchanges.
enterprises (MSMEs) in emerging markets, do not have access to
credit. While the gap varies considerably from region to region, it To fulfil its role as the premier association of leading exchanges
is particularly wide in Africa and Asia. The current credit gap for in Africa, ASEA is committed to driving economic and societal
formal SMEs is estimated to be US$1.2 trillion, the total credit gap transformation within Africa, by positioning African stock
for both formal and informal SMEs is as high as US$2.6 trillion exchanges as the key to unlocking the continent’s socio-economic
(World Bank, 2015). growth potential.
But why is it so difficult for SMEs to gain access to credit? It is clear that promoting a viable SME sector is essential in any
nation’s stride towards broadening the sources of growth and
Some of the main reasons why SMEs do not have easy access sustaining the growth momentum.
to formal finance include: a lack of formality in running their
businesses, a lack of discipline in financial record keeping, ASEA believes that with the African exchanges' commitment to
inadequate or incoherent business plans which leads to financial play a more active role in fuelling the African growth story, it is
institutions not having confidence and not being able to rely on imperative that member exchanges establish the necessary criteria
these SMEs to provide them with reliable information, whether they to both attract investment and convince companies to list and
are financial statements or business data. remain listed on their exchanges.
The United States Agency for International Development (USAID) undertook a comprehensive five-year research and
development project in South Africa to identify the challenges faced by SMEs wanting to access finance.
The findings revealed that the main reasons SMEs struggle to access finance are:
• a lack of finance literacy - not understanding finance terminology;
• a lack of knowledge about who the lenders are, how to access them and what lenders require from them;
• a lack of knowledge about the different types of loan products and which one/s are appropriate for their lending
needs; and
• most importantly, a lack of finance readiness.
http://www.worldwideworx.com/category/sme-research/
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http://www.worldbank.org/en/topic/smefinance
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5
CASE STUDY
Ascensia Limited invests in, owns and manages commercial retail assets in Mauritius. Established in 2008, it is
the largest company in Mauritius exclusively dedicated to property.
Although, given its market cap, it is not technically defined as an SME according to the SMEDA Act of 2009.
However, Ascensia is listed on the SME board but is contemplating listing on the main board, subject to
adequately reviewing its current structures. Ascensia cited its primary reason for listing was to allow investors to
invest and disinvest in property without land transfer taxes and registration duties. Further, its listing also allowed
pension funds to revalue their investments and exit at any time.
Multiple benefits were achieved by listing, including access to capital, which has cultivated expansion of the
company. Furthermore, as a listed company it now enjoys an enhanced public profile amongst both local and
foreign investors. It has also enabled the company to gain additional leverage when applying for loans from
banks and allowed it to exchange shares of the company against acquisition of new assets. While Ascensia
raised the required capital upon listing, investors were not sourced from the stock market, instead it had to
undertake road shows and invest heavily in developing a pipeline of investors.
Ascensia believes that a listing on the Stock Exchange of Mauritius (SEM) could be more attractive if the listing
requirements or rules were more coherently set out. Furthermore, a REIT framework would be beneficial for the
commercial property sector. Improving the online experience such as the ability to submit results online and
software solutions in place for individuals to trade from an online platform would be helpful. Guidance from
the SEM on how to improve liquidity and investor relations was also seen as an opportunity for improving the
listing experience.
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FINANCING OPPORTUNITIES FOR SMEs
A
s mentioned in the foreword to this report, this report and THE EMERGENCE OF SME BOARDS ON AFRICAN
its findings are based on a decision by ASEA to explore EXCHANGES
financing options for SMEs through the African Capital Since 2002, 20 African stock exchanges have created specialist
Markets. To inform this, ASEA conducted a survey amongst its SME boards to help SMEs gain access to equity. The SME board is
member exchanges. In total, 15 member exchanges participated. a segment of the stock exchange, dedicated for trading the shares/
securities of SMEs, who otherwise find it difficult to get listed on the
WHAT IS THE DEFINITION OF AN SME? main board of the exchange.
This study is set out to understand how SMEs are defined in
different African countries and to get an understanding of whether The concept originated from the difficulties faced by SMEs in
there are any similarities based on the different definitions. The gaining visibility and attracting sufficient trading volumes when
intention is to establish a concise definition of an SME in the listed along with bigger stocks on the main board. It is also
African Capital Market context. Based on the responses from understood that the listing requirements for the SME boards are
the participating exchanges, it is evident that every country and less onerus than the main boards. This is in order to make it more
economic organisations have their own unique definition of what is accessible for SMEs to list.
considered a small and a medium-sized enterprise.
