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New appointment sends expectations soaring at SAA
November 18, 2009
By Humphrey Borkum
The worst is over. This was the consensus at the 49th annual meeting of the World Federation of Exchanges (WFE), which was held in Vancouver last month. I attended the meeting with colleagues Russell Loubser and Nicky Newton-King.
The WFE is an association of 53 regulated exchanges around the world, is home to approximately 46 000 listed companies and controls about 97 percent of the world's stock market capitalisation.
This was the 12th annual meeting of the WFE that I have attended and the level of debate was extremely high. At the meeting a year ago the atmosphere was thick with doom and gloom and it was difficult to find anyone with a smile on their face. This year the consensus was that the recession was definitely behind us. The delegates present had learnt some bitter lessons but were eagerly looking forward to the future.
Among the range of topics that were addressed were the roles that various exchanges played in the recent financial crisis and immediately afterwards.
I was very proud that I represented the JSE as our exchange received high marks for the way it conducted itself during a difficult time in our history. Of particular interest to me were the number of exchanges that acknowledged they had interfered with the normal mechanisms of the free market by closing for periods of time or by tampering with or banning bear sales.
There was a general acknowledgement that these were serious mistakes. Nobody should be prevented from withdrawing their capital or savings from their exchanges when money is needed.
Attending these meetings gives us an opportunity to benchmark the JSE against the leading exchanges in the world. I can confidently say that the JSE is highly regarded by its peers. It is in the top quartile of world exchanges in respect to corporate governance and the tracking of insider trading.
This leadership status in corporate governance did not come overnight. The JSE was very active on the committees that put together the King I, II and III reports. In 2002, we were considered radical by other exchanges when we incorporated King II recommendations into our listing requirements. Now these King-type regulations are regarded as par for the course worldwide.
Many seminars are presently being held on the implications of the King III report, which will be effective from March next year. The section concerning the remuneration of the board of directors is likely to receive attention due to what was perceived to be excessive pay during the global collapse of financial markets.
However, many non-executive directors are taking stock of whether their directorships should be continued as they can now be held legally liable for the failure of a company.
The recent publication of the World Economic Forum's Global Competitive Report confirmed the JSE's status. Out of 133 countries South Africa was second in the "regulation of security exchanges", fourth in "financing through local equity markets" and sixth in "financial market sophistication".
The JSE provides local companies with unrivalled opportunities in Africa to arbitrage, insure, invest or hedge in equities, commodities, local and global financial derivatives and four foreign currencies.
It has always been our intention to make these sophisticated platforms available to companies throughout the African continent hence the establishment of our African Board in February this year.
Overall South Africa came 45th in the Global Competitive Report - the highest ranked country in sub-Saharan Africa. Crime and theft (19.4 percent), an inadequately educated workforce (16.4 percent), inefficient government bureaucracy (13.9 percent) and restrictive labour regulations (11.7 percent) were the top four most problematic factors listed for doing business in the country.
The report reflected strong confidence in South Africa's financial markets at a time when trust in financial institutions has been eroded across large parts of the world. However, it stressed that sub-Saharan Africa as a whole lags behind the rest of the world in competitiveness, requiring efforts across many areas to place the region on a firmly sustainable growth and development path going forward. By not taking a firm line with people like Mr Mugabe and his cronies, South Africa is perpetuating this sub-Saharan lag.
In a column last year I suggested that, to stop the drag of inefficient parastatals on our fiscus, politicians must stop rewarding mediocrity. They should be brave enough to ask for help from citizens who have the appropriate skills rather than deploying cadres with only struggle credentials. Such deployments have been a recipe for mismanagement and corruption.
SAA, like the JSE, has to compete in a cut-throat, globally competitive world. Therefore, the appointment of our chief executive, Russell Loubser, as a director of SAA is definitely a move in the right direction.
Over the past 12 years Loubser and his management team have turned the JSE into a world-class stock exchange. Should we have lower expectations for our national carrier?
In my opinion our government should not be in the airline business as it has little expertise in the aviation industry and the South African taxpayer has continually had to bail out the airline to the tune of billions of rands. Who knows, perhaps these appointments could be the first step on the road to privatisation?
As this is my last column for the year, I would like to wish readers health and happiness over the festive season and strong markets in 2010.
Humphrey Borkum is the chairman of JSE Limited
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