Market capitalization on African stock exchanges is getting smaller against world exchanges

Are Africa’s stock exchanges lagging?

African capital markets are falling behind the growth of global markets. African markets have 1.4% of global market capitalization and the share is falling, says Nandini Sukumar, CEO of the World Federation of Exchanges. Africa’s 26 African exchanges have averaged 2 IPOs per month across the continent, compared to 670 on world exchanges in December 2021 and over 700 in July 2021.

Nandini Sukumar, CEO of the World Federation of Exchanges

Market capitalization on African exchanges was $1.2 trillion at the start of 2020 and rose to $1.3 trn by July 2022. Meanwhile the market capitalization on world exchanges climbed from $80 trn to $95 trn.

Ms. Sukumar was speaking at the African Securities Exchanges Association conference on 8-9 December.

Equity only accounted for 5% of capital raised on African markets, with 95% of capital raised through bonds. Worldwide, equity makes up 14% of capital raised. African issuers and fund managers should look to equity for more efficient capital-raising.

Africa is missing out on the rise in trades by retail investors. Ms. Sukumar cited a global market where 5m retail trades a month in early 2016, doubled to 10m a month by 2019 and then tripled again to 30m a month by mid-2020. Trading by retail investors is significantly up on 16 of the global 23 exchanges surveyed. The drivers are new technology, social media and lockdown freeing people up to research, all coupled with low interest rates, lower prices and higher volatility.

What can African exchanges do?

Ms. Sukumar said African exchanges looking to boost trading by retail investors should provide: “Access to data and research as a main driver, followed by changes in the regulatory and market structures”. Also important were broker and intermediary fees and tax law changes, including tax on capital gains and dividends.

She highlighted exchanges which are reaching out to retail investors with new educational material,  including the Nigerian Exchange’s X-Mobile app with links to stockbroker websites, and dedicated liquidity providers to make it easier to buy and sell, as well as smaller tick sizes (minimum price movements).

Africa’s capital markets need more liquidity, more active institutional investment, investor protection and better information disclosure for retail investors, reduced tax and other friction, and more IPOs and innovation.

Work with other stakeholders

Exchanges cannot bring about the changes on their own. Here are some tips Ms Sukumar highlighted:

  1. Boosting liquidity is the lifeblood of markets – improve diversity in the investor universe
  2. Improve both institutional and investment participation, domestic and international. You can boost institutional investment through designing the market, including margin accounts, short selling rules, block trades and market making
  3. Retail investment boosted by investor protection, information disclosure, financial education and new products
  4. Reduce market friction
  5. Listings and IPOs: Call on the State to commit to listing state-run enterprises, encouraging innovation and boosting transparency in the private market side by side with disclosure in ublic markets. Listing can improve governance.

Speaking later, Rev. Daniel Ogbarmey Tetteh, Director General, Securities and Exchange Commission Ghana (SEC Ghana) said in his view the key word is “alignment”, with a need to make sure the government, regulator and exchange are aligned. For example government can list some of the state-owned enterprises, offer tax incentives and even make listing a requirement for some businesses. Many African exchanges have enjoyed their biggest IPOs after telecommunications companies had to list as part of conditions to renew their licences.


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