Africa’s stock exchange growth offers an optimistic message about the continent’s economic potential

Analysis in brief: A continent plagued by poverty and economic mismanagement may seem an unlikely place for international investors to put their money. However, the proliferation and performance of African national stock exchanges reveals there is more to the continent’s economic picture. Trading in stocks of African companies shows Africa is an exciting investment location, where opportunities are showing themselves today, and future profitability seems assured by the continent’s demographics, buttressed by better economic growth policies.

In 1993, the African Securities Exchange Association (ASEA) was established, with Kenya’s Nairobi Stock Exchange as its founding member. The three original associated members were the Stock Exchange of Mauritius, the Uganda Securities Exchange and the Dar-es-Salaam Stock Exchange. Observing its 30th anniversary in 2023, ASEA has 25 African exchanges as its members, representing 37 countries that collectively incorporate 1,100 listed companies and have market capitalisation of US$2 trillion. There are several other African exchanges not yet affiliated with the group.

The growth of stock exchanges, both in numbers and in size of listed companies for individual exchanges, reflects investment opportunities on the continent. The Suez Canal that lifted Egypt’s economy accounted for the establishment of the Egyptian Exchange in 1883, while the gold rush of South Africa was responsible for the launch of the Johannesburg Stock Exchange in 1887. Decades passed before other national economies justified exchanges: in 1929 in Casablanca, Morocco, in 1948 in Salisbury, Rhodesia and in 1954 in Nairobi, Kenya. However, the introduction of instantaneous electronic trading streamlined stock exchange operations and simplified the ways that the public can invest. Since 1990, dozens of African countries have established one or multiple exchanges. The most recent was Zimbabwe’s Victoria Falls Stock Exchange in 2020. Never before have so many countries had the opportunity to offer investors, local and international, ways to become partners in their economic growth.

In 2022, Africa’s best performing stock exchange was in Harare, the Victoria Falls Stock Exchange
Image courtesy: Mail & Guardian

How investors – foreign and domestic – are sold on Africa

Despite the expanding population of stock exchanges and investment opportunities, in Africa, market capitalisation to GDP is the lowest to be found on any continent. ASEA – which was established to lobby, advocate and market member exchanges – has worked with brokerage and investment houses to establish talking points to impress upon potential investors exactly why investment in African equities is a bargain today and of long-range profitability. Fundamental to the sales pitch is the youth of the continent. Africa is touted as undiscovered investment territory, which explains why relative to stock exchanges on other continents, Africa’s stocks are inexpensive and returns on investment are higher. With Africa’s population expected to double by 2050 and double again by 2100, companies that serve African needs will become more valuable as well. Greater quantities of people does not mean more poverty, as in the past. Multinational companies linked by Africa’s expanding telecommunications capabilities are increasingly ‘offshoring’ jobs to Africa as these firms seek to benefit from Africa’s low wage costs coupled with a workforce that is increasingly educated and tech savvy. The availability of a technologically skilled workforce in East Africa has been the underpinning of the growth of the Dar es Salaam and Nairobi stock exchanges in recent years. These exchanges are now among Africa’s leading exchanges.

Wise investors will want to purchase a piece of equity in African firms while stock prices are low. Simultaneously, GDP growth rates in Africa are growing greater than in Asia, Europe and North America because they have started at a relatively low point. Consequently, stockbrokers argue that Africa is today where Asia was four decades ago, poised at the threshold of significant economic growth.

Facilitating trade

Government fiscal and monetary policies are also a prerequisite for successful stock exchanges and, indeed, are responsible for the growth in Africa’s exchanges over the past three decades. Pushed into fiscal reform by the stern task-masters, the International Monetary Fund and World Bank, African nation’s fiscal and monetary policies have been able to lower public debt and interest rates and helped contain inflation and stabilise currencies – all important considerations for investors seeking to do business in any country.

Meanwhile, exchanges themselves are seeking new ways and products to offer, bringing attention to themselves and luring investors. In April 2023, ASEA partnered with the Pan-African Payments and Settlement System, which is used by companies in African countries to send and receive payments, to facilitate cross-border transactions of equities and securities for investors and between national stock exchanges. In May 2023, the Egyptian Exchange launched its first gold investment fund after obtaining necessary approvals from the country’s Financial Regulatory Authority. Historically, in times of international uncertainty, investors dumped their stocks and invested in gold, either in gold bars or jewellery, which carries processing and other costs. The Egyptian Exchange is offering investors ways to invest in gold through a stock exchange as an alternative to having to buy gold in its physical form.

In Lagos, stockbrokers at work at the Nigerian Exchange Group, founded as the Nigerian Stock Exchange
in 1961, rise to welcome MTN Nigeria as a new listing
Image courtesy: Nigerian Exchange Group

Foreign and domestic opportunities

Encouraged by ASEA, which is tasked to bring member exchanges in line with a common marketing strategy, all exchanges are now targeting not just international investors but local ones too. The rising number of domestic investors has been partly responsible for the growth in African exchanges, both in capitalisation and the number of listed companies that see exchange’s growing liquidity – or investment options – as a means to raise capital for expansion and product growth. Some governments have instituted policies that encourage or even mandate local investment, and with investment opportunities still rare in some countries, stock exchanges offer an enticing outlet.

The critical points:

  • Electronic trading has been responsible for a boom in African stock exchanges, both in the number of these and the size of leading markets
  • Indicators show the African population and economic growth are promising foundations for African stock exchange growth in the 21st century, as well as economically beneficial governmental fiscal and monetary policies
  • Domestic African investors themselves are also showing confidence in their national economies by investing in their national stock exchanges