Financial Markets: The future of African Countries

An?upward movement?in listings and flow of liquidity?in Africa suggests?that the continent's?economic?markets are?beginning?to expand. Africa's?monetary?and overall economic potential?is unquestionable, with its?population predicted?to surpass that of China?by the end of?2025. It is widely reported that close to 350 embassies?or more have opened in Africa and?overseas?funding?is?beginning?to flood the continent. Africa will?definitely grow its financial markets base if there is a large and inclusive?economic?quarter?that is?welcoming to investors and foreign direct investment (FDI). Fortunately for us as Africans, we can already witness?massive?advancements already.

Being Zambian and learning of the changes in the financial markets scene, it is no secret that Zambia has reignited faith with boosted investor confidence and the peoples new found love for duty and service. Just yesterday as reported by the Kwacha Arbitrageur, Zambia is showing strong signs of contributing to the success of the financial markets scene on a continental level. They wrote via The Business Telegraph that “The Lusaka Securities Exchange (LuSE) has outpaced the stock markets on the continent; on August 24, its share index was just shy of a new record high at 7,010.4. Despite being 15.7% (YTD) higher in local currency, the index is 19.3% stronger in dollars, outpacing the S&P500 index and former leader of the scoreboard, the Nigerian Stock Exchange (NSE), which is currently at 16.3%. (YTD). The red metal producer's stock market outperformance is a barometer of its chances for growth and economic recovery, which are supported by industries like mining, banking, energy, manufacturing, and agribusiness. This is mostly driven by a number of variables, such as improved sovereign risk outlook, disrupted opportunities in the global grain and food markets, volatile energy markets, mining boom driven by decarbonization, and most importantly post-pandemic recovery.”

That said, George Asante, Managing Director & Head of Markets, Africa at Citibank London, United Kingdom stated in 2021 that “individual nations must exert more effort to liberalize and reform their financial markets in order to improve their economies and the lives of millions of people on the continent.”. The African Continental Free Trade Agreement, which was ratified over a year ago, paves the way for the creation of a single market with a combined GDP of US$2.5 trillion and access to 1.2 billion people. This will be essential for promoting financial inclusion, economic growth, and the ability to raise the funds required to expand enterprises and improve infrastructure.

Riding along with many other global concerns away from financial markets is climate change and fighting pandemics, two forces that are crucial to Africa’s development in the next 10 years. Africa is said to only contributes a tiny 3% of historical global CO2 emissions, despite having 17% of the world's population right now. However, Africa is disproportionately affected by climate change and harsh weather, which has negative effects on the region's economy, society, and ecology. The Russia-Ukraine war and the epidemic might have a significant impact for several years, if not up to a decade, according to the African Economic Outlook.

The aftermath of Covid -19 and its troubles caused the loss of roughly 22 million jobs in 2021 and the dire poverty of about 30 million Africans. This downward trajectory of its effects is anticipated to last until 2023 and the second half of 2022, of which we have now began. Some analysts have stated that the economic repercussions of the Russia-Ukraine conflict may plunge an additional 1.8 million people on the African continent into abject poverty. In 2023, that number might increase by an additional 2.1 million and it is my hope that with much positivity and activity in the greater global markets, it shall not be so.

The increased finance requirements for the continent are projected to be $432 billion from 2020 to 22. Up to 1.6 trillion will be needed between 2022 and 2030 to finance the nationally decided contributions—public commitments from nations on how they want to participate in post-2020 global climate action. Climate change reduces the continent's gross domestic product by 5% to 15%. Only $18.3 billion in total climate money was given to African nations between 2016 and 2019. This results in a $1288.2 billion yearly funding deficit for climate change from 2020 to 2030. Due to recent economic collapses that necessitated investments in other geographic areas for diversification purposes, the African market has gained relevance.

It is of great report that Botswana, Kenya, Nigeria, and South Africa, have steadily improved their financial markets industries, which brings great pride to Africa. The Johannesburg Stock Exchange, the largest stock exchange in Africa, is located in South Africa and has so far maintained a top position on the Absa Africa Financial Markets Index for consecutive years now. It is my hope that Zambia will begin to favorably compete with other top countries with current renewed and boosted investor confidence after the August, 2021 general elections. Rwanda on the other hand has developed eSub, a platform that enables ordinary citizens to trade, which is to buy and sell government securities using mobile network services/devices. However, Zambia is yet to reach those heights as in regards to easy buying and selling of government securities using mobile devices.

Although the index demonstrates the efforts and progress made by African nations to modernize their financial systems, much work remains. Ethiopia and Mozambique, two nations on the continent with larger markets, are following closely the efforts of Kenya and Nigeria, especially when it comes to the development of stock exchanges, which are crucial for capital raising through listings. While Angola's exchange does not list any stocks, Ethiopia does not have a securities exchange. Market capitalization for Mozambique and Cameroon is both less than 5% of GDP.

"At $1.1 trillion, South Africa is the only nation with listed equity values totaling more than $100 billion. The market capitalization of only three nations—South Africa, Botswana, and Ghana—is larger than 100% of GDP, while it is less than 50% in 14 additional nations. Accelerated financial market changes in Africa are required, primarily to address the continent's pressing funding needs, particularly to close infrastructure and educational gaps." - George Asante

Such changes may also act as a catalyst for capital markets to develop into venues for the effective mobilization of much needed finance to assist the expansion of small and medium-sized industries in a risk-free environment. In the next twenty years, infrastructure spending for roads, water, and electricity will be required to support Africa's development. For instance, it will take up to US$55 billion per year in domestic and foreign capital raising to achieve universal access to energy by 2025, while other infrastructure projects across the continent will require as much as US$50 billion.

African?countries?should and must prioritize legislative initiatives that make it?less difficult?for?traders?to?take part?in the markets in order to?speed?up?economic?market reforms. There is no debate about the?advantages?of opening up?economic?markets. It is the?most important?reason?of two-fifth?of the percentage that make up the GDP per head south of the Sahara. Therefore, it is encouraging to see Africa try to open up its markets when most of the rest of the globe retreats into protectionism. This strategy must be maintained, beginning with comprehensive structural reforms of the financial markets industry. By utilizing the power of financial markets, the continent has the potential to drastically alter not just its economic future but also the lives of millions of people. Africa cannot afford to lose this opportunity. Another game changer to look out for in Africa is Fintech.

Due to its?vast natural resource base?and?fine?geographic location, Africa forms a very important part of global financial markets. Africa has been gaining international?interest?for years due to the continent's promising future in the?modern?geopolitical environment. I strongly believe that Africa is the?home?of limitless opportunities, despite having widely reported geopolitical conflicts and strategic rivalries. Africa and its beauty is?nevertheless?the?solely?continent that will?have significant benefits from?financial?expansion. Despite?the current?monetary?and economic growth?that has been slower than anticipated, the continent's financial market industry is?increasing?quickly,?offering up diversification and potential for growth for?global?investors.

?Sources:

https://african.business/2019/05/economy/africa-must-unleash-the-power-of-its-financial-markets/

https://african.business/tag/george-asante/