In this study of the 15 participating member exchanges surveyed,
There were, however, commonalities among all the exchanges on 12 have an SME board on their exchange; namely Botswana
the basis of the annual turnover and the number of employees in the (BSE); Casablanca, Morocco (CSE); Douala, Cameroon (DSX);
business. In general, SMEs maintain revenues, assets or a number Egypt (ESX); Johannesburg, South Africa (JSE); Nairobi, Kenya
of employees below a certain threshold. For small businesses the (NSE); Lusaka, Zambia (LuSE); Mauritius (SEM); Mozambique
number of employees would be from 1 to 50 and the annual (BVM); Nigeria (NSE); Seychelles (Trop-X) and Swaziland (SSX).
turnover would vary from (+/-) 72,000 to 360,000 (USD). On The JSE's SME board, The Alternative Exchange (AltX) currently
the other hand, a medium sized company would employ 50 to has the most listings – 53 (as at 31 December 2017), followed
500 employees, and the annual turnover would vary from (+/-) closely by the SEM's Development & Enterprise Market (MDEM),
360,000 to 3,6 million (USD). which has 49 listings (as at 31 December 2017).
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FINANCING OPPORTUNITIES FOR SMEs
8
FINANCING OPPORTUNITIES FOR SMEs
THE BENEFITS OF LISTING Furthermore, there are other benefits to listing such as improved
Listing on an exchange plays a key role in terms of business growth corporate governance and operational efficiency, as well as a
and liquidity, especially for SMEs. SME boards generally offer boosted public profile of the listed company.
more cost effective and longer-term capital compared to banks.
REQUIREMENTS FOR LISTING VARY In comparison, Nigeria’s Alternative Security Market (ASeM)
ACROSS EXCHANGES has no set limit, however, there is a requirement of no less than
Listing requirements for SME boards are usually more relaxed 51 shareholders. Botswana’s Venture Capital Board requires
compared to the main trading boards, with the aim of cutting a free float of 5% of each class of equity shares; whereas
barriers. However, exchanges across the continent have varying the Growth Enterprise Market Segment (GEMS) of Kenya's rules
listing requirements. require a free float of 15% of each class of equity shares.
For example, when listing on Ghana's Alternative Market (GAX), While listing requirements may vary between exchanges, the
companies only need $59,207 in capital and 20 shareholders. perceived benefits of listing remain consistent.
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FINANCING OPPORTUNITIES FOR SMEs
Profit history • Profit history is not • 1 certified financial • The company is • The company must • A profit history is not • Must show a 5-year
necessary period required to introduce have operated for at necessary but the operation history
financial statements for least one year and applicant should, in or show increased
two fiscal years prior to have published or filed its analysis of future revenue for the past
its listing request, with accounts in accordance earnings, indicate 3 years or a business
exception of submitting with the Companies credible returns on plan
the financial statements Act, 1963 (Act 179) capital that, on a time-
for at least one fiscal for at least the latest weighted basis, are
year, provided that financial year. above average
the company submits
a viable business • Admission may be
plan endorsed by a granted to a start-up
qualified sponsor company, provided the
applicant submits to the
GAX a 3-year business
plan, demonstrating
clearly the sustained
viability of the
applicant
Management • The majority of the • No requirements • The board members • Management should • The majority of the • Must present a board
directors and managers available of the applicant have requisite expertise directors and managers of 5 directors, majority
have successful records company must be in the core business of must have a successful being non-family.
of achievement in their formed from executive, the GAX applicant record of achievement
respective roles non-executive and in their respective • Directors to undergo
independent positions, roles, which shall Director Induction
and the number of be evidenced to the Production
independent members satisfaction of the JSE
should not be less
than two • Directors are also
required to attend an
AltX Directors' Induction
Programme
* Exchange rates at the end of business on the 31st August 2017 from the relevant central bank sites were used to convert the respective local currencies to dollar amounts for comparison sake.
