Stock Markets and Exchanges
Organised equities markets provide a platform for enterprises to raise long-term finance from investors through selling shares in their ownership and create an environment where buyers and sellers can freely exchange those instruments.
Since 1989, the number of active Sub-Saharan stock exchanges has increased from five (South Africa, Zimbabwe, Kenya, Nigeria and Uganda) to the current seventeen. These include two of the few regional stock exchanges in the world, La Bourse Régionale des Valeurs Mobilières (BRVM) in West Africa and La Bourse des Valeurs Mobilières de l'Afrique Centrale (BVMAC) in Central Africa.
While the overall number of stock markets is considerable, only a few of them are relatively active and well developed. Most are characterised by low market capitalisation and lack market depth and liquidity. In many markets, one or just a few stocks often dominate total trading activity.
Stock markets activity in the continent is dominated by its four biggest markets, namely South Africa, at approximately 60 percent of the total African market capitalization, at USD 312 billion, followed by Egypt at USD 83 billion, Morocco at USD 64 billion, and Nigeria at USD 40 billion, leaving a mere USD 40 billion for all other economies combined. With the exception of Nigeria and South Africa, all sub-Saharan stock exchanges are characterized by a relatively low number of listed companies.
Prior to the financial crisis, improved market conditions and profit prospects attracted substantial foreign investor interest in several African stock markets. Beyond South Africa, Egypt and Morocco, international investors were increasingly looking to Kenya, Mauritius, Nigeria, Ghana, Tunisia and Botswana, which are included in the MSCI or S&P frontier market indices. Consequently, African stock markets, though small, commenced an upward growth path and increasingly higher levels of financing became available to African companies. The onset of the financial crisis, however, severely impacted African stock exchanges and sharply reversed previous buoyancy. African stock markets have, however, recently begun to recover.
Future growth will largely depend on overcoming the lack of scale in the continent’s markets: regional stock markets or inter-connected markets are increasingly being considered as a tool to overcome the scale challenge. Integrated stock markets could result in increased volumes and address scale and fragmentation problems.