There has been a considerable development in the African capital markets since the early 1990s. Prior to 1989, there were just five stock markets in sub-Saharan Africa and three in North Africa. Today there are 19 stock exchanges ranging from starts ups like Uganda and Mozambique stock exchanges to the Nigeria and Johannesburg stock exchanges.2 With the exception of South Africa, most African stock markets doubled their market capitalization between 1992 and 2002. Total market capitalization for African markets increased from US$113,423 million to US$ 244,672 million between 1992 and 2002.
The rapid development of stock markets in Africa does not mean that even the most advanced African stock markets are mature. In most of these stock markets, trading occurs in only a few stocks which account for a considerable part of the total market capitalization.
Beyond these actively traded shares, there are serious informational and disclosure deficiencies for other stocks. Further, supervision by regulatory authorities is often far from adequate. The less developed of the stock markets suffer from a far wider range of such deficits.
Indicators of stock market development (Table 1) show that African markets are small with few listed companies and low market capitalization. Egypt, Nigeria, South Africa and Zimbabwe are the exceptions with listed companies of 792, 207, 403 and 79 respectively.
The average number of listed companies on sub-Saharan African markets excluding South Africa is 39 compared with 113, with the inclusion of Egypt and South Africa. Market capitalization as a percentage of GDP is as low as 1.4 in Uganda. The Johannesburg Securities Exchange in South Africa has about 90 percent of the combined market capitalization of the entire continent. Excluding South Africa and Zimbabwe the average market capitalization is about 27 percent of GDP. This is in contrast with other emerging markets like Malaysia with a capitalization ratio of about 161 percent.
African stock markets suffer from the problem of low liquidity. Liquidity as measured by the turnover ratio is as low as 0.02 percent in Swaziland compared with about 29 percent in Mexico. Low liquidity means that it will be harder to support a local market with its own trading system, market analysis, brokers, and the like because the business volume would simply be too low.
Despite the problems of small size and low liquidity, African stock markets continue to perform remarkably well in terms of return on investment. The Ghana Stock Exchange was adjudged as the world’s best-performing market at end of 2004 with a year return of 144 percent in US dollar terms compared with 30 percent return by Morgan Stanley Capital International Global Index (Databank Group, 2004). Within the continent itself five other bourses—Uganda, Kenya, Egypt, Mauritius and Nigeria apart from Ghana—were amongst the best performers in the year.
Institutional and infrastructural indicators in selected African stock markets are shown in Table 2. In all, eleven indicators (existence of a market regulator, a governing law, nature of clearing and settlement, settlement cycle, existence of an international custodian, foreign participation, exchange control, nature of trading systems, existence of a central depository, number of trading days, and accounting and auditing reporting system) are considered.
IMF Working Paper African Department Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges Prepared by Charles Amo Yartey and Charles Komla Adjasi August 2007
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