Rinsy Ansalam: “Our target is to be profitable by June 2015”

The Global Board of Trade has been rebranded as Bourse Africa on October 28. The focus of the multi-asset exchange is now mainly on Africa. In an exclusive interview with Business Magazine, Managing Director and CEO Rinsy Ansalam elaborates on Bourse Africa’s new strategy to aggressively pursue the avenues of profitability.

BUSINESSMAG.What was the idea behind the rebranding of GBOT into Bourse Africa?

At Bourse Africa, we endeavour to be the global hub for Africa focused risk management, trading, investing and capital raising requirements. The name Bourse Africa categorically conveys our business and the geographic focus towards African Financial and Commodity markets.

More importantly, the Financial Technologies group already had a project named Bourse Africa in Botswana. It was thus a group decision to merge existing initiatives like GBOT and Bourse Africa in Botswana and consolidate all Africa-focused initiatives in Mauritius.

While we were in the process of searching for a name for this new entity, we realised that the name Bourse Africa conveys well in terms of the business as well as its purpose.

It contains ‘Africa’, which identifies well from a geographical purpose perspective and ‘Bourse’ as the business of exchange. It also appeals equally to English or French speaking countries of the continent. This was one major decisive element while choosing the new name and the decision has been well appreciated by associated market participants.

BUSINESSMAG.How will this new identity help the exchange to better position itself with regards to its endeavours to tap the African growth opportunities?

In the financial markets domain, the nascent stage of Africa presents a high potential for state-of-the-art electronic exchanges. We have arrived in this market at an opportune time where there exists an evident demand for efficient and sophisticated avenues of financial risk management, technology driven trading platforms and liquid markets for capital raising. Through this new identity, we are positioning ourselves as the African exchange that bridges the existing gaps in the market and addresses some of its key challenges.

Also, the financial market participants relate with the name as there was already a lot of groundwork carried out in Africa by the Bourse Africa Botswana team (based on Johannesburg) in terms of engaging with the market participants.

BUSINESSMAG. Would you say that GBOT did not have enough of an African perspective?

The focus of GBOT was more global and Africa was one of the key markets in addition to Middle East, Asia and Europe. At Bourse Africa, now the main focus is market development in the African continent through Africa centric products and pan African collaborations.

In the last one year, we have expanded and created representations in South Africa, Ghana and Kenya. We are currently in the process of identifying resources in Nigeria and with that, we will be operational in the four important markets that we have identified in terms of demographics, emerging middle class population and the overall economic opportunity.

BUSINESSMAG.You just completed three years of presence in Mauritius in October. How would you evaluate your performance after three years of operations?

In the last three years, we have successfully managed to create a strong foundation in terms of operations, visibility, membership, product introduction and technology implementation. As of date, we have a growing member base from key financial centres of Dubai, Ghana, Nigeria, Kenya, London, Singapore and South Africa.

In terms of exchange volumes, I believe we could have done better and we are now focusing on key initiatives that are showing us signs of sustainable volume growth. I can surely say that our understanding of the emerging and frontier markets that we were targeting is much better than what it was 3 years back.

Also, we were launched at a time when the markets were recuperating from a fresh global financial crisis. The initial products, with which we launched in 2010, such as futures contracts on gold, WTI, silver, euro and GBP, given the contract size, were more appealing to the corporate and HNI segments of the market.  

We then realised the huge potential of developing a retail market in Africa and hence introduced exchange traded contracts for difference (CFDs) that are already gaining traction and will help foster an investing and trading culture across Africa. Also, we have forged strategic alliances across Africa that will accelerate institutional participation through the introduction of niche Africa centric products.

Now, we have products which target both the corporate/HNI as well as the retail segment of the market.

BUSINESSMAG.How do you intend to capture the African retail market?

To start with, by introducing Africa centric products and creating a pan African distribution network by empanelling brokers in these markets. Our focus markets of South Africa, Nigeria, Kenya and Ghana represent a network of 250 to 300 potential brokers.

Our market expansion in Africa has to be technology driven, where most of the clients are able to access the market virtually – through web, smartphones and tablets. The technology solutions that we have allow brokers to develop their business with the least possible fixed cost. The brokerage industry in Africa is yet to grow into a full-fledged one. ‘Low fixed cost model’ will be the ideal business model that will catalyse the growth of broke-rage industry in Africa.

Data shows that places in Africa that lack proper sanitary services have already witnessed commendable mobile penetration. Over $ 21 billion has been invested in mobile infrastructure in sub-Saharan Africa alone.

