Tawiah: Technology has Contributed to Overall Development of African Capital Markets
The CEO and Co-founder of SecondSTAX, Mr. Eugene Tawiah in this exclusive interview with Kayode Tokede stated that technology has contributed to the overall growth and development of African capital markets amidst uncertainty in the global and domestic economic environments. He also spoke about his trading app that has incorporated the Nigeria Exchange Group, Ghana Stock Exchange and Nairobi Securities Exchange. Excerpts
On October 6, 2023, SecondSTAX was introduced to Nigeria’s capital market community. Take us through the success stories far?
Nigeria’s capital markets represent a significant and growing opportunity for investors across the continent. Especially when you consider the outstanding performance over the last few years. At SecondSTAX, we are excited by this opportunity and we have been working with various market players (pension funds, large broker-dealers, asset managers, etc) to enable easier access to these opportunities. Our process typically involves two stages – putting the infrastructure in place to enable visibility and trading across all markets, and working with market participants to take full advantage of the tools that are now available to them. Our platform is designed to give market participants a single view of opportunities across the continent to inform and enable effective trading. We are also compiling market news and research from credible sources with local expertise to enable informed decision-making. By combining this with our capabilities on execution, market players can now access reliable information on what is happening locally, see what analysts are saying and effectively execute a trade on one platform. Our users across the continent now have access to these services and they can better position themselves and their clients to access more lucrative investment opportunities from Nigeria and across the continent.
How many Exchanges have been onboarded so far and the prospect of expanding to other countries?
SecondSTAX has partnered with three prominent exchanges, Nigeria Exchange Group (NGX), Ghana Stock Exchange (GSE), and Nairobi Securities Exchange (NSE). These collaborations mark the beginning of our efforts to unite all of Africa’s capital markets. As we continue to expand our reach, we are actively pursuing additional partnerships across the continent, to effectively connect and create an efficient and accessible framework across Africa’s vibrant financial ecosystem. Despite having some of the best-performing stocks and bonds globally, Africa’s exchanges are largely inaccessible to investors outside the jurisdictions where they have been listed. Over the last decade, African capital markets have raised more than US$ 246 billion in debt capital markets. More than US$ 87 billion has been raised in equity capital markets and equity indices have peaked at over 50% growth across the major regional exchanges. However, the siloed nature of these exchanges and insufficient data on the risk profiles of assets have led to limited access to capital for markets and access to high-growth assets for investors.
How has SecondSTAX been able to navigate foreign exchange differences with Stock Exchanges currently on your platform?
The SecondSTAX portal offers users the convenience of investing in their local currency. Our platform allows investors to seamlessly engage in transactions using their native currency, eliminating the need for complex foreign exchange conversions. This feature not only enhances accessibility for users across the continent but also fosters a more intuitive and user-friendly investment experience. Whilst we are waiting for more markets to be integrated into the PAPSS infrastructure and for it to be available for us to plug into, we have partnered with licensed forex liquidity providers in each of our operational jurisdictions, which are allowed to exchange local currency for our investment firm clients e.g., for a Ghanaian broker who wants to purchase DANGCEM on the NGX, the licensed FX liquidity provider can transfer their Cedis in Ghana from the originating broker, and settle the executing broker with Naira in Nigeria for the trade without the need to touch any other intermediary currency like USD.
In connecting Africa’s capital markets, how is SecondSTAX sourcing for capital and meeting the regulatory requirements of each country?
Our existing funding was secured from Private and Venture Capital investors to develop technology solutions to enhance intra-Africa capital and investment flows across the continent, with an initial B2B focus. Regarding meeting regulatory requirements in each country, partnerships with large established licensed brokers in each jurisdiction have helped. We have been able to present to the regulators a pathway to understanding our technology as an enabler, so we can effectively operate within the rules for that particular exchange. With that clarity, we satisfy the regulators’ needs especially when it comes to KYC verification for client onboarding and also settling with designated banks and custodians that the partner brokers already work with regularly. Since the role of the capital markets regulators is to manage and assess the risks of new ideas, innovations, and processes, it has been part of our mandate to be transparent in our operations and technology, which facilitates trade by routing orders to existing mature exchange infrastructure. As such, we are not introducing features or functions that will present potential risks to the ecosystem. So as we remain open and place a premium on educating them on our approach to integration, they get more comfortable with the concept of using technology to drive more volumes and price discovery across the ecosystem. As we continue to get approvals in conjunction with our partner brokers in multiple jurisdictions, other regulators are more comfortable that initial thorough due diligence has been done elsewhere. They can then apply whatever additional nuances they have within their respective market, and we can move through the certification processes as we prepare for launch. That partnership with large established brokers has been essential and has helped us grow quickly in multiple markets that we are in.
How has your product crystallized institutional investors trading across Africa into Nigeria’s capital markets, which is currently the best-performing market in Africa?
Investment firms on the SecondSTAX platform in Ghana and Kenya (and others in our business development pipeline from other regions) are quite excited about having the Nigeria market access currently. It is much bigger than both Ghana and Kenya combined when it comes to market capitalization and also provides more options for investors in major sectors like financials, telecommunications, consumer goods, industrials, and energy (oil & gas). Many investment firms and their institutional clients (as well as some high-net-worth individual clients) are actively looking for opportunities by studying some of the macroeconomic headwinds that have been driving the Nigerian market recently, especially when it comes to Naira devaluation, as well as the rise in inflation (and related central bank benchmark rate hikes, some of which has been linked to the removal of the fuel subsidy). We expect active trading in the coming months as they get more comfortable with their capital allocation strategies, optimized for absolute returns.