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FINANCING OPPORTUNITIES FOR SMEs
Requirement Mozambique STOCk Nairobi Securities Nigerian Stock Swaziland Stock The Stock Exchange Trop-X (Seychelles)
EXCHANGE (BVM) Exchange (Kenya) Exchange Exchange (eSwatini) of Mauritius
SME BOURSE SENCOND Market Growth Enterprise Market Alternative Securities SME Board Development & Enterprise SME Board
Segment (GEMS) Market (ASeM) Market (MDEM)
Profit history • E quities - Reports and • Track record of • Minimum of two (2) • A satisfactory • An applicant, even • The applicant must
Accounts of the last operations for at least a years’ operating profit history for though such applicant provide a minimum of
2 years year but no profitability track record and the preceding two has no proven track 1 (one) year externally
record needed comprehensive plan of (2) financial years record, provided the audited financial
•B
onds - Reports and the company’s business (or, in exceptional applicant submits to the statements for the most
Accounts of the last prospects covering a circumstances, a lesser SEM a sound business recent financial year
9 months period of not less than period) or alternatively, plan, certified by an
one (1) year show prospects of independent financial
•H
owever, no the company for the adviser acceptable
profitability history next two years that to the SEM, covering
required are acceptable to at least 3 years and
through submission of a demonstrating clearly
business plan the sustained viability
of the applicant. The
applicant shall also
disclose the risk factors
specific to the company
or its industry and
that are material to
the securities being
admitted to trading
Minimum • Equities - Minimum • Subscribed capital, of • No set limit • Subscribed capital • Minimum stated capital • No set limit
capital Market capitalisation: at least KES 10 million of at least E500 of MUR 20 Million
4 MZN million (≈US$96 948) 000 (Proposed
(64,641.24 USD) listings requirements
• No less than 100 000 have reduced this to
• Bonds - Minimum value equity shares in issue E250,000)
of issue: 2 MZN million
(32,320.62 USD) • No less than 500 000
equity shares in issue
Minimum • None required • No less than 25 • No less than 51 • At least 10 for equity • The minimum number • A minimum of 15%
number shareholders within 3 shareholders shares, 3 for preference of public shareholders (fifteen percent) of the
of public months of listing shares and 5 for must be 100 issued shares must be
shareholders debentures held in public hands
by a minimum of 20
(twenty) persons
* Exchange rates at the end of business on the 31st August 2017 from the relevant central bank sites were used to convert the respective local currencies to dollar amounts for comparison sake.
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FINANCING OPPORTUNITIES FOR SMEs
Part of Main • No – separate board • No – separate board • No – separate board • No – separate • No- separated board • No- separated board
Board or called Venture Capital called Growth Market called NILEX but within board called Ghana call AltX but within the called the LuSE
Separate Board but within the but within the Exchange the Exchange Alternative Market Exchange Alternative Market but
Exchange Exchange (GAX) but within the within the Exchange
Exchange
Presence of • Not available • Not available • The Listing Committee • Not available • Not available • Not available
SME Listing may accept the
Support Fund admission of securities
of a company that has
no certified sponsor, if
a venture capital fund,
or an investment or
financial institution is
among its shareholders,
provided that the
shares of that fund/
institution are not less
than 10% of the issuer’s
total shares, and that
such fund/institution
undertakes in writing
not to sell its shares
unless two years elapse
from the date of listing
Regulator • Botswana Stock • Financial Market • Financial Regulatory • Ghana Stock Exchange • Johannesburg Stock • Lusaka Stock Exchange
Exchange Authority in Morocco Authority (FRA) Exchange
(AMMC)
Requirement • Yes – a Sponsoring • Yes – a financial • Yes - The advisor is • Yes – Licensed Dealing • Yes – a Designated • Yes – a Designated
for Nominate Broker has to be advisor and global one of the specialised Members, Investment Advisor Advisor
Advisors/ appointed and acts as coordinator for the companies in financial Advisors or Issuing
Designated a conduit between the offering (investment consultancy. Their role Houses shall sponsor
Advisors/ company and the Stock bank) will assist and is limited to qualifying an application for
Sponsoring Exchange advise the company the company to be listing on the GAX
Broker during the entire listing listed on NILEX,
process. preparing for the
process of offering
the company’s shares
to be traded on
the exchange and
providing training
for the company’s
employees on the
Listing and Disclosure
rules and how to
comply with them
Number 7 12 32 Not available 53 Nil
of Listed
Companies (as
at December
2017)
Minimum share • Minimum initial issue • No stated requirement • Not less than 10 • No stated requirement • No stated requirement • None
price price of equity shares Egyptian piasters per
shall not be less than share
50 thebe per share
Table continued on following page
* Exchange rates at the end of business on the 31st August 2017 from the relevant central bank sites were used to convert the respective local currencies to dollar amounts for comparison sake.
