A Pan-African Stock Market: What It Means, Needs to Happen, and the Role of AfCFTA

The challenges facing the global stock markets in the last few years, exacerbated by Covid-19 and the war in Ukraine, are well documented. Countries have battled inflation, and investors have oscillated from risk-on to risk-off sentiments. African countries have not been immune to these challenges.?

A comprehensive report on the state of capital markets in Africa, PwC’s Africa Capital Markets Watch 2021, notes, “While global capital market activity continued to see an uptick with the highest IPO proceeds ever recorded in 2021, African ECM activity continued on a downward trend.”

The same report adds, “Fast-growing tech companies across major markets in Africa continue to source for growth capital outside the equities capital market due to perceived onerous regulations, among other reasons.”????

This indicates that Africa and other emerging economies need to increase local capital flows. Could a Pan-African stock market be the answer? This is a question I have been investigating.??

What is A Pan African Stock Market??

Well, a Pan-African stock market, also known as a regional stock market, is a financial market that spans multiple countries in Africa and allows for the buying and selling of securities, such as stocks and bonds, among investors across the continent. The idea behind a pan-African stock market is to create a unified platform that promotes economic integration and development within the continent by increasing access to capital for businesses and providing diversification and liquidity opportunities for investors.

In fact this expands wider, in an Institute of Security Studies paper published several years ago, Professor Tim Murithi of African Studies at the University of the Free State in South Africa writes, “Pan-Africanism seeks to respond to Africa’s underdevelopment and exploitation and the culture of dependency on external assistance that unfortunately still prevails on the continent.”?

Pan-Africanism could help us create an interconnected continent that will make us less dependent on external economies and also protect us against external shocks to global economies, such as Covid-19 and the Ukraine-Russia war.?

This is a view also expressed in a recent article published by African Business. Reporting on the Innovative Financing in Capital Markets for Recovery in Africa. The publication writes, “Deepening local financial markets is now universally seen as an optimal means of hedging against international economic fluctuations.”

Launching the Integrated African Stock Exchange?

In terms of deepening local financial markets, there have been some encouraging movements in the African continent.??

For instance, the African Securities Exchange Association (ASEA) recently launched an integrated African stock exchange platform known as the African Exchanges Linkage Project. Currently, the e-platform connects seven stock exchanges with 2,400 listed companies with a combined $1.6 trillion market capitalisation.?

I recently interviewed the President of ASEA and the Botswana Stock Exchange CEO, Thapelo Tsheole. He gave me an understanding of what a Pan-African stock market looks like.?

Tsheole detailed how the e-platform seeks to interlink the markets in Africa, allowing investors to trade stocks in countries outside which they are domiciled. In terms of the significance of such a Pan-African stock exchange, Tsheole indicated that this solves the challenge of African stock exchanges struggling to increase trade among themselves.????

Do We Need A Pan- African Stock Market???

During our recent interview, Tsheole noted that although African companies have been able to attain substantial amounts of their turnover levels from foreign investors, there has been limited trade between African stock markets.??

Several reasons can be attributed to this limited trade. One of them was noted by Tsheole in our interview when he noted that trade in the integrated African stock exchange platform still takes place in dollars.?

Writing for the African Leadership Magazine, Confidence Ijeh highlights other challenges. He reports that African capital markets “are still underdeveloped because there is a lack of curated investment information, stock exchanges keep charging for information, poor investment into shareholder education, and inefficient dissemination of information by stock exchanges, among other reasons.”

Therefore, it’s clear that we need to support the idea of a Pan-African stock market to increase trade within African stock exchanges. As Tsheole noted, this increase has positive ramifications for liquidity, leading to more interest and investment within the continent.?

The results of this increased investment could be higher levels of employment and increased per capita income, which could ultimately help extract more people out of poverty in the continent.?

Apart from interlinking African stock exchanges, a Pan-African stock exchange will attract more investment interest from outside the continent.? The coming together of stock exchanges in Africa allows markets with low liquidity to tap into the resources of those with access.??

This is a view also acknowledged by the ASEA Africa Focus Report, which adds that for companies in the continent, a Pan-African stock exchange will:?

• Make available a more extensive, deeper, and more liquid market.?
• A wider pool of financial resources.?
• Lower costs associated with transactions.?
• Better opportunities for private sector companies to raise capital.?
• Reduce the risk of exposure for investors?
• Enhance communication and build capacity.?

What Should Happen??

Launching the integrated African stock exchange is a first step in the right direction. However, some African stock exchanges still need to be part of the initiative.??

What will it take to see this becoming a reality?

The ASEA Africa Focus Report provides some insights into what needs to be done to clear the road to a genuinely Pan-African stock market:?

• Put in place an interoperable system for payments and settlements across central banks to make the payment of dividends easier for those investors investing in markets outside their countries.?
• Increase information opportunities so that intermediaries become familiar with opportunities outside their countries.?
• Ensure adherence to the rule of law by incorporating legal systems under common approaches.???

The Role of AfCFTA

The role of AfCFTA in supporting the Pan-African stock exchange is well articulated by the findings of The World Bank. The bank concludes, “The AfCFTA promises broader and deeper economic integration and would attract investment, boost trade, provide better jobs, reduce poverty, and increase shared prosperity in Africa.”?

Because AFCFTA increases dialogue and policy alignment between nations, this can help result in favourable policies and alignment from the governance perspectives of the stock exchanges.???

My concluding thoughts

Positive progress but still some areas I’d like answered and to understand better, one concern I posed during my interview with Tsheole was that of under which currency such an exchange would operate.

The dependency and strength of the American dollar on African soil is one I hope the AfcFTA and other initiatives will seek to resolve soon.

I’m curious also as to how more countries can and will be integrated within the exchange, and also how this will result in further access to capital for African companies.

Definitely… to be continued. For more on this topic and other news and interviews related to African financial markets and the economy, make sure to tune into one of our shows Closing Bell Eastern, Western and Southern Africa.

Catch me on CNBC Africa' Closing Bell Southern Africa - 5pm Central African Time :

DSTV 410 or watch live on www.cncbafrica.com/live or even on our youtube channel https://www.youtube.com/watch?v=aR1T42q3aCU?