VIII. SUMMARY AND CONCLUSION: Stock Market Development in Sub-Saharan Africa
VIII. SUMMARY AND CONCLUSION: Stock Market Development in Sub-Saharan Africa
accounted for a large amount of this boom. In Africa, new stock markets have been
established in Ghana, Malawi, Swaziland, Uganda, and Zambia. The rapid development of
stock markets in Africa does not mean that even the most advanced African stock markets
are mature. In most stock markets, trading occurs in only a few stocks which account for a
considerable part of the total market capitalization. In addition, the market suffers from the
problem of low liquidity. 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.
The analysis in this paper shows that the stock market has been a surprisingly important
source of finance for funding the growth of large corporations in some African countries. In
Ghana, the stock market financed about 12 percent of total assets growth of listed companies
between 1995 and 2002. In South Africa, new equity issues accounted for 18 percent of total
assets growth between 1996 and 2000. External debt contributed 61 percent of total
financing, and retained earnings financed the remaining 21 percent. In Zimbabwe, equity
finance contributed 8 percent to the funding of listed corporations between 1990 and 1999. In
all of these countries, the stock market is the most important source of long term external
finance.
Thus, the stock market has made important contributions to corporate growth in Africa in the
recent period. However, the shortcomings inherent in a stock market based system require us
to examine whether the economy as whole has benefited through, for example, greater
aggregate savings and investment or increased productivity of investment. There is little
systematic evidence on this issue for African countries. We provide some econometric
evidence, however, that through the value of shares traded, the stock market is positively
associated with economic growth in Africa. This result might however also be because of the
dominance of the price effect.
What determines stock market development? Recent empirical research has identified
macroeconomic stability, robust economic growth, well developed banking sector, and good
quality institutions as important for stock market development. Garcia and Liu (1999) found
income level, banking sector development, domestic savings and investment, and stock
market liquidity as important determinants of stock market development in emerging
markets. Yartey (2007b) finds that a percentage point increase in financial intermediary
sector development increases stock market development in Africa by 0.597 percentage points
controlling for macroeconomic stability, the level of economic development, and the quality
of legal and political institutions. He also finds good quality institutions such as law and
order, democratic accountability and limited corruption as important determinants of stock
market development because they reduce political risk and enhance the viability of external
finance.
Looking ahead, African stock exchanges face a number of challenges before they could enter
a new phase of rapid growth. The first is the challenge of stock market integration. Many
analysts have argued for the regionalization of stock markets in Africa as a way of addressing
the problem of low liquidity. Preconditions for successful regional approaches include
harmonization of legislations such as bankruptcy and accounting laws and a liberalized trade
regime. The second is the challenge of demutualization to solve the governance and
profitability problems. Demutualization would be more relevant after African stock markets
have consolidated gains on technological and regulatory reforms. The third and most critical
issue is the need to eliminate existing impediments to institutional development. These
include a wider dissemination of information on these markets, the implementation of robust
electronic trading systems, and the adoption of central depository systems. In addition, sound
legal and accounting framework, private sector credit evaluation capabilities, and public
sector regulatory oversight should all be strengthened.
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
VIII SUMMARY AND CONCLUSION Stock Market Development in SubSaharan Africa - To learn more about this author, visit International Monetary Fund's Website.
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Over the past few decades, the world stock markets have surged, and emerging markets have
accounted for a large amount of this boom. In Africa, new stock markets have been
established in Ghana, Malawi, Swaziland, Uganda, and Zambia. The rapid development of
stock markets in Africa does not mean that even the most advanced African stock markets
are mature. In most stock markets, trading occurs in only a few stocks which account for a
considerable part of the total market capitalization. In addition, the market suffers from the
problem of low liquidity. 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.
The analysis in this paper shows that the stock market has been a surprisingly important
source of finance for funding the growth of large corporations in some African countries. In
Ghana, the stock market financed about 12 percent of total assets growth of listed companies
between 1995 and 2002. In South Africa, new equity issues accounted for 18 percent of total
assets growth between 1996 and 2000. External debt contributed 61 percent of total
financing, and retained earnings financed the remaining 21 percent. In Zimbabwe, equity
finance contributed 8 percent to the funding of listed corporations between 1990 and 1999. In
all of these countries, the stock market is the most important source of long term external
finance.
Thus, the stock market has made important contributions to corporate growth in Africa in the
recent period. However, the shortcomings inherent in a stock market based system require us
to examine whether the economy as whole has benefited through, for example, greater
aggregate savings and investment or increased productivity of investment. There is little
systematic evidence on this issue for African countries. We provide some econometric
evidence, however, that through the value of shares traded, the stock market is positively
associated with economic growth in Africa. This result might however also be because of the
dominance of the price effect.
What determines stock market development? Recent empirical research has identified
macroeconomic stability, robust economic growth, well developed banking sector, and good
quality institutions as important for stock market development. Garcia and Liu (1999) found
income level, banking sector development, domestic savings and investment, and stock
market liquidity as important determinants of stock market development in emerging
markets. Yartey (2007b) finds that a percentage point increase in financial intermediary
sector development increases stock market development in Africa by 0.597 percentage points
controlling for macroeconomic stability, the level of economic development, and the quality
of legal and political institutions. He also finds good quality institutions such as law and
order, democratic accountability and limited corruption as important determinants of stock
market development because they reduce political risk and enhance the viability of external
finance.
Looking ahead, African stock exchanges face a number of challenges before they could enter
a new phase of rapid growth. The first is the challenge of stock market integration. Many
analysts have argued for the regionalization of stock markets in Africa as a way of addressing
the problem of low liquidity. Preconditions for successful regional approaches include
harmonization of legislations such as bankruptcy and accounting laws and a liberalized trade
regime. The second is the challenge of demutualization to solve the governance and
profitability problems. Demutualization would be more relevant after African stock markets
have consolidated gains on technological and regulatory reforms. The third and most critical
issue is the need to eliminate existing impediments to institutional development. These
include a wider dissemination of information on these markets, the implementation of robust
electronic trading systems, and the adoption of central depository systems. In addition, sound
legal and accounting framework, private sector credit evaluation capabilities, and public
sector regulatory oversight should all be strengthened.
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
VIII SUMMARY AND CONCLUSION Stock Market Development in SubSaharan Africa - To learn more about this author, visit International Monetary Fund's Website.
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Kim CastleWith 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 |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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