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FINANCING OPPORTUNITIES FOR SMEs
Requirement Mozambique STOCk Nairobi Securities Nigerian Stock Swaziland Stock The Stock Exchange Trop-X (Seychelles)
EXCHANGE (BVM) Exchange (Kenya) Exchange Exchange (eSwatini) of Mauritius
SME BOURSE SENCOND Market Growth Enterprise Market Alternative Securities SME Board Development & Enterprise SME Board
Segment (GEMS) Market (ASeM) Market (MDEM)
Part of Main • No- separated board • No – separate board • No – separate board • No – separate board • No – separate board • No – separate board
Board or called the SENCOND called the Growth called Alternative called the SME Board called the Development called the SME Board
Separate Market but within the Enterprise Market Securities Market but within the Exchange & Enterprise Market but within the Exchange
Exchange Exchange Segment but within the (ASeM) but within the (DEM) but within the
Exchange Exchange Exchange
Presence of • Not available • Not available • Not available • Not available • Not available • Not available
SME Listing
Support Fund
Regulator • Central Bank of • Nairobi Securities • Nigerian Stock • Financial Services • The Stock Exchange of • Trop-X
Mozambique Exchange Exchange Regulatory Authority Mauritius
(FSRA)
Requirement • Companies choose the • Yes – Nominated • Yes - Designated • Yes – Sponsoring broker • No concept of a • Yes – Sponsor Advisor
for Nominate broker that will lead the Advisers (NOMADS) Advisors, whose role is Sponsor on the
Advisors/ operation/ BVM also responsible for ensuring to advise on the listing Exchange
Designated offers assistance during the compliance of process and advise
Advisors/ the listing process applicant companies; the company on an
Sponsoring marketing the GEMS ongoing basis to ensure
Broker market to prospective that it satisfies the
SMEs, and advising on ASeM’s requirements
pricing or supporting the for initial and continued
market for the shares of membership
the applicant
Number 1 5 10 Nil 49 1
of Listed
Companies (as
at December
2017)
Minimum share • None • None • None • No less than 100 cents • No requirement for a • No stated requirement
price per share minimum share price
* Exchange rates at the end of business on the 31st August 2017 from the relevant central bank sites were used to convert the respective local currencies to dollar amounts for comparison sake.
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FINANCING OPPORTUNITIES FOR SMEs
THE CHALLENGES FACING SMEs they need access to finance (amongst other things). SMEs are
SEEKING TO LIST thus faced with many challenges as far as financial support is
SMEs have been identified as productive drivers of inclusive concerned. This study puts forward some of the common challenges
economic growth and development in Africa and around the that Africa's SMEs experience in their respective countries,
world. However, for them to contribute significantly to the economy, which hinder their growth and listing on the exchanges.
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FINANCING OPPORTUNITIES FOR SMEs
When referring to studies done by the ASEA SME Facilitation Working Group (African context) and the World
Federation of Exchanges (WFE) and the Milken Institute (global context), it is evident that there is no holistic
definition of an SME because the definition differs across jurisdictions. The findings however show that there are
common challenges facing SMEs' growth globally – it is not only in Africa where small businesses struggle to
flourish – it is a global concern. Furthermore, the research shows that African SMEs and other SMEs from the rest
of the world share common motivations or reasons, as far as listing on exchanges is concerned.
Based on their findings, there is consistency between the results they obtained and the results obtained in this
study as far as the definition of an SME is concerned. The common aspects are; a definition based on the number
of employees in the company and the annual turnover/market capitalisation. Hence, there seems to be a global
consensus on the fact that an SME is uniquely defined by each respective jurisdiction. This implies that there is no
specific definition for an SME, which can be used as a global standard at this point in time8.
The WFE and Milken joint report focused mainly on the availability and the cost of equity finance, and did not
include a broader range of presiding challenges for SMEs globally (which has been touched on in this study as
detailed in previous sections). Nevertheless, based on the challenges of services and costing, this study and both
that of the WFE and Milken, obtained similar results, which show the direct and indirect costs’ challenge.
The WFE and Milken report also covered the rationale behind the listing of SMEs on the world's exchanges. The
common reasons obtained from all three studies shows that SMEs list on exchanges because they want to:
• position the firm for growth
• diversify their investor base
• lower costs of funds
• improve brand reputation
• improve competitive advantage
• enhance their ability to attract talent
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CASE STUDY
Home Afrika Limited is a leading property development company based in Kenya. Incorporated in 2008, the
company seeks to create communities around Africa by providing quality, sustainable and affordable housing.
The company listed in order to achieve share price discovery for shareholders, share price liquidity, to raise
capital and to enhance its brand profile. Home Afrika has grown from 41 employees on listing to 73 employees
to date.
It deemed its IPO a success in that it raised sufficient debt capital while at the same time it improved their
profile and ensured enhanced governance. The Company sees the main advantages of having opted for the
banks, as having the less stringent collateral requirements compared to getting funding from banks as well as
the more flexible terms, and of being able to access longer term funding. Regulatory vigilance and reporting
requirements have had a positive effect on the company. Further a perceived future benefit will be the ability to
use the company’s stocks as a currency for mergers and acquisitions.
