Having looked at the trends and characteristics of stock markets in Africa, this section examines the contributions of the stock markets to the financing of corporate growth in Africa. In particular, we examine whether large African corporations have made significant use of the stock market to finance their growth. As pointed out by Mayer (1988), there are two sources of information for studying aggregate corporate financing patterns in different countries. The first is national flow of funds statement that record flows between different sectors of an economy and between domestic and overseas residents. The second source is company accounts that are constructed on an individual firm basis but are often aggregated or extrapolated to industry or economy levels.
Both sources have their advantages as well as limitations.3 Theoretically, flow of funds statistics provide a comprehensive coverage of transactions between sectors because they cover all sectors in the economy, and are collected in ways, which are largely comparable between countries. The problem with flow of funds data is that it captures only flows of funds from one economic sector to another and thereby eliminates entirely intra-sectoral flows. Company accounts are only available for a sample, often quite small, proportion of a country’s corporate sector. However, the data that are employed in company accounts are usually more reliable than flow of funds. More specifically, flows of funds are constructed from a variety of different sources that are rarely consistent. As a result, statistical adjustments are required to reconcile entries. A fundamental distinction between flow of funds statistics and company accounts is that flow of funds only relates to domestic activities while company accounts are constructed on a worldwide basis including foreign subsidiaries.
The analysis of the paper shows that the stock markets have contributed to the financing of the growth of large corporation in certain African countries. Corporate financing patterns in certain African countries suggest that stock markets are an important source of finance. In Ghana, the stock market financed about 12 percent of total asset growth of listed companies between 1995-2002. In South Africa, liabilities accounted for 61 percent of total financing and retained earnings and external equity financed 21 and 18 percent respectively of total assets growth between 1996 and 2000 (Glen and Singh, 2003). In Zimbabwe, external finance contributed 75.4 percent of total funds and internal finance provided the remaining 25 percent between 1990-1999. Equity financing was the most important source of long term finance at 7.8 percent. Long term bank loans and bonds were each a very minor component of total external financing (Mutenheri and Green, 2003). In Mauritius, the stock market financed about 9 percent of total asset growth with retained earnings and external debt contributing 30 and 61 percent respectively to the financing of total asset growth between 1992-1999 (Lalchand, 2001). In all four countries, the stock markets were for these companies the single most important source of long term external finance.
Globally, Glen and Singh (2003) find that liabilities accounted for 49 percent of total financing over the period 1996 to 2000. Of the remaining 51 percent, internal equity represented 29 percent, with external equity representing 22 percent. Glen and Singh (2003)
also found substantial differences in the pattern across advanced and developing countries and across individual countries. They find that the use of liabilities to finance growth was much lower in emerging market group, with that lower level offset by higher levels of both internal and external equity.
How does the corporate financing patterns in Ghana, Mauritius, South Africa, and Zimbabwe compare with other emerging market countries? Our results show that corporate financing patterns in these countries are broadly similar to the pattern observed for other emerging market countries:
• In Ghana, Mauritius, South Africa, and Zimbabwe, listed corporations rely much less on external finance to finance asset growth than corporations in other emerging markets. The average external finance ratio is 77.5 percent in Ghana, 70 percent in Mauritius, 79 percent in South Africa, and 75.4 percent in Zimbabwe. Other emerging markets like Korea, India, Malaysia, and Thailand have a higher reliance on external finance. In Thailand, for instance, corporations rely almost entirely (94.3 percent) on external finance to finance assets growth.
• New equity issues are surprisingly a significant source of finance for quoted African corporations. It ranges from 7.8 percent in Zimbabwe to about 19 percent in South Africa. The median value for Ghanaian corporations is 12 percent. The contribution of equity finance to total asset growth is broadly similar to the pattern we observe for other emerging markets. The corresponding figures for other emerging markets are 31.2 percent in Korea, 14.6 percent in India, 9.6 percent in Malaysia, and 16.1 percent in Thailand.
What do these results imply for the issue of stock market development in African countries?
The results suggest that the stock market has played a great role in financing the growth of large African corporation and that stock market development has been important. However, the shortcomings inherent in a stock market based system require us to examine whether the economies as whole have benefited through, for example, greater savings and investment, or increased investment productivity. There is very little systematic evidence on this issue for African countries.
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
To learn more about this author, visit International Monetary Fund's Website.
Like this article? Share it with your friends
 |
Related Businesses - Evan Elite Authors |
|
Kim Castle
With nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation.
BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them?
If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
|
Accessible Business Consultants
Dave Turkin, President, of Accessible Business Consultants is a full service business consultant that has over 32 years of experience working with small-medium size businesses. Dave has designed and implemented numerous business and marketing plans, designed internal programs for accounting and operational procedures. He has analyzed businesses and prepared strategic plans setting budgets for growth, expansion and business restructuring.
He currently sits on the Board of Directors of various corporations as an advisor. For many years he has been the Business Coach to many executives offering advice and guidance from old and established companies as well as new companies just getting started.
Dave has the ability to analyze a business quickly and get a strong indication as to the necessary steps to improve operations, productivity and profitability. - Visit Accessible Business Consultants's Website |
|
George Ludwig
George Ludwig is a recognized authority on sales strategy and peak performance psychology. An international speaker, trainer, and corporate consultant, he helps clients like Johnson & Johnson, Abbott Laboratories, Northwestern Mutual, CIGNA, and numerous others improve sales force effectiveness and performance.
Though it's George's strategies and processes that help corporations increase productivity and performance, it's his tremendous energy and dynamism that spark the transformation. Again and again, clients remark on his amazing ability to unleash human capacity and inspire men and women to break out of their comfort zones. The result is a whole new type of salesperson.
His customized presentations teach achievers to make stunning advances in their lives. From helping salespeople realize cherished dreams to helping corporations exponentially accelerate revenue streams, George Ludwig leaves audiences and individuals empowered, emboldened, and clamoring for more.
George is the best-selling author of Power Selling: Seven Strategies for Cracking the Sales Code and Wise Moves: 60 Quick Tips to Improve Your Position in Life & Business. - Visit George Ludwig's Website |
|
The Evan Elite Authors program is currently in beta phase. For details please contact us.
|
|
|
International Monetary Fund
(Visit International's Website)
The IMF is an international organization
of 185 member countries. It was
established to promote international
monetary cooperation, exchange stability,
and orderly exchange arrangements; to
foster economic growth and high levels of
employment; and to provide temporary
financial assistance to countries to help
ease balance of payments adjustment.
Since the IMF was established its purposes
have remained unchanged but its
operations—which involve surveillance,
financial assistance, and technical
assistance—have developed to meet the
changing needs of its member countries in
an evolving world economy.
|
|
|
International Monetary Fund's
Complete
List Of
African-Accounts
Articles
|
|
If you enjoyed this article, get International Monetary Fund's Complete List of African-Accounts Articles For FREE!
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
