LIQUIDAFRICA - BUYING AND SELLING AFRICAN SHARES ONLINE
The telecoms downturn in the developed world has created an investment drought for Africa just when it needs to keep developing its infrastructure. Local capital markets have sprung up in over 18 countries on the continent but they remain small and largely unknown outside the continent. As everywhere Government financing still dominates: for example government bond sales in Nairobi can reach US$150 a week far exceeding the value of stock trades. Things are changing now and launch of online trading in the Lagos Stock Exchange is one indicator (see Web News) LiquidAfrica was launched by a 35-year old Cameroonian based in South Africa who used to work for Merrill Lynch and is an interesting online business that will address some of these some of these issues. Russell Southwood interviews Cyrille Nkontchou of LiquiAfrica.
When did you start the company?
It was launched in March 2000 after I left Merrill Lynch where I was doing research for sub-Saharan Africa. The advent of the internet provided a good opportunity. If you wanted to invest in Africa, access to information was a major problem. There are now 18-20 stock exchanges, depending on which you include. A Central African Exchange is being set up in Cameroon.
But none of these exchanges are integrated and they are hardly known outside the continent. So the first thing to address was the provision of market information, share prices and business news like company results. This will enable investors to get a feel for what’s happening.
The second part was to offer electronic transactions. It needed to be able to be convenient and it required a relationship with a broker in each of the different markets. We wanted to focus on international investors and offer them a "one-stop-shop" vehicle for all markets, which is what we do through Afrinvest, the brokerage through which this service is provided.
How do you get from there to your SWIFT-based business?
We are an online based intermediary with a brokerage architecture therefore we need to make financial settlements and this is where the SWIFT business comes in. We wanted to be able to give our clients the reassurance that their transactions will be settled using the most reliable financial messaging system: SWIFT. So we have three lines of business: media, finance and IT.
How does the media side work?
On a subscription basis. International customers are charged US$5000 and local customers US$2000. Bear in mind that we only started last November but we have already signed five customers. We also sell information to third parties like Comtex News who do an Africa feed to their service. After rapid growth at the end of last year, the web site in January got just under 20,000 unique visitors. So far we’ve only attracted one advertiser - Air France - but we’re hoping to attract more as we grow. We can also provide a "white-label" service to brokers. They get all our information for their customers but it is configured so that it comes out over their corporate brand.
So what’s it look like on the finance side?
We have two products: equity trading (US$100 annual fee) and commission based work. We have 10-15 clients in each of the major markets. We’ve also got a third service we’ll be launching shortly, a property service allowing diaspora Africans to buy property back home. There’s an overlap between the potential customers of this service and those who want to trade shares.
Which brings us to your third business stream, IT?
Fin-X enables banks and other institutions to outsource their connectivity to SWIFT. For a smaller bank or institution, SWIFT is very expensive to use. With Fin-X, a connection only costs US$85,000 whereas a direct connection costs US$100,000. In effect we are consolidating customers and we have our own software and hardware to connect to SWIFT therefore the cost per message is lower for the customer.
We currently have around 30 banks on this service out of 350 in Africa and we have been given authorisation to open up bureaux in the Europe (launched mid-February) and the USA (launched mid January) (see following story). To achieve this, LiquiAfrica acquired Fin-X from South African-based Global Technologies. SWIFT is moving from one protocol to another, going over to an IP-based protocol and this will be more expensive and they will be extending its use to other markets.
How is the company funded?
Modern Africa Fund and ourselves have put in US$2.5 million and we’re going for a second round of financing that will be complete by the end of March 2003.