In order to make listings more attractive, Home Afrika believes that the cost of listing needs to be brought down,
not just with regards to the regulator but also to other service providers including PR companies, lawyers,
accountants and investment banking services. However, it did raise concerns relating to the expectation that
SMEs must abide by the same regulatory requirements listed on the main board, for example publishing
financials in two newspapers which is a costly undertaking. Home Afrika remains listed on the GEMS.
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ALTERNATIVE SOURCES OF FUNDING
S
MEs can only grow and contribute positively to economic growth and development if they are well supported by the state and other
business institutions.
African governments and the private sector should create an enabling environment where SMEs have the necessary aid to succeed.
Areas for consideration include programmes that provide business financial acumen, access to a variety of funding types and initiatives
to cut the red tape.
Fortunately, there are already programmes underway to support SMEs with long-term liquidity and technical assistance. They include:
the AfDB Africa SME Programme; the African Guaranteed Fund; the African Local Currency Bond Fund; ELITE Growth; FinFind; RainFin;
GroFin; VC4A and the South Africa SME Finance Association. We look at these programmes in more detail in the sections that follow.
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ALTERNATIVE SOURCES OF FUNDING
9
www.africanguaranteefund.com
10
www.alcbfund.com
11
http://sasfa.net/
12
https://www.elite-growth.com/
13
https://www.finfindeasy.co.za/
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ALTERNATIVE SOURCES OF FUNDING
this information to link the SME with all the matching loan offerings. loans and specialised business support to grow emerging market
It also provides educational tools to help businesses prepare enterprises. By generating employment, strengthening value chains
for investment. Finfind does not lend money to SMEs directly; its and building markets, their investments bring about inclusive growth
purpose is to provide an easy, one-stop shop for SMEs to find and and improved living conditions in low and middle-income countries.
link with all the available SME lenders and loan offerings in the
market. VC4A16 strengthens Africa’s start-up community by connecting
entrepreneurs creating innovative and scalable businesses with
RainFin14 is a straightforward online exchange platform/credit the knowledge, network and funding they require to succeed.
market place that connects Lenders, looking for competitive returns, Entrepreneurs have access to the VC4A Start-up Academy,
with Borrowers, seeking transparent, cost effective loans. mentorship opportunities and the ability to raise capital. Programme
partners engage members with their entrepreneurship programmes,
GroFin15 is a pioneering development financier specialising in competitions and services. Investors are able to discover great
financing and supporting small and growing businesses (SGBs) companies, research opportunities and follow up with founders
across Africa and the Middle East. They combine medium-term directly.
14
https://www.rainfin.com/
15
http://www.entrepreneurmag.co.za/directory/funding-directory/government-funding/grofin-africa-fund/
16
https://vc4a.com/
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CASE STUDY
The AfDB’s strategy for Morocco is articulated around two main themes namely; enhancing governance
and social inclusion; and supporting the development of “green” infrastructure. Through budgetary support
and projects, it has invested around USD 594,900,000 million per year in sectors such as agriculture,
health and education to support Moroccan national programmes, and in large infrastructure projects in the
water and renewable electricity sectors.
What is Elite?
ELITE is a programme that helps fast-growing private companies prepare and structure for further growth through
sharing experiences, access to financing opportunities and education. It accelerates long-term this growth by
offering access to a diverse network, a range of funding options, and a dedicated training programme.
Who does it serve?
The programme serves the most exciting and ambitious businesses with a strong business model, clear growth
strategy and the commitment to implement useful changes for development.
How?
ELITE offers an innovative approach through training and access to a diverse community of companies,
entrepreneurs, investors and corporate advisors.
Companies access a unique digital platform enabling collaboration and communication with peers and
partners.
The programme is delivered in three progressive phases:
20
CASE STUDY
21
WHAT NEEDS TO BE DONE
L
ack of adequate access to finance is considered as one and oral communication, technical management and organising
of the major challenges and constraints to the growth of skills. Business management skills are managerial skills like
SMEs. However, there are clear ways to assist SMEs in their planning, decision-making marketing and accounting17.
growth and development goals, going forward, through support
for skills development, access to technology; better infrastructure, However, SMEs are finding it difficult to invest in training because
innovation and business development; increased networking it is too expensive. They are also concerned that training their staff
opportunities; market linkage formation; promotional support will lead to demands for higher salaries, and that training would
service and improvement of advisory services. disrupt workflows.
It is believed that should the above be addressed, SMEs could It is therefore, suggested that there should be private sector and
play a more critical role in terms of job creation, entrepreneurship government collaboration to drive the development of SMEs.
and income generation. It would become an ideal platform for
governments and the private sector to invest in and support, to INNOVATION
reduce the gap between the haves and the have-nots. Various ASEA SME development surveys show that business
performance has always been linked to overall innovation.
