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Benedict Okoh is the founder of AfriFinance LLC, a New York advisory firm that also develops financial products and Africa-focused indexes. The AfriFinance Indexes™ provide detailed measurements of particular sectors of African equity markets. Journal of Indexes (JoI): What led you to develop the AfriFinance indexes? Benedict Okoh (Okoh): As a result of the advisory work that AfriFinance does, I visit the continent quite often, and I saw that there was a lot of economic activity taking place. But there wasn't a stock market index that told me a story of what was happening. For example, some of the African stock exchanges have "all share" indices. Well, an all-share index is precisely that: It contains all the shares, which can be good because it tells you that everything in general is going up or down, but it doesn't tell a story. JOI: What kind of indexes do you offer? Okoh: The indices fall into two broad categories. The country- specific indices focus on specific sectors within particular countries, while the regional indices track sectors across several countries. For example, the AfriFinance Nigerian Banking Index contains Nigerian banks listed on the Nigerian Stock Exchange, while the AfriFinance African Telecom & Infrastructure Index contains companies domiciled in several countries and trading on different stock exchanges. JOI: How are the indexes weighted? Okoh: We decided to do a straight price weighting. Part of the reason we didn't go with market-cap weighting is that the governance in a number of African countries hasn't quite reached the same level as the U.S. The price is out there, and it's not disputed, so we use that for our weighting. JOI: Why did you focus the initial indexes on Nigeria? Okoh: From a political perspective, things were beginning to take shape: a democratic government was becoming entrenched; all the proper reforms were being done; etc. From an economic standpoint, a lot of good things were also beginning to happen. If you went to Nigeria in 1998, all you saw in the major cities like Lagos were very old cars that were dying on the streets. Also, there were only about 500,000 fixed phone lines in the country, though the population was over 100 million. If you went to Lagos in 2004 or 2005, you didn't see those old cars anymore. Everything is now brand new. Also, mobile phone subscribers grew from scratch in 2001 to over 30 million within six years. And Nigerian banks now raise money on the London Stock Exchange without any guarantees whatsoever. So you could see that the economy was rebounding. Nigeria is also just a huge country in terms of population and potential market size. Approximately one in five Africans is a Nigerian. And right now, the market cap on the Nigerian stock exchange is about $112 billion. It's at a size that you could base products on it. So all the stars were aligned. JOI: What other African countries are you developing indexes for? Okoh: We're looking at countries like Kenya, Ghana and Botswana, among others, and we're looking at a range of criteria in putting together country-specific indices. In the case of Botswana, democracy is very well entrenched and the stock exchange has done very well. People are very comfortable, and corporate governance is not as bad as it is in some other African countries. In the case of Ghana, democracy is beginning to take root. They had some political upheavals many years ago, but by and large I think Ghana is pretty much on track now. Kenya, unfortunately, let's just say democracy hasn't quite put down very strong roots there, but I don't expect things to get much worse. JOI: What are your goals for the indexes in the coming years? Okoh: Since these indices were launched, a number of the "bulge bracket" investment banks have expressed an interest in providing their high net worth clients with exposure to Africa using vehicles that are based on the AfriFinance indexes. A number of African financial institutions have also expressed a very keen interest in launching products that are based on the indices. So my expectation is that in the next year there should be a number of products that are based on these indices. JOI: As a small independent index provider, what can you bring to the market that a larger index provider might not? Okoh: Number one is an innate knowledge of those markets—I was born there, grew up there, and have family there. The second thing is relationships. We have deep relationships with people across the board, whether it's the most senior levels of corporations or middle management. Number three is it helps if you can speak the language and you understand the place. When I go to African countries like Nigeria, I don't just sit in a five-star hotel in the capital. I travel around the country. Of course, as a small company you are also more nimble than the larger ones. If you combine knowledge of U.S. standards with our local knowledge and the ability to move quickly, that gives us a competitive advantage over some of these larger companies. |
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