Africa’s capital markets are facing growth obstacles, among them
low liquidity, new listings drought and lack of product diversity, a
new report shows.
The second edition of the Africa
Financial Markets Index (AFMI) shows that despite African countries
implementing policies to bolster regional stockmarket integration and
encourage expansion, the capital markets remain fragmented and shallow,
compared with their Latin American and Asian peers.
The
index by Absa Group, the parent company of Barclays Bank, which surveys
20 stockmarkets in Africa, shows low overall liquidity, with 15
countries having equity market turnover of less than 10 per cent of
market capitalisation and 10 having bond turnover of less than 10 per
cent of outstanding bonds.
The average market
capitalisation is just 56 per cent of GDP. Only three countries — South
Africa, Botswana and Ghana — have a market capitalisation greater than
100 per cent of GDP while 14 have a lower than 50 per cent
capitalisation.
More critically, local investor
capacity in many African countries is low, with pension funds, insurance
firms and other institutional investors lacking sizeable assets under
management, forcing financial markets to rely on foreign investors.
Barriers
Product offerings remain shallow while entry barriers have made
it impossible for small firms to list, a problem exacerbated by
stringent, inflexible and outdated regulations.
“Many
national exchanges in Africa are small, illiquid and inefficient and
local investor capacity is often limited. Therefore, fostering closer
integration between national exchanges, or creating and strengthening
regional ones, is an important area of focus,” states the report.
The
report assesses progress and potential of capital markets across six
key areas: Market depth; access to foreign exchange; market
transparency; tax and regulatory environment, macroeconomic opportunity,
and the legality and enforceability of standard financial markets
master agreements.
For the second year running, South
Africa, with a score of 93 per cent, was declared the most advanced
financial market in Africa followed by Botswana, which tied with Kenya
with a score of 65 per cent.
A strong financial market
infrastructure and a robust legal framework made South Africa the leader
of the pack despite a worsening macroeconomic performance that has
pushed the country into recession.
In East Africa,
Uganda ranks as the second-most progressive financial market, with a
score of 50 per cent and position 10 overall due to its stable
performance, with good foreign-exchange access, but low local investor
capacity.
However, the country’s above-average withholding tax rate and other policies discourage market growth and development.
Rwanda
comes third with a score of 49 per cent, dropping three positions on
the continent to position 11, attributed to discrepancies between strong
official rules on transparency and the reality of implementation.
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