SKILLS NEEDED TO PROSPER Innovation is frequently viewed as the key to success in many
Research by the International Finance Corporation and the World arenas, from individual businesses to general economic growth. It
Bank shows that the skills required by entrepreneurs fall into three is seen as a vital element in economic growth, where the economy
distinct categories: technical skills, business management skills, is dominated by small and medium-sized businesses.
and personal entrepreneurial skills. Technical skills include written
https://www.ifc.org/wps/wcm/connect/277d1680486a831abec2fff995bd23db/AM11IFC+IssueBrief_SME.pdf?MOD=AJPERES http://documents.worldbank.org/curated/en/doc-
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search/newtopic/Skills%20Development%20and%20Training%20in%20SMEs)
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WHAT NEEDS TO BE DONE
Entrepreneurs agree that innovation not only promotes growth but In particular, there is a need for digital skills by the SMEs workforce.
also enhances a variety of capabilities that improve the ability to This includes having more advanced in-house IT skills to enable
enter markets and attract customers. Discovering new ways of doing deeper technical work to be done with software and maximise
things, employees also become more energised and productive, existing IT architecture, network and security management, and
further leading to improvements in financial performance. specific skillsets for positions such as social media specialists,
content creators and a press release writer.
While larger companies are more likely than SMEs to control the
resources necessary for innovation, including human and financial Technology is essential or very important for an SME's plans for
capital, SMEs, however, face significant challenges in their growth. According to the World Bank, in the fast-moving digital
attempts to innovate due to their small size and limited resources. economy, the companies most likely to succeed and grow are
those with technically skilled staff. Business can also help them to
The research and development efforts of SMEs are often hampered move from good to great by giving greater priority to IT training
by a lack of funding and a paucity of human resources. In many where needed and realising best value from their existing teams.
cases, they are trapped in the vicious circle where they have an
idea for a new or improved product, process or service, but not The Bank mentions that, in the IT space, handling security issues
generating the profit levels required is far from straightforward for SMEs,
to invest in its on-going research and despite their relatively small footprint.
development. These profit levels are in “If SMEs are to prosper, Smaller enterprises often lack the means
turn being squeezed by their inability it is important that to secure their networks appropriately,
to invest in improvements. largely due to financial restrictions,
governments, banks limited resources and inadequate in-
Innovation is the bedrock of future and independent house expertise.
prosperity, but too often small
businesses do not prioritise this and financial institutions There is also a strong belief between
damage their prospects. Innovation is improve the ease of SMEs that security in the organisation
necessary for future survival, but when can be adequately provided by
times are hard, it is innovation that starting a business.” deploying anti-virus software and
tends to get squeezed. configuring a firewall. Some managers
therefore, deem IT security to be a low priority. Furthermore, IT
However, there are risks of failure to innovate. By neglecting infrastructure is often either managed by one employee or a
innovation, an organisation is putting the control of its future on handful of employees.
hold. There will not be time to catch up later because when the
economy picks up the pressure on managers becomes greater still. However, while these personnel may possess basic technical skills,
Before that happens, businesses face a more immediate risk. they very often have limited expertise with regard to security.
A step change in the market- such as the emergence of a new SMEs need to accept the realisation that security is an essential
competitor, a new customer segment or a new ground-breaking cost of doing business, and give it the priority it merits. In the final
technology - could create havoc, leaving companies that have no analysis, the various surveys demonstrates the inability of SMEs
mechanism for achieving breakout innovation, poorly placed. to use state-of-the-art technology, is another drawback for SME
development. Unlike in other countries across the world, African
For future sustainability and profitability, companies must position SMEs' adaptability to the latest technology, is very limited to
themselves to react quickly to changing market conditions and lack of know-how, high investment cost and poor accessibility to
customer needs - and that means finding ways to innovate, despite finance.
economic pressures and market volatility. Small firms need to
create an innovative culture and look beyond their own four walls ONLINE SOLUTIONS
for resources and ideas. There is growing evidence of the link between innovation, IT,
Internet and telecommunications use, and business performance.
TECHNOLOGY
Close to technology, information technology (IT) infrastructures SME entrepreneurs agree that the Internet enables online sales
and services is an essential contributor to an SME's success. and purchases, often carried out through a website, can also
have an effect on productivity. Across the continent, an increase
According to the World Bank, common goals for innovation in electronic sales appears to contribute significantly to labour
include developing a new product, selling or licensing the results productivity.
of innovation, protecting or expanding market share, increasing
recognition in the marketplace, better retaining staff and improving Small firms agree that fast-growing firms in manufacturing tend to
operational efficiency. engage more intensively in online sales and purchases. Greater
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WHAT NEEDS TO BE DONE
use of the Internet can also help boost international and regional The Bank advises that governments should recognise the need
trade. SMEs with a high-speed connection were noted to make to review their policy and regulatory environments that continues
more use of the Internet, which in turn helped raise productivity. to hinder development, growth and competiveness of small
businesses.
