Sub-Saharan African Stock Markets

According to the IMF SSA Regional Economic Outlook 2010, the number of stock markets in SSA countries has risen from 5 in 1989 to 16 today and the market value, (market capitalization) has nearly doubled to 153 percent of GDP, before dropping to 83 percent of GDP in 2008 as a result of the global financial crisis.  While foreign capital flows have helped stimulate this growth, in most cases the markets remain too small and illiquid to attract significant foreign investment.

For instance, except for South Africa and Nigeria, the stock markets have few listed  companies.   South Africa has about 401 listed companies on its stock exchange while Nigeria has 202.  The next largest stock market according to the Report is in Kenya with about 51 companies. Meanwhile Malaysia has 1076 listed companies and Thailand 476.   Most other African countries have few listed companies, and at about 20 percent of GDP in 2008 (excluding South Africa), average market capitalization is lower than in most emerging markets.

Such low business volumes make it difficult to support a local market with its own trading system, market analysis, and brokers. The small size and lack of liquidity also deters foreign investors since the exposure of foreign institutional investors is typically negligible until a market reaches about $50 billion in size or $10 billion in shares traded annually.

Recommended reforms to increase stock market capitalization in SSA include:

     (a)  Improvements to the legal and accounting framework;

     (b)  Improved private sector evaluation capabilities;

     (c)  Increased public sector regulatory oversight;

     (d)  Appropriate sequencing of reforms;

     (e)  Good-quality institutions, such as rule of law, democratic accountability, and limited corruption, are important to reduce risk.

     (f)  The development of regional markets as a way to promote cost efficiency and overcome small market size.  

On the last recommendation, I should note that the Ivory Coast-based Bourse Regionale des Valeurs Mobilieres (BRVM) is the world's first regional stock exchange which serves the eight African members of the West African Monetary Union:  Benin, Burkina Faso, Guinea Bissau, Cote d' Ivoire, Mali, Niger, Senegal and Togo. It is now entirely electronic with market offices maintained in each country.