Change of guard ready to lead JSE to further success

March 31, 2011


 

Change of guard ready to lead JSE to further success

by  Humphrey Borkum, Chairman of JSE Limited

 

 

The recent year end results of the JSE to the end December 2010 were overshadowed by Russell Loubser announcing that he was standing down as CEO of the JSE at the end of the year.

 

This was a sad moment for the JSE as for the last 15 years Russell was a successful and innovative leader who led the JSE from strength to strength.  He never failed to make courageous decisions when necessary.  During his term he led the JSE from being a small, backwater local exchange to becoming a recognised and respected international player.   It is significant that he took the decision to stand down not because he thought it was time to go but because he felt that it was important for the JSE to elect a new leader to take it through the next decade. 

 

We have been successful I believe in choosing the new leader.  Nicky Newton-King has been groomed for this position as Deputy CEO under Russell for the last eight years.  Nicky, a lawyer, was a partner at Webber Wentzel  Attorneys before joining the JSE 15  years ago.  Together with a number of other high quality candidates she underwent a rigorous vetting process and in the end she was the JSE Board’s unanimous choice. The JSE will therefore be in capable hands in the foreseeable future and I also look forward to following Russell’s future career path with great interest.

 

The JSE financial results for 2010 are now history but I would like to point out that they were achieved in a difficult trading period and were a tribute to all concerned. For the record the exchange reported a 9% rise in operating revenue for the year to end December 2010 of R1,3 billion with net income after tax R378 million, compared with R366 million the previous year.  I was particularly delighted that we managed to increase our dividend to R2.10 (2009 – R1.92) as I am well aware that there are a number of JSE shareholders who look to the JSE for their income.

 

Readers may not be aware that Russell Loubser is both a Director and the Treasurer of the World Federation of Exchanges (WFE).  The WFE is the association of 52 regulated exchanges around the world which develops and promotes standards in markets. WFE exchanges are home to more than 45 000 listed companies.  Obviously Russell  is highly regarded in international stock exchange circles as well as in South Africa.  It is therefore fitting that in his final year as the JSE’s CEO that the WEF has voted to hold its 51st General Assembly and Annual Meeting in Johannesburg, October  11 to 13.      

 

This assembly represents the largest and most widely attended gathering of global exchange leaders.  It is also attended by a number of prominent international business people and government dignitaries.  I personally regard this as a milestone in South Africa’s business history and is something that Russell and I have been lobbying for over the past 12 years.

 

Mining Indaba

Soaring commodity prices led to a buoyant and optimistic mood at this year’s Mining Indaba in Cape Town.  For local delegates it was gratifying to experience the global interest in the resource-rich African mining sector. A delegate told me it was “like lions fighting over a kill”.  

 

Clearly there is an increasing appetite for Africa as an investment destination as low yields in developed countries prompt investors to search for high returns in previously unexplored emerging markets.  I believe that Africa contains over 30% of global mineral reserves but has less than 5% of global exploration and extraction budget. What does this mean for stock exchanges on the continent and more pertinently for South Africa’s ability to attract new investment?

 

When global fund managers consider putting funds into a new destination they look for a number of criteria including a sound, business friendly economy and, for listed investments, a stock exchange with regulatory and operational standards which meet international benchmarks.  Exchanges must have a predictable set of rules, fair operating schemes and smooth and transparent operating systems.   If these factors aren’t present other investment destinations will be found.

 

 A major hurdle for investors wanting to put money into Africa is the difficulty involved in transacting on a large number of small exchanges, some with as few as five listed companies and each with its own regulatory system – often very different from the regulatory systems investors are used to.  For multi national institutions the effort required to investigate each market is not always worth the effort given the low number of potential investment opportunities and the relative high costs of executing trades in these markets. 

 

As the largest exchange in Africa the JSE has always believed that it has a pivotal role to play in the development of capital markets throughout the continent. We have positioned ourselves as a gateway for investors worldwide wishing to access opportunities throughout the African continent and have developed the strategic links and technological capacity to do so. 

 

In February 2009 we established our African Board, a listing venue for companies domiciled in Africa or with assets on the continent.  Because we realised that turf issues are a major stumbling block we encouraged companies to dual list on the JSE as well as their local exchange as this will offer them increased liquidity in their shares and visibility to more investors through exposure to the JSE’s large local and foreign investor base.  Moreover we will share our revenues with the local exchanges. 

 

We have also launched a series of indices to track the performance of top issuers across the continent and are developing a hub and spoke model of linking and routing orders and data to and from African exchanges.

 

South Africa is blessed with staggering mineral wealth.  For more than a century our economy has been built on these vast resources. Our mining industry is well established and resourceful with a high degree of technical expertise and an ability to mobilise capital for new development.  It has contributed greatly to the establishment of our country’s secondary industries.  Resource stocks comprise approximately 40% of the JSE’s value.

 

However if we wish to benefit from the momentum created by  foreign interest, create jobs on a sustainable basis and not miss out on the next commodity boom  the government must be pro-active. 

 

The best input the state can provide is to sort out once and for all a transparent regulatory framework for the mining sector thereby creating an environment for the mining sector to flourish.  Secondly it needs to accept that a market economy, with all its imperfections, is the only kind that works.  It has had very little success with state owned mining companies like Alexcor and should remain a facilitator and not try and be a player on the field.  It has enough on its plate in trying to fulfil its core obligation of rendering public services.  Once these issues have been addressed I have no doubt that the minerals under our feet will keep our economy robust for at least another hundred years.

 

                                                                                                                                      

 

This article first appeared in Business Report