Africa's Financial Markets: a Real Development Tool?
Issue 5 - April 2010
By Luc Rigouzzo, Proparco's Chief Executive Officer
African financial markets have been experiencing spectacular growth since the early 1990s. Their number has since risen from roughly a dozen to 23 and they now provide continent-wide coverage. Market capitalization has risen ninefold and over 2 000 businesses are now listed. There has been a sharp increase in initial public offerings (IPOs) in recent years which have allowed some banks or businesses to raise sizeable amounts of capital – this gives a clear sign of the depth of local savings and domestic investors’ interest in stock markets.
You can consult this issue
Recent evolution of the African financial markets
Financial markets play an increasingly important role in financing Africa’s private sector. Their recent growth in strength is unquestionable – despite the sudden standstill caused by the 2008 crisis: sixfold increase in capital flows in 10 years, opening of stock markets, initial public offerings by public and private companies, etc. If these markets are to continue to develop, it is essential to free up African savings – which are trapped by low-return assets and the lack of quality products – and to learn to attract higher portfolio investment flows. >> Download Cyrille Nkontchou's paper
Popular Shareholding in Africa, both a Political and a Financial Tool
Popular shareholding in the context of Africa would seem doomed to failure, yet it has now become a major development area for African financial markets. This type of equity ownership seems to have met with real popular success, particularly with urban executives. But it has especially been a success for governments who see it as the tool they require to implement privatizations. By promoting the participation of the population in a company’s initial public offering it is possible to reach both economic and political targets – to gain long-term popular support and, at the same time, develop new savings products. >> Download Laurent Demey's paper
Listing on African Stock Exchanges:many Advantages and few Drawbacks
The international hotel group TPS EA’s listing on the Nairobi Stock Exchange enhanced its visibility and reputation and fostered its commercial development. Moreover, by opening its capital to the general public it has also met the targets set by the main shareholder – the Aga Khan Fund. However, the listing does not only come with advantages. The company must provide a high and regular level of profitability and cannot afford to take too many risks. There are also a whole host of costly requirements in terms of accounting, reporting and corporate governance. >> Download Mahmoud Janmohamed's paper
Motives for a Multiple Listing on African Stock Exchanges: the Ecobank Experience
In 2006, Ecobank Transnational Incorporated launched a simultaneous public offering operation on three African stock markets. €is exceptional listing gave the group greater financial flexibility, a diversified, popular and truly pan-African shareholding and enhanced its reputation and financial rigor. Moreover, such operations promote regional integration and improve the depth and liquidity of markets which also benefits shareholders. Despite heavy administrative constraints, this type of multiple public offering should consequently be promoted in Africa. >> Download Arnold Ekpe's paper
What are the Determinants of Financial Markets Development in Sub-saharan Africa?
Sub-Saharan Africa’s financial markets are generally immature and are widely characterized by their low level of activity and the domination of the banking sector. However, if a market and its economy have proportional sizes, it is possible to go beyond the constraints of scale by promoting regional integration. Here again, nothing is simple and it would certainly seem necessary to go slowly. Immediate reforms can however be envisaged, first by improving banking services and implementing stronger legal and regulatory structures.
>> Download Scott Standley's paper
How can Development Partners Support the Financial Sector in Africa?
Although Africa’s financial sector was not severely affected by the 2008 crisis, the latter did however reveal its structural weaknesses – including the narrowness of markets and the low level of credit allocated to the private sector. It would consequently appear to be particularly difficult to develop capital markets in this context. Yet it is not impossible:international organizations, by working closely with local authorities, can support this development by providing their advice and expertise. Beyond this, they can have a very direct impact on increasing financial market depth and liquidity.
>> Download Thierry Tanoh's paper
Financial Development and Economic Growth: Stock Markets versus Banks?
Economic theories diverge radically on the role that banks and markets play in the development of a financial sector – and the link they have with economic growth. It is essential to answer these questions in order to provide concrete orientations for economic policies. Indicators make it possible to link economic growth to the financial system, but there is however no evidence to justify supporting banks to the detriment of markets – or the other way round. From a “service-based logic”, it is more the complementarity between these two players that will be a determining factor. >> Download Thorsten Beck's paper
Lessons learned from this issue
By Arthur Foch and Anne-Sophie Kervella
Africa’s financial systems in general and the banking system in particular – except for those in South Africa – are today among the least developed in the world. For example, the value of loan portfolios allocated by banks and financial institutions to private sectors in Sub-Saharan African countries accounted for nearly 18% of their GDP in 2007, whereas it stood at 26% in the other low-income countries and exceeded 100% in developed countries. Sub-Saharan Africa’s financial systems remain widely dominated by banks, yet the banking sectors in this region are generally small – low number of establishments – and their penetration rates in the economy and among the population remain limited. Businesses find it difficult to access banking services and less than 20% of the general public has a bank account.