African Stock Markets: Unity is the key.


The number of stock exchanges in Africa has more than doubled over the past decade, but most remain too small to be competitive. In this review of African boures, Moin Siddiqi says regional integration of markets must be speeded up if they are to be internationally viable.

Free markets are rapidly spreading across the continent of Africa. Most countries have implemented big structural changes, including greater openness to foreign investment, reducing red tape and a progressive relaxation of exchange controls.

Today the continent boasts 19 bourses, including the giant Johannesburg Stock Exchange (JSE) and three thriving exchanges in North Africa. In 1989, there were only seven exchanges. The most recent to enter the ranks is the Bolsa de Valores de Mozambique in Maputo. The number may rise to 25 by 2002-04, as countries like Madagascar and Angola are planning to open bourses to trade shares in privatised companies.

In the sub-Saharan region, excluding the JSE, markets of meaningful sizes are Nigeria, Zimbabwe, Cote d'Ivoire, Kenya, Mauritius, Ghana and Botswana.

The JSE accounts for almost 90% of the total market capitalisation of sub-Saharan Africa and 75% of the entire continent. It is the most technologically sophisticated bourse in the emerging markets. Electronic trade settlement systems have boosted liquidity and turnover. Presently, the settlement period is T+3.

In North Africa, Egypt remains a market leader. In an upbeat report, HSBC Securities stated: "Egypt is the market that stands out for us. A changing external position, strong domestic growth, and a defensive and exceptionally cheap market will prove a winning combination that will ensure out-performance relative to other emerging markets."

The market's modernisation is gathering pace this year with the installation of a fully automated and integrated trading, clearing and settlement system (ATS). This will increase the exchange's capacity, enabling it to handle 100,000 trades daily. Within the next two years the privatisation of Egypt Telecom and other utilities, plus the flotation of government's stakes in several banks and insurance companies could triple the market's capitalisation, attracting considerable foreign portfolio investment.

While most of Africa's exchanges are still undeveloped, infrastructure is being improved and capacity is being broadened with assistance from the International Finance Corporation (IFC) and various overseas agencies such as the European Union Know-How Fund and the Swedish development agency, SIDA.

The Kenya Capital Markets Authority plans to install a central depository system which will cut the Nairobi SE's transaction period from seven to three days and a new electronic trading system. The Accra SE will also be installing a modest automated centralised clearing system this year. In Nigeria, a central securities clearing system, installed in 1997, has cut delivery and settlement to T+5. A new automated trading system, introduced in 1999 has improved the transparency of Lagos SE trades.

The Bourse Regionale des Valeurs Mobilieres (BRVM) of Francophone West Africa - the world's...

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