| Experts: Redesign Africa's capital markets | Send to a friend |
| Saturday, 08 May 2010 11:56 |
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African capital markets need to be redesigned to cater for the continent’s massive financing needs, experts advised on Thursday. Discussing a topic on ‘Funding Africa’s development’ at the just-ended 20th World Economic Forum (WEF) in Dar es Salaam, they called for a new approach to capital markets in Africa. They noted that although many African stock markets outperformed those in developed countries at the time of crises, the former are for the most part not sufficiently large or developed to cater for the region’s financial needs. According to them, the increase in the number of stock markets in Sub-Saharan Africa to 19, from just six two decades ago, has not translated into their meaningful development. They said most of these stock exchanges were under-developed as domestic banks, insurance companies and pension funds in the region make up the majority of their investment. Africa has to attract international investors in order to grow though some countries will require massive reforms to win investors’ confidence, according to the clients & markets leader of Deloitte East Africa, Mr James Walton. “International investors will be a key factor in taking these countries to the next level in the years to come…However, to attract that investment some countries will need to continue their economic reforms and review their public face. The recent instability in Kenya has shown how a political crisis can have a profound effect on the economy by decreasing investor confidence,” he said. Many African markets are still immature and market capitalization is mostly dominated by a few firms, he noted, and went on to explain: “In March 2009, for example, 75 per cent of capitalization at the Ghana Stock Exchange was held in one company – the AngloGold Ashanti. Similarly, banks in Nigeria made up over 60 per cent of market capitalization as at January 2009.” Though Kenya’s economy is not dominated by one industry and has a somewhat balanced picture, Safaricom often makes up 15-20 per cent of market capitalization on its own. Tanzania’s Dar es Salaam Stock Exchange has only 15 listed companies, trading alongside corporate bonds and government bonds, but the trading only happens for a few hours each day. “As a result, trading volumes are still relatively small and highly centralized - often only three or four listed companies will see any trading at all during a week,” he asserted. A report published by Deutsche Bank in July 2009 noted that automatisation of trading systems, regional integration and increased primary market activity will boost size and liquidity in future. Another key development could be the creation of an East Africa Stock Exchange encompassing Kenya, Rwanda, Uganda and Tanzania. The Kenya Commercial Bank (KCB Group) is already cross-listed on the four East African markets of Kenya, Rwanda, Tanzania and Uganda. Interestingly, the Deutsche Bank ranked Tanzania the fourth among all emerging and frontier markets in Sub-Saharan Africa - behind only South Africa, Nigeria and Kenya –when considering the capital markets’ growth potential. “The rise of the African frontier markets offers a tremendous economic opportunity both to the countries themselves and investors willing to take a chance in these markets….the importance of capital markets for the East African region’s future should therefore not be overlooked,” said Mr Walton. Add this page to your favorite Social Bookmarking websites           |
