How SecondSTAX is Promoting Cross-Border Capital Investments in Africa
The importance of the capital market in Africa cannot be overstated; it plays a crucial role in financing priority sectors in African countries and driving economic growth. However, the African capital market ecosystem faces diverse challenges, one of which is the existence of silos, making it difficult for investors outside of their home countries to access various African exchanges.
For instance, a Ghanaian investor interested in a diversified portfolio outside the Ghana Stock Exchange may find investing in the Kenyan stock exchange market tedious. This limits access to a wide range of assets and securities and hinders the potential for increased wealth. Over the last decade, African capital markets have raised more than $246 billion in debt capital markets, while more than $87 billion has been raised in equity capital markets. This could be more.
To address these challenges, Eugene Tawiah (CEO) and Duke Lartey (co-founder) launched Secondary Securities Trading and Aggregation exchange (SecondSTAX) in Ghana two years ago. SecondSTAX allows investors to hold assets in multiple countries and currencies, reducing single currency risk and volatility in returns in Africa and beyond. The startup operates on a tech-driven management and execution routing system built for investment firms to facilitate intra-continental African capital market transactions, complemented by detailed research, data, and operations systems.
In this interview, Tawiah and Lartey discuss SecondSTAX’s impact on the African capital market.
VA: Explain what SecondSTAX does in simple terms.
Eugene Tawiah: We build infrastructure connecting capital markets across the continent. We are focused on the investment firms like brokers, asset managers, and banks. We are their technology partner in the business they operate.
VA: What influenced you to start SecondSTAX?
Eugene Tawiah: The idea was spurred in 2018 when MTN Ghana went public after their fundraiser. And as I would later learn from my conversations with some trading officials, you could not access or buy into MTN’s IPO if you were not in Accra.
Fast forward to 2020, we incorporated and started to build a solution to this challenge. So far, we have had a number of services in Ghana and in Kenya and are looking to launch the same programme in Nigeria shortly.
VA: How would you describe the African capital market?
Eugene Tawiah: The beauty of the capital markets in other economies lies in their volume and how fairly liquid they are. They have multiple options to invest in, and they understand the power of an investment. But on the continent, capital market operations are in silos where everybody operates in their own jurisdiction. As a result, there are difficulties in scaling, especially if there are economic headwinds in one particular market. That was one of the things we wanted to eliminate. If you have access to investments in multiple places, then it starts to become less volatile during downturns, and you still have benefits to proceed.
Technology has touched a lot of other aspects of the financial tech ecosystem here in Africa. We have seen this through startups like Paystack, and Flutterwave that help move capital from one jurisdiction to the other and help some merchants or companies to receive payments from their clients. You do not see this when it comes to investing. For instance, if you are in Ghana and you are interested in buying Dangote Nigeria shares, you have to convert your Cedis over to Naira to participate. Those are some of the other opportunities we see and are helping to resolve.
Duke Lartey: Fragmentation is a primary challenge in the African capital market. We have a large continent with diverse opportunities if we could interact with each other seamlessly. Because of this fragmented nature, each country has its nuances. And if we look at the regulatory space too, it is fragmented and for you to be operational in more than one country requires great effort.
VA: How do you operate in multiple countries with different regulations?
Eugene Tawiah: Partnership with large established brokers in this jurisdiction has 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,
Since their role is to manage and access 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 them to existing mature infrastructure. We are not introducing things that will present potential risks to the ecosystem. So as we educate them on this, they get more comfortable with the idea. As we begin to get wings in multiple jurisdictions, other regulators are comfortable that due diligence has been done elsewhere. They can then apply whatever additional nuances they have within their market, and we are able to move through that. That partnership with large established brokers has helped us grow quickly in multiple markets that we are in.
Duke Lartey: Another thing that has helped us is early engagement when going into a particular market. As part of the business model in dealing with the licensed brokers or participants in the space, we engage the regulators early enough and not till when we are approaching launch or have fully tested our system in the environment.
VA: What is your competitive advantage?
Eugene Tawiah: While there are startups like Shaka, and Bamboo, their business model varies from ours because they operate in the retail investment space. SecondSTAX operates on the institutional side of the puzzle. Most of these institutions we engage with already understand the complexity of going across multiple jurisdictions, and they have many assets that have been invested. If we solve their cross-border problem, it becomes easy for a Shaka or Bamboo to use APIs to log in to our portal and access markets that they are not in presently. We see SecondSTAX as a driver for those types of retail applications to grow and expand their business model using the infrastructure rails that we are building. We are the rails for access to all of these various exchange markets. As much as we are servicing your traditional brokers in each market, we extend that capability to these new investment apps as well.
We are helping over 1.2 billion citizens on the continent invest in businesses either directly through some of these apps or those integrated with us through the traditional brokers who are our clients.
VA: Startups will soon be listed on the Nigerian Exchange. How can this influence the African capital market?
Eugene Tawiah: That would be great because some of the challenges for businesses is the high cost of capital. We still have entrepreneurial ventures like Flutterwave and Paystack, that needs more capital to grow and expand. Accessing the public market through an IPO gives them access to the capital locked within the country they are operating in. With a platform like SecondSTAX, other countries can participate in the market. The effect would be more liquidity, capital allocation and growth that benefits the population of the African continent. It will also serve as an enabler for the capital market to grow.
VA: With the wave of talent escape, how do you go about talent sourcing?
Eugene Tawiah: Hiring talent used to be a difficult one. There are many businesses like us looking for specialized skills. But, the ecosystem is getting interesting and giving room for more opportunities. People feel connected to the fact that they can make an impact, and we are starting to see that happen. Hiring has not been easy, but as we become more noticeable in terms of brand equity, some people have expressed interest to work with us. We see that shift happening, and we are pretty excited about that. We have talents in Ghana and Nigeria and we are looking to add more across the continent.
Duke Lartey: We have easy access to information. The likes of Youtube. Because there is now easy access to information, the younger generation is tech-savvy. They are taking advantage of the opportunities that are currently present. Getting talent is not a big challenge as it was five years ago.
VA: What are the future plans for SecondSTAX?
Eugene Tawiah: For our highlight in 2023, we expect to expand our geographical reach. We hope to tap into the Nigerian market very soon, and in the next few months, we want to extend our operations in the francophone region. We want to start providing integrations for the retail investment business like Shaka and its likes. In addition to servicing traditional brokers, we want to complement the activities of these startups as they expand into other jurisdictions.
We look forward to more clients and markets in northern and southern Africa. Also, we will continue the rollout of our infrastructure to achieve the dream of seeing the African capital markets fully interconnected for everyone in the ecosystem. So if a startup like Flutterwave does its IPO in the Nigerian market, we let Africans engage with it no matter where they are. That is what we collectively hope to achieve with SecondSTAX in the picture.
Duke Lartey: In the past decade, we have heard a lot of rhetoric about Africa rising, and we are happy to be a part of the systems that would essentially make that a reality.