The growing mobile infrastructure is going to be the backbone for financial transactions, and we realise this opportunity. As we progress, people who are accessing Bourse Africa markets will do so through mobile applications via smartphones and tablets which will be visible from early 2014 itself.

Also, we are conducting massive financial market education and capacity building programs across our key African markets to ensure that participants are introduced to financial markets, understand all aspects and develop an aptitude of trading, investing and risk management.

BUSINESSMAG.Were you able to meet all the goals you had set yourself at the beginning of your operations?

Not really. We had set a highly ambitious target of being a 100-member exchange by now. We were not able to get to that and we are currently in the range of 25 members.

This made us revisit the drawing board and we took various strategic decisions that will make our markets more accessible and vibrant. To give you an example, we have lowered the membership entry barriers from a cost perspective and are giving complete support in terms of training, technology, research and product development. Today, we target to be a 100 member exchange trading USD 1 billion per day by the first quarter of 2015.

BUSINESSMAG.Are you satisfied with the level of regulation in Mauritius?

I think Mauritius is ideally regulated. The level of regulation is apt and covers all the aspects. However, I’ve always felt that there are too many types of licences under the Financial Services Act. It may be operationally efficient, if the existing licences are categorised in such a way that there are few categories of licences and each category contains permitted activities; that will mean current licences will get classified as activities. 

BUSINESSMAG.A large segment of the Mauritian economy is exports oriented. Have the local exporters been able to familiarise themselves with your products to hedge their currency risks?

To a certain extent yes, and to a greater extent, no. We have conducted several sessions targeting enterprises that face currency risks. Though there is increasing interest amongst market participants, we are still a long way to go in order to call it a success.

We have thus come out with a smaller and shorter version of our local USD/MUR product and have also been working on our collaborations with banks to offer these products.  So, if investors are not being able to visualise how the USD/MUR will be in a month, they can opt for a short-term weekly perspective.

As most of the businesses in Mauritius have an international exposure, currency risk management is of critical importance.

Broadly, hedging ensures certainty of cash flows and revenues; and companies at the Board level should define the hedging policy if they are exposed to commodity and currency risks.

BUSINESSMAG.Are there any specific markets you are targeting in Africa, consumer market wise?

South Africa, Nigeria, Ghana and Kenya are the target markets right now in Africa as they represent abundant opportunities, especially in the financial market space. Moreover, if you have to tap the African market, Mauritius is the ideal location to do it, from both jurisdiction and regulatory perspectives. These two factors are key when we are talking about a pan African exchange.

Mauritius has the advantage of being an International Financial Centre (IFC). An IFC with more than 25,000+ GBC 1 companies incorporated in Mauritius represents a huge amount of foreign currency transiting through Mauritius. This amount could be a three digit in billion dollars. That’s the potential.

The potential of what can be done from Mauritius to tap the opportunities across Africa is really huge. The way we see it: most of the African governments are borrowing and their borrowings are in euros and dollars. This could be the next opportunity since the stock markets are not highly liquid right now; with the exception of South Africa.

BUSINESSMAG.Why target these countries specifically?

Simply because of the market size, current economic growth, financial market infrastructure and growth potential. It is also by coincidence that they are all English-speaking countries.

In these markets, we are working on 4-tier collaborations at the levels of regulatory authorities representing financial and banking sectors, the exchange, the brokerage houses and fund/investment houses. As of date, we have collaborated with Nairobi Securities Exchange (NSE) and Ghana Stock Exchange (GSE) to introduce African equity index futures of both exchanges – we are also introducing the currency futures contracts in some of the African countries.

BUSINESSMAG.How do you evaluate the Stock Exchange of Mauritius?

In my opinion, there is a lot of potential in terms of the opportunity to list pan African companies within an African stock exchange.

I strongly feel that we are at a point in time when any exchange has to behave as an investment banker; going about identifying the potential candidates for an Initial Public Offering and even aggressively talking about opportunities to potential investors not just in Africa but in Asia and Europe as well. I’m of the opinion that an exchange has the responsibility to do so.

If you take a look at the potential Mauritius is sitting on - 25,000 + global business companies, the funds coming from these, the legal capabilities and management companies which possess market awareness from their previous investments into Africa or Asia. With these assets, Mauritius becomes as good as an investment bank for the entire African continent.

When I talk about opportunities, this is what I see. Mauritius has done the job quite well for India for the past 20 years, leaving aside the taxation issues. Then again, the taxation issues with India are a blessing in disguise because it shifted everyone’s focus on the African opportunities.

BUSINESSMAG.You mentioned that stock markets around Africa are not liquid enough. Is that the case for the SEM as well?

