This archive report was first published on 30 October 2019.
On October 30, 2019, the Absa Africa Financial Markets Index was released, providing valuable insights into Africa's capital markets.
The report, a staple within the investment community, showed that Africa's capital markets made significant leaps, with an overall score of 52.7 (out of 100), up from 49.6 in 2017. Kenya ranked third among the 20 countries scored.
One key observation from the report is that Africa needs a single exchange, rather than fragmented and shallow markets. Only seven countries scored above average in market depth.
Richard Branson, founder of Virgin Galactic, poses before ringing the First Trade Bell to commemorate the company's first day of trading on the New York Stock Exchange (NYSE) on Monday in New York City. (AFP PHOTO)
Several exchanges are moving towards consolidation, with the BRVM in West Africa representing eight member states of the West African Economic and Monetary Union. Ghana, Nigeria, Sierra Leone, Cape Verde, and the BRVM are also considering a single exchange.
This would allow brokers from each country to trade directly on each other's exchange. A recent merger between Cameroon's Doula Stock Exchange and Bourse des Valeurs Mobileres de l'Afrique Centrale (BVMAC) will create a unified regional exchange in Central Africa, setting the stage for a deeper single market.
East African Exchanges can follow a similar pathway. Africa also needs to embrace alternative asset classes, such as private equity, real estate investment trusts, and hedge funds, to reduce risks and increase returns.
Kenya's pension funds, for example, have a low allocation to private equity, with current allocations standing at one percent. Plain-vanilla government securities account for 39 percent of Kenya's pension assets, followed by real estate at 20 percent and equities at 19 percent.
Mr. Mwanyasi, managing director at Canaan Capital Limited, notes that Africa needs to stop relying on external markets for its financial needs. Projects such as the Companies to Inspire Africa 2018 are meant to 'kill' local markets as they are built to woo African companies to list on foreign markets.
With outside markets, Africa remains vulnerable to foreign investor whims. Ghana is trying to reduce foreign investment in its government bonds with a hard cap, aiming to cut external vulnerabilities.
Mr. Mwanyasi concludes that it's time for African capital markets to make a huge leap forward.
