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Panelists underscore need for integration of Africa’s stock exchanges
African countries should support the integration of capital markets on the continent, panelists argued on Wednesday.
Improving financial literacy and good return prospects will foster increased participation of domestic private investors.
This was raised during a session titled “Africa’s Stock Exchanges: The State of Play” at the ongoing 50th Annual Meetings of the African Development Bank in Abidjan.
A regional exchange, panelists argued, will lead to more liquidity – the lifeblood of exchanges – by making stocks available to a wider range of investors.
Moreover, the small size of African stock markets and the absence of liquidity remains a major impediment for foreign investors interested in investing in the region.
“There is need to increase liquidity of the stock exchanges and develop more products. We are convinced that if the stock exchanges remain fragmented, they can not produce good results,” said Edoh Kossi Amenounve of the African Securities Exchanges Association (ASEA) Executive Committee.
Discussants also pointed out that deep, transparent and accessible capital markets are a vital element of the financial sector.
As a vehicle for long-term investment finance and for diversification of funding sources, capital markets strengthen the overall economy and render it more resilient in the face of economic shocks.
“The current sizes of the (different) stock markets do not reflect the size of the economy. We are missing opportunities to fund companies,” said Uche Orji, the Chief Executive Officer (CEO) of the Nigeria Sovereign Investment Authority.
He pointed out that most businesses still use bank loans, which are very costly to finance their investments.
“There is need for proper regulation of the stock exchange,” he said.
Discussants also pointed out that capital markets panelists can improve risk-sharing and the efficiency with which capital is allocated to the real economy, boosting economic growth and welfare. However, despite these potential benefits, not all countries have well-developed capital markets.
In her remarks, Frannie Leautier, Chief Executive Officer (CEO) of Mkoba, a private equity fund, pointed out that small and medium businesses still find it difficult to mobilize resources through the capital markets.
However, Leautier suggested that government should consider supporting small businesses by creating special purpose vehicles that can allow them to tap into the capital markets. In addition, governments can also offer guarantees to support small businesses.
While stock exchanges on the number of stock exchanges on the continent have increased, only a few only a few of them – most notably the Johannesburg Stock Exchange – are active and well developed.
Stock market capitalization remains low and, with the exception of Nigeria and South Africa, all Sub-Saharan stock exchanges are characterized by a relatively low number of listed companies.