By Chibisi Ohakah
with agencies
The International Monetary Fund (IMF) has predicted that sub-Saharan Africa’s economy will expand by 5.1% this year and 5.8% next year, even as a growing number of Western investors, facing subdued growth at home, are looking to Africa’s “frontier markets” like Nigeria for high returns and hoping the continent’s budding stock exchanges can help them tap in.
The IMF prediction is the highest growth outside Asia despite the heavy economic toll from the Ebola epidemic.
This new appetite for investments in Africa is believed to have driven a proliferation of stock exchanges across the continent, with countries such as Mozambique, Uganda and Tanzania setting up their own markets.
These markets offer African companies a means to access Western capital in a stable and transparent environment, governed by more defined rules than private investments.
The Bourse Régionale des Valeurs Mobilières exchange in Ivory Coast, which covers eight west African countries, already got more than half of its volume from international investors, said chief executive Edoh Kossi Amenounve.
“The Americans are beginning to take a look, the whole world is looking, because it’s the last big territory with a lot of opportunities for fast growth,” said Hubert Segain, a partner at law firm Herbert Smith Freehills.
Western exchanges are also looking to get into the game, linking up with their African cousins and tempting companies to double-list.
Segain said more than 10 African companies, or those with assets on the continent, had debuted recently on the London Stock Exchange, one of the world’s largest equity markets which had been on a marketing drive on the continent.
“Double-listing is one path we are exploring, but the heart of our approach” is “the sharing of good practices and sharing technologies”, said Anthony Attia, the chief executive of Euronext Paris.
The exchange operator in March signed a co-operation deal with Algeria’s stock exchange and agreed to provide Tunisia and three Middle Eastern exchanges with trading technology. But the potential for profits comes with challenges. “The first hurdle is seeing Africa as a single entity. It brings together very different geographical areas with varied levels of political and economic stability,” Attia said.
Another major problem is liquidity, as there are still only a limited number of players in Africa’s financial markets.
Liquidity is important because it allows investors and companies to be flexible with their holdings. Without it, it can be difficult to find buyers and sellers of shares.
South Africa had by far the most developed market on the continent, with about 400 companies listed. The JSE is also the largest by market capitalisation, with $378 million (R4 billion), more than four times as much Nigeria.