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III. STOCK MARKET DEVELOPMENT IN SUB SAHARAN AFRICA:TRENDS AND CHARACTERISTICS
| Guest post by: International Monetary Fund |
Article Overview: 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.
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Free Download - References: Stock Market Development in Sub-Saharan Africa By International Monetary Fund |
III. STOCK MARKET DEVELOPMENT IN SUB SAHARAN AFRICA:TRENDS AND CHARACTERISTICS
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
VI. B. Banking Sector Development: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?
VI. A. Macroeconomic Stability: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?
VII G. Strengthen Education: PROMOTING STOCK MARKET DEVELOPMENT IN AFRICA
VI. C. Institutional Quality: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?
Introduction: Stock Market Development in Sub-Saharan Africa
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About the Author: International Monetary Fund RSS for International's articles - Visit International's website Click here to visit International's website   References What Drives Chinas Growing Role in Africa VI B Banking Sector Development WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA 40 The Role of Governments Microfinance in Africa Experience and Lessons from Selected African Countries Fiscal Policy for a Sustainable Environment III C Commercial Policies THE ROLE OF CHINAS PUBLIC SECTOR |
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