What role has technology played in investment across African stock Exchanges and the risk involved amid global and domestic macroeconomy uncertainties?
Technology has played a transformative role in investment across African stock exchanges, technological advancements like the SecondSTAX portal have facilitated greater accessibility to African securities exchanges, breaking down geographical barriers and enabling investors from around the world to participate in these markets remotely with their local currencies. Technology has greatly transformed investment across African securities exchanges, offering increased accessibility, market efficiency, and automation. However, amid global and domestic economic uncertainties, it also introduces risks such as cybersecurity threats, technological disruptions, and regulatory challenges. Despite these risks, the benefits of technology in improving market participation and efficiency outweigh the challenges, emphasizing the importance of vigilance and adaptation to maximize its advantages. By leveraging technology effectively, investors and regulators can access new opportunities, manage risks more efficiently, and contribute to the overall growth and development of African capital markets amidst uncertain global and domestic economic environments. Therefore, while vigilance from all stakeholders is essential in addressing technological risks, embracing technology remains crucial for unlocking the full potential of investment across African stock exchanges.
What is the future of equity investment in Africa and what role SecondSTAX will be playing in attracting the youth?
The future of equity investment in Africa looks promising, especially with the introduction of technological innovations like SecondSTAX. Our platform will play a crucial role in enhancing investment opportunities across the region, facilitating seamless access to investment in multiple African stock exchanges. By leveraging technology and streamlining processes, we aim to enhance liquidity, transparency, and efficiency in the market, thereby bolstering its appeal to a broader range of investors. Over the past three years, the Nigerian stock market has performed exceptionally well, notably contributing to a remarkable 45.90% return in 2023. The positive trend has continued into 2024, with the Nigerian exchange maintaining its position as the best-performing stock market globally. With a greater than 35% return so far this year, it surpasses the country’s most recent headline inflation rate of almost 30%. Despite these impressive results, the fragmented nature of African capital markets means investors who are not based in Nigeria have typically been locked out of accessing these opportunities. In terms of attracting the youth, our use of technology is key in simplifying intra-market investments within the region. As we extend our capabilities from B2B coverage of investment firms, to look at how to support B2B2C workflows through APIs that can power Investment Apps geared towards retail investors, we aim to dismantle the barriers that often deter young investors. This approach opens avenues for them to not only enhance but also diversify their investment portfolios, thereby empowering the next generation of investors in Africa.
How safe is SecondSTAX protection against cyberthreats and what is the management doing against money laundering?
At SecondSTAX, we take our system security very seriously and have applied several levels of security control, multi-factor authentication, and bank-grade encryption to guard against cyber attacks on the platform. We also leverage external independent firms to perform periodic Vulnerability Assessment and Penetration Testing (VAPT) whilst also maintaining active internal monitoring across our infrastructure. We are also working towards ISO 270001 and SOC 2 certification with a leading compliance automation vendor. As a first step to counter AML across our platform, per our policy (and as mandated by capital markets regulators in all jurisdictions) we KYC all our partners (brokers & asset managers, as well as liquidity providers), and they each per their regulatory mandates are also required to KYC SecondSTAX and all their other clients/partners. As an additional step, we have automated this client onboarding process for the investment firms across our operational jurisdictions (Ghana, Kenya, and Nigeria) through our KYC module which includes integration with robust third-party online ID verification software, which validates ID documents globally, and also performs human likeness checks.
In the next 10 years, what are the plans of SecondSTAX to expand and create more wealth for the younger generation?
In 10 years, we would be successfully integrated into 9 major capital markets within Africa i.e., Ghana, Kenya, Nigeria, South Africa, Egypt, Ivory Coast, Mauritius, Namibia, and Morocco, and be a trading and execution vendor partner commanding at least 25% of all African capital market transactions into and between these markets. With our collaboration with the African Securities Exchanges Association (ASEA), we expect to be able to onboard many additional African regional capital market exchanges and drive the adoption of their flagship African Exchanges Linkage Project (AELP).
We would also have launched services to support the investment goals of young retail investors, including but not limited to a mobile application that facilitates simple transactions for them, likely in partnership with select licensed dealing members in select markets.
Governments will also be able to raise capital via debt offerings from more local investors and as such have a better chance of servicing these loans without bloating their national deficits to implement large essential infrastructure projects like roads, railway lines, schools, hospitals, and more. This resulting vibrant capital markets ecosystem should drive growth for all African frontier/emerging economies and also insulate the African capital markets from the impact of fleeing capital when institutional investors from developed markets elect to repatriate their funds in response to market shocks as is typical from time to time.
We also provide a means ultimately for young retail investors to participate in the growth and appreciation of their assets through investments and thereby lift more African youth out of poverty in the long term. Our platform will also be a key strategic component in achieving the goals of the African Continental Free Trade Area (AfCFTA), which aims to accelerate intra-African trade and boost Africa’s trading position in the global market by strengthening Africa’s common voice and policy space in global trade negotiations and thereby delivering on Africa’s goal for inclusive and sustainable development. Finally and perhaps most importantly, when we are successful, we will have created a significant commercial enterprise that will provide well-remunerated employment opportunities for many youths across various countries in the African continent
