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STRATE takes to the Road to market South Africa

ImageThe message that South Africa is open for global business was clearly demonstrated by STRATE – South Africa’s authorized Central Securities Depository – during its recent international road show to London and Boston.

A project of the Johannesburg Stock Exchange (JSE) and incorporated in 1998, STRATE was set up to address the deficiencies of the JSE’s paper-based settlement system.

In 2003 STRATE Ltd merged with UNExcor and CD Ltd. The merged entity carries out the clearing, settlement and depository functions of all trades on the JSE and the Bond Exchange in South Africa. The settlement of Money Market instruments is in the process of being implemented.  STRATE provides an efficient settlement system for South Africa’s financial market trading, enabling South Africa to compete effectively with other international markets.  The company is now also a provider of a growing number of products, data and registrar type services to listed companies and has made a determined effort to align its practices to international standards and to bring continuous improvements to its systems.

The establishment of this first class institution has led to a marked increase in market activity in the country.  By reducing settlement and operational risk which has led, in turn, to lower costs and increased efficiency, the company has helped to improve the international perception of the South African market.  Owned by a consortium made up of the Johannesburg Stock Exchange and the four major South African banks, STRATE has taken huge strides forward under the leadership of Chief Executive Officer, Monica Singer.

Monica Singer, CEO, STRATE

Originally from Uruguay and now a South African citizen, Singer has been a qualified Chartered Accountant since 1988 and was previously Director of Accounting at SAICA, the South African Accounting professional body, where she was responsible for research of accounting standards. 

The STRATE road show was an opportunity for Singer, the 2002 finalist in the South African Business Woman of the Year Award, to demonstrate the recent advances that have been taking place in South Africa and to share the good news about continued growth within its economy.

STRATE London Road Show

The first of the road shows took place in London and featured a presentation from Paris-based Victor Lopes of Societe General, one of the STRATE Central Securities Depository Participants.  Lopes, the Bank’s Emerging Countries Economist, delivered a comprehensive overview of South Africa’s successful transition from apartheid to democracy, culminating in 2005 when South Africa saw a growth rate of 4.9%, its highest growth rate since 1984.   Growth in the country has been driven largely by consumer demand and consumption and has been further boosted by a rise in real income and house prices.  Lopes acknowledged the high potential for further capital inflows into South Africa, particularly for equity inflows but also for Foreign Direct Investment given the growth prospects in the years to come and the confidence on economic management. Sounding a note of caution, Lopes pointed out that, “Nevertheless, we should keep in mind that the same structural issues of skills shortage, labor market rigidity and HIV/AIDS, that could constrain a higher GDP growth in the medium term, could also potentially affect FDI if they are not addressed.”

Investment was highlighted as a major driver of growth, with a number of major infrastructure projects in the pipeline.  Foreign direct investment in South Africa in 2005 amounted to an impressive $6.8 billion, with a significant proportion coming from Barclays Bank’s acquisition of ABSA Bank.  Lopes stressed that while the South African government has made great progress in stabilising the economy and reducing the country’s vulnerability to external shocks by diversifying, the key risks to the country were largely seen as external rather than domestic.  The broad based Black Economic Empowerment legislation has, in Lopes’s view, enabled the emergence of a Black middle class, an outcome that he described as “a positive step for growth and political stability”

The Largest Economy in Africa

“South Africa has the stability of a developed nation with the opportunity of an emerging market”, was Monica Singer’s unequivocally upbeat assessment of the state of her nation.  In her presentation, the CEO of STRATE rapidly outlined a range of key indicators. 

As the largest economy in Africa, South Africa has the biggest rail service in Africa with a total of 10 major airports which have doubled their traffic in the past decade.  The country produces more than 80,000 graduates each year and has 14 world-class universities.   In the last ten years, over 1,200 clinics have been built and over 500 houses are built every day, while access to clean running water has increased from 59% of the population in 1994 to 92% in 2005. Taxes have been reduced, tariffs lowered, fiscal deficit brought under control, and exchange controls relaxed. The past seven years have seen the Reserve Bank’s net foreign exchange reserves grow by US$40 billion and the debt – to – GDP ratio has decreased from 10% in 1994 to 1% last year.  The South African rand was the world’s strongest performing currency between 2002 and 2004 and, today, business confidence is at a 23 year high.  In her view, the recent award of ‘Best African Country of the Future’ by a pan-African investment magazine demonstrated that this was not simply a partisan view.

“We offer a favourable legal and business environment in South Africa,” Singer said.  “Our banking industry is rated among the top 10 in the world and we have a strong financial market and banking regulated framework.  Our transport system is modern and we have a very sophisticated telecoms facility.”

Of South Africa’s role in the region, Singer highlighted the fact that the country accounts for 42% of Africa’s GDP and has been a key player in the development of Nepad.  Citing the Economist Intelligence Unit’s ranking of the country as highly cost-effective, she underscored the ease of doing business in the country and the appetite for inward investment.

Supporting Investment

The role that STRATE plays in supporting investment is one that Singer takes seriously.  Since the inception of STRATE, there has not been a single failed trade and the South African Stock Exchange is now ranked as the 18th largest stock exchange in the world and, in terms of market capital, is among the top five emerging markets exchanges. 

Her vision for the company is one of commitment to creating value for their shareholders.  “We are committed to be the trusted and preferred centralised provider of products and services”, she stated.  Despite the fact that the company is always looking at innovations and added value products, their core business will always take priority, she added.  “STRATE’s core business is to provide clearing, settlement and depository services for securities, providing stakeholders with end-to-end pragmatic, reliable, innovative solutions that facilitate the management of risk and the realisation of value.”

The second STRATE road show will take place in Boston on 13 June 2006.  (www.strate.co.za)

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