adminThe early 1990s were an important time for capital market development in Africa. The Cold War had just ended, and many nations were starting to open up their economies to free market ideas.
Today, there are over 30 stock exchanges across the continent.
These include three regional exchanges: the Bourse Régionale des Valeurs Mobilières (BRVM), based in Côte d’Ivoire; the East Africa Exchange, based in Rwanda; and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) in Gabon.
But the number of initial public offerings (IPOs) in Africa has been falling dramatically. PwC, a professional services firm, estimates that there were 28 IPOs in Africa in 2017, valued at about $3bn.
That fell each successive year to 2021, when just eight were recorded, valued at $921m.
Privatisations of government assets could reverse the decline.
Recently the Egyptian government announced that it would be listing 32 state-owned enterprises on the local stock exchange from next year.
As part of the agreement on a $3bn IMF loan, the government is required to reduce its footprint in the local economy, having crowded out private investment for decades.
Satchu believes that other African governments must take a similar route if stock market activity is to expand. “African governments can play a much bigger role by being an appropriate catalyst for less liquid markets,” he says.
“Many of our governments are heavily invested in all kinds of domestic companies. But they’ve not really embraced the idea that by selling these companies onto the stock exchange, they can create a new shareholder class in their countries. – AfricanBusiness
“Unfortunately, I don’t think [many of them] truly understand what it takes to create a thriving stock market. The moment the stock exchange starts to perform, they want to lump taxes and charges. It’s very expensive to trade in Kenya compared to more developed markets and that is just egregious.”
Investors’ information gap
Rob Stangroom in Zimbabwe agrees. The Harare-based chief executive officer of African Financials, an investor relations and communications company, adds that high inflation, exchange rate controls, and corruption in some jurisdictions are factors that continue to dampen the promise of Africa’s equity markets.
“To start fixing things, information must become freely available on multiple levels,” he says. “Trading and custodian costs must be lowered, and minimum standards of information must be available from the stock exchanges. Most vegetable markets in Africa have greater liquidity!”
Liquidity issues and high trading costs are generally more pronounced on the continent than in other regions.
The picture is, however, mixed. South Africa’s JSE, the largest African stock exchange, has several top 40 companies with dual listings elsewhere: this allows for greater trading volumes and liquidity. In late 2022 the exchange signed a dual listing agreement with the New York Stock Exchange.
“With a market cap of about 21 trillion rand [about $1.36 trillion], the JSE punches above its weight,” says Itumeleng Monale, JSE chief operating officer. “It’s still a world-class financial marketplace with high resilience and we’ve seen some rapid growth in some of our diversified business areas.”
But even within the JSE itself, there are nuances. The exchange has suffered from a series of delistings by small and mid-cap companies in recent years.
According to RISE (Retirement Investments and Savings for Everyone), a fund administrator, “from January 2021 to June 2022, 35 companies […] delisted from the JSE, 11 of which [were in 2022] alone. Quite disconcertingly, the JSE had experienced net delistings for the sixth year in a row…
The cost of going public is a prominent concern for small and medium cap companies; it’s cumulatively exorbitant. Similarly, the current regulatory burden also acts as a deterrent to listing, and a cause of delistings, especially for smaller players as the cost of compliance and regulation run high.”
Online Reporter