The Securities and Exchange Commission (SEC) has said that the implementation of the Pan-African Payment Settlement System (PAPSS) will encourage intra-African trade and aid diversification within the capital market.
This was stated by SEC’s Head of Office of the Chief Economist, Dr Okey Umeano, during an interview.
Cross-border payments: The Nigerian Exchange and the Pan-African Payment Settlement System recently signed a Memorandum of Understanding to support cross-border payments across capital markets in Africa.
- “This MoU begins to implement something that we have been very excited about. PAPSS makes it easy to trade across Africa. It makes Intra-African trade more efficient and we have always wanted it. It was created initially for just the usual everyday trade but we have always wanted it for the capital market because we think that if we can link the exchanges and the markets across the continent we will have a bigger opportunity set for everybody, so we have been working on that.
- “We have two projects, the West African Capital Market Integration project and the African Exchanges Linkage project but the problem we have always had was how to settle, how do we make payments happen? If I want to buy a Ghanaian stock, do I have to change my naira to dollars and then from dollars back to cedi’s and all that. These are the problems, but with PAPSS, we can make the trades more efficient and easier. I can trade in naira and whoever I am buying from in Ghana or wherever in Africa receives in the local currency so this is a good thing and we thank Afrexim bank”.
Umeano noted that the MoU allows NGX to stick up with the Ghana stock exchange and with hope that other exchanges and other market players will key in and take this opportunity.
Opportunities for diversification: He stated that given the way the markets are, this implementation will improve opportunities for diversification and make markets able to perform better.
- “Given the way the markets are; it improves the opportunity for diversification. It improves the opportunity set everywhere. Let me give you an example, a couple of years ago when our market didn’t do so well, our bond market didn’t do so well we had issues around currency and we had the foreign investors leaving. It was reported that the market in Côte d’Ivoire, the eight nations French union their market did much better.
- “So from a fund manager point of view if I could invest across the markets in the region, it will help my diversification, it will help improve returns, it will help my portfolios so I think that there’s appetite for it, I think that fund managers, pension, funds and all that will take advantage of it so I think it’s a good thing,” he said.
Other markets: On where the initiative is going next, Umeano stated that it is a very big step that is expected to scale to other markets and reap the enormous benefits adding that Nigeria and Ghana have always been traditional partners and I think it’s easier to start off with Ghana.
- “I think that as time goes on we can scale to the BRVM market; we can scale even away from West Africa to other parts of Africa. I see this growing first, I would prefer this is me not NGX but I would prefer that the next stop becomes the Capital Market Integration project and it’s something that I am actively pushing that we can link these markets in West Africa first and PAPSS will be an enabler and after that we will go on to other markets but of course this decision is one that NGX has to make and other exchanges that join,” he said.
Integration projects: Umeano stated that in the integration project currently ongoing, the SEC and other regulators are encouraging issuers to be able to access markets that are different from the market of the primary issue, because when issuers know that the chances of their issues being more successful given that they have a larger market to sell into, it will increase or encourage them to issue more.
- “If there’s an issue in Nigeria, anybody anywhere in Africa can take part in that issue in their local currency so this is very important. I see this as a very big one, for many years now the primary side of the market has not been very good. We have seen a lot of issues across the continent and even in other parts of the world,” he added.
He assured that regulators are in support of the initiative and are making efforts to harmonize regulations to support these laudable developments.