As mentioned above, broadband connectivity has a positive effect
on productivity in countries that already have a medium or high Entrepreneurs tend to favour approaches that are high on
level of information communication technology (ICT) use measured. innovation and low on bureaucracy, but what will really help
SMEs is a joint approach from both public and private sectors. By
However, it is worth noting that most SMEs in Africa are not working together, both parties could capture the goodwill of those
effectively using the newer technologies, especially the Internet, who want Africa to succeed, in developing a more robust economy
to explore business opportunities. There are many reasons cited with a stronger indigenous business base.
for the low usage of ICTs. These include: costs of the technologies,
poor Internet connections and speed, and most importantly, lack of There are some examples elsewhere in Africa where bureaucracy
awareness of what the Internet offers. is indeed being successfully reduced. Rwanda is a case in point.
MOBILE PHONE USE According to the World Bank’s Doing Business Report, Rwanda
Tied to innovation, technology and broadband, mobile phones is ahead in the ease of starting a business, obtaining construction
have emerged as the most widespread ICT in the developing world. permits, getting electricity, registering a property, getting credit,
Mobile technologies have made communication and information protecting minority investors, paying taxes, trading across borders,
access very convenient and timely to users from the comfort of their enforcing contracts, and resolving insolvency.
own homes and offices or elsewhere. The use of mobile phones to
conduct business among SMEs, is growing every day. In practical terms, small business owners in Rwanda can expect
reduced times when registering a business, application for finance,
UNTANGLED RED TAPE obtaining a tax clearance certificate in order to transfer property,
While it is accepted that innovation, technology and broadband, and reducing the cost and time associated with filing tax returns.
mobile phones are critical for SME growth, however, such growth
is often constrained by the difficulties of meeting the requirements For example, in the 2014/15 Global Competitiveness Report,
of red tape and bureaucracy. South Africa was ranked 120th out of 144, while Rwanda is ranked
6th out of 144 in terms of the ‘burden of government regulation’.
Small businesses are constantly challenged to meet the requirements
of government agencies and departments through paperwork and Furthermore, while it takes a mere six and a half days to start a
superfluous form filling. business in Rwanda, South African SMEs can expect the process
to take about 46 days. In terms of registering for VAT, in Rwanda
That is why streamlining processes such as registering a company, it takes business owners one day, while South African business
obtaining tax clearance certificates, for example, could help ease owners can expect to wait up to 21 days.
the administrative burden on SMEs, allowing them to focus on
growth and job creation. If SMEs are to prosper, it is important that governments, banks
and independent financial institutions improve the ease of starting
According to the World Bank Group’s Trade and Competitiveness a business. Indeed, if the small firms sector is to prosper, African
Global Practice says, the important thing is for Africa to keep countries must have economic development policies, which provide
moving forward in its efforts to make the regulatory environment the right support, tailored to the needs of both new and existing
simpler and more efficient, and provide business-friendly regulatory firms.
environments.
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CASE STUDY
MB Engineering is a manufacturer of low voltage electrical components based in Egypt. Established in 1981,
MB Engineering has over the last three decades succeeded in becoming one of the leading suppliers of low
voltage electric supplies including protection devices, automation devices, control devices, distribution and
panel boards.
The company listed in March 2016 with an aim of building a robust capital structure to unleash exponential
growth. Listing gave the company quick access to funding, enabling them to realise their growth strategy and
maximise shareholder wealth. It provided liquid currency for organic and inorganic expansions, bolstered and
diversified the shareholder base and provided monetisation for shareholders (offering a partial exit window).
The company has grown from 90 employees to 200 since listing on the Nilex.
The company remains listed on the SME exchange, however it is working towards another internal or external
listing in the near future. MB Engineering bases it successful listing on the support team and the process it
followed to its IPO. Part of this process involved a road show around Egypt, which was the first of its kind. The
IPO was significantly over subscribed.
To make a listing even more attractive MB Engineering recommends that an exact timeframe and clear roadmap
is provided for all listings, and that ranked nominated advisors should be given. Hosting a pre and post IPO
awareness workshop would also be beneficial.