That is correct. In terms of liquidity, South Africa is the most vibrant market that enjoys ample domestic and international participation. The liquidity factor on African exchanges restricts the investor community to an extent, and I think it applies to Mauritius too.

BUSINESSMAG.How far are your activities affected by the global economic uncertainties?

We have not reached the size yet where we can be affected by the global economic uncertainties. The fact remains that whatever uncertainties have been caused, the crisis has also generated new opportunities. For us, Africa is the biggest opportunity. It’s not really tapped, but there is an effort being undertaken to do so. Lot of people are talking about new exchanges in Africa and this shows the potential of the continent.

BUSINESSMAG.How is the gold market faring two years after the ‘gold rush’ of 2011? Is it still perceived as the safest investment against inflation?

This is the prevailing market perception. There was a definite rush and people were expecting further rushes, which haven’t happened yet. I think gold’s attraction as a high-end investment will continue on, especially with China being highly active on the gold market. The demand is definitely there.

BUSINESSMAG.What about its ‘poor cousin’ silver? What is the appetite of investors for this metal?

Surprisingly, we have seen a lot of action in silver. I think this is because silver is highly volatile; even much more volatile than gold. Also, it is more affordable. The interest for trading however is very high due to the fact that silver is not just an investment metal but an industrial metal as well. The demand for silver is incumbent on the consumption and investment perspectives equally.

That could be the reason why it is more volatile and more in demand. Traders might be seeing that as an opportunity because they would like to see more volatility on markets.

BUSINESSMAG.So volatility augurs well for you?

Anything which becomes volatile attracts a high interest in terms of risk management and trading. It is only when prices witness rise and fall that organisations having exposure understand the need of hedging and opportunities are created for traders.

BUSINESSMAG.Would you say what liquidity is to the stock exchanges, volatility is to a multi-asset exchange?

Liquidity is important in all markets. Liquidity comes from a larger participation, lower transaction costs, ease of entry and ease of exit. Volatility is based on assets. Liquidity may help manage risks arising due to volatility, but in return, volatility will not bring in liquidity, rather than creating temporary spurts in volume. Liquidity and volatility do not really complement each other, but in a liquid market, volatility will add more volume.

BUSINESSMAG.What about the financial results of Bourse Africa? Are you profitable?

As I mentioned earlier, we are in the growth stage right now. We are not profitable yet. With our initiatives focused towards market development, product innovation, techno-logy implementation, capacity building and engaging with African market participants, we are more on the spending side right now and we are well capitalised enough for this. Bourse Africa registered an income of $ 111,975 in 2013 against operating costs of $ 12.9 million for the financial year ended 31 March 2013.

The total number of contracts traded in 2013 (1^st January 2013 to 15^th November 2013) amounted to 520,258 and a cumulative value of over USD 4.98 billion.

BUSINESSMAG. When do you expect to be profitable?

Our target is to be operationally profitable by June 2015. This estimate is based on a combination of trading activities on our existing and new products. The new products will however play a major role in driving us towards profitability.

BUSINESSMAG.What are the projects of Bourse Africa in its next financial year?

From a product perspective, we plan to introduce African Equity Index Futures, African currency Futures, and agro-commodities such as maize, wheat, cocoa and cotton. New products will attract participation and build the liquidity in each product segment.

From a technology perspective, we are introducing state-of-the-art technology that will allow direct market access to clients through smartphones, tablets and web.

BUSINESSMAG.Has the controversy around Financial Technologies negatively impacted on the image of Bourse Africa?

I cannot say no to that. Obviously, if anything bad happens in the family, it will have an impact on our image. However, from an operational perspective, it did not have any significant impact. This was not an issue at all.

BUSINESSMAG.Does the rebranding stem from a wish to carry out further damage control?

Not at all. As I mentioned, the decision to shift from GBOT to Bourse Africa was taken this year and we started the procedures in May 2013. From an operational perspective, we have to go through a lot of changes with regards to the technology, the entire stationery, branding and communications. We decided in May that we needed around six months’ time for these procedures and the name Bourse Africa thus went live on October 28.

BUSINESSMAG.So you did not face any financial blow due to this controversy?

We were not significantly affected but there were certainly queries that had emerged from our participants. We reassured them that Bourse Africa, then GBOT is an independent legal entity regulated here in Mauritius, and that they should not be having doubts about our integrity as an exchange. 

We are in talks with more than 50 potential members to participate in Bourse Africa. 3 to 5 of them have put on hold their participation until they have more market clarity on this issue.