MB Engineering has realised multiple operational, financial and sustainability benefits from list. Operationally
these include stronger inter-business bonds, increased compliance, branding and exposure for new business
opportunities. From a financial perspective, the company has benefited through greater visibility to a wide range
of investors, improved credibility and increased debt capability. On the sustainability track, it has benefited from
improved corporate governance, awareness and recognition, and attracting and retaining high calibre talent.
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CONCLUSION
T
his study shows that there is no consistent definition for an SME in the African context; each country has its own unique definition.
However, there is support for SME businesses seeking to access finance from the African Capital Markets with 80% of the 15
participating exchanges having SME boards on their exchanges. These typically have less onerous listing requirements than the
requirements for listing on the main board. However, just as there is no clear definition for SMEs, listing requirements vary from exchange
to exchange.
Research conducted in this study shows that there are common reasons for SMEs to list on exchanges. These include: finance, followed by
corporate governance and profiling. Other reasons include; infrastructure development, and learning and skills development.
The study has also highlighted the perceived challenges to listing. Other key challenges include corporate governance hurdles and
concerns regarding organisational infrastructure and development.
What is clear is that providing access to SME growth support programmes is critical. SMEs can only grow and contribute positively to
economic growth and development if they are well supported by the State and other business institutions. This study shows that as far as
SMEs’ support is concerned (from each country), all 15 participating member countries have government programmes in place to assist,
and approximately 70% have private sector support with 30% relying more on loans from their banks. Yet, in spite of this, challenges
continually persist.
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RECOMMENDATIONS
I
n summary, our conclusion shows that there are challenges facing SMEs to take advantage of the capital raising opportunities that
lie on African Capital Markets. It is the intention of ASEA to work together as an association with member exchanges and the public
and private sectors, to develop solutions to promote the prospects of SME companies to raise capital on exchanges and drive further
economic development.
Key highlights:
• Alignment on revenue targets and sizes of SMEs to list on ASEA exchanges
ASEA to consider aligning member exchanges’ revenue targets, for listing SME companies, in order to ensure a standardised
approach to the listing of SME companies on ASEA member exchanges, across the continent.
• Member exchanges to take a partnership approach in educating SMEs prior to and post listing
ASEA to develop standardised education programmes, in partnership with academic institutions, to prepare SMEs for listing on stock
exchanges. The programmes should focus on governance, risk management and Directors’ training.
A detailed outline of the above highlights are set out on the following pages.
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RECOMMENDATIONS
Mentoring
Introduce an SME Mentoring programme which guides SMEs’ to list on an exchange.
Exchanges to partner with government institutions, funding institutions and development finance institutions
to facilitate access to training on preparedness for listing.
As part of its Corporate Social Investment (CSI) goals, exchanges to conduct stakeholder education
engagements, to educate SMEs, and the broader public, on the role of the stock market in the economy.
Ensure that all exchange listings requirements include the appointment of a Nominated/Designated
Advisor, to play a mentorship role in terms of guiding and upskilling the SME, leading to listing and on
continuing obligations.
Costs
Lowering of fees applicable to SMEs in order to reduce the barriers to listing by making it affordable to the
SME.
Exchanges to work in collaboration with their governments to provide concessionary taxes to incentivise
raising capital on exchanges, in support of SME growth and development.
Roadshows
Sponsoring countrywide initiatives that expose SMEs to raising capital on Exchanges.
Promoting competition among intermediaries by capacitating junior advisors (legal firms, accounting firms),
to a point where they can be part of the listing ecosystem for SMEs.
Establishing engagements with all parties that are interested in listing or learning more about the role of an
exchange – this allows for more smaller intimate sessions where individuals are at liberty to ask questions
freely – for example, business schools, professional bodies, incubators, etc.
Eco-system
Ongoing mentoring and coaching of the SME, once listed.
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RECOMMENDATIONS
PRACTICAL WAYS THAT ASEA MEMBER EXCHANGES’ AIMS TO GET THE STUDY INTO
THE RESPECTIVE AFRICAN COUNTRIES
Host forums specifically targeted at SMEs in order to educate and drive the financial inclusion agenda.
Distribute the information to the SMEs, via governmental structures, Development Finance Institutions (DFIs)
and other financial institutions that have been tasked with the mandate for financial literacy and that work
closely with SMEs.
Foster relationships with small business incubators, government initiatives supporting small businesses as
well as government research institutes that conduct research which forms government policy decisions and
legislation.
Engage the use of mass media and social media to get the information across to SMEs.
Publishing the abridged version of the study in the ASEA Magazine, its website and that of its member
exchanges.
Feature the study at any of the relevant ASEA conferences and that of its member exchanges.
Relay the study through the exchange’s communication channels that sends information to major market
participants, i.e. data vendors, listed companies, stock brokers, banks, etc.
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NOTES
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