Paradigm Shift

African Stock Exchanges – A Curiosum

BOFIC Paradigm Shift African Stock Exchanges are really no more than equity exchanges as the bond market is essentially non-existent.  Equity markets dominate stock exchanges by as much as 98 per cent.  The reasons are not far-fetched For one thing, Government stocks with their notoriety for dormancy constitute the major segment of the bond market. Secondly, African governments with their high debt profiles are perceived as unsafe institutions to invest in their equities. Hence, the market for government bonds is to be found in captive buyers like insurance companies and pension funds who are usually compelled by law to invest in these securities.

Thirdly, interest rates in most African countries have tended to be low in comparison with returns from equity investments. High inflation rates also tend to exacerbate the problem of eroded incomes from investment in bonds. Companies in Africa have also found it more profitable and cheaper to raise funds by floating equities in African capital markets than through borrowing. Policy inconsistency and the rather unstable nature of African governments also create a lack of confidence in government securities by investors.

Furthermore, another major characteristic of African stock markets is that they are very small indeed by comparison with other emerging markets in South-East Asia or South America. Using the measures of market capitalization, gross domestic product and market capitalization to gross domestic product, one finds that even the largest market, South Africa, does not compare with Malaysia. While the South African stock exchange had a market capitalization to gross domestic product of 174.0 per cent in 2002, Malaysia had 310 percent. Tables 1.3 and 1.4 show the GDP and market capitalization in US$ of the five most active stock exchanges in Africa. While the GDP averaged US$37,690 million in 2002, market capitalization averaged US$31.47 million in 2002. However, the market capitalization to GDP averaged 39.57 per cent in 2002 as shown in Table 1.5. This indicates that only half of the GDP is accounted for in the stock markets in Africa. But this may be misleading as the average for the rest of Africa, excluding South Africa, was only 12.4 per cent as of 1995.

Table 1.2: Indicators of the Performance of African Capital Markets-selected countries

Country 1997 1999 2002
Botswana 12 15 18
Cote D’Ivoire 31 31 38
Ghana 21 22 24
Nigeria 182 194 195
Egypt 650 1033 1148
Namibia 33 40 13
South Africa 642 669 450

Table 1.3: Market Capitalisation (US$ Billion)

Country 1997 1999 2002
Botswana 0.61 1.05 1.72
Cote D’Ivoire 0.89 0.90 1.33
Ghana 1.33 0.92 0.70
Nigeria 3.13 2.94 5.74
Egypt 20.83 32.84 26.09
Namibia 0.70 0.87 0.17
South Africa 232.1 262.5 184.62

Table 1.4: Gross Domestic Product ( US$ Billion) At Market Prices

                                            
Country 1997 1999 2002 2003
Botswana 4.90 5.00 5.3 7.4
Cote D’Ivoire 10.80 12.60 11.7 13.7
Ghana6.90 7.90 6.2 7.7
Nigeria31.50 36.50 41.5 50.2
Egypt127.79 89.7 89.9 82.4
Namibia 3.08 3.40 2.9 4.7
South Africa136.82 131.1 106.3 159.9

Table 1.5: Market Capitalisation To Gross Domestic Product %

                 
Country 1997 1999 2002
Botswana 12.4 17.5 32.0
Cote D’Ivoire 8.2 9.6 11.0
Ghana16.4 22.0 11.0
Nigeria9.9 9.2 14.0
Egypt16.3 21.9 29.0
Namibia22.7 28.7 6.0
South Africa 167.2 191.3 174.0

Table 1.6: Turnover Ratio %

                                             
Country 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2002
Botswana6.1 5.1 5.3 7.2 9.9 10.0 9.0 15.8 7.2 4.2 5.0
Cote D’Ivoire3.4 1.4 0.8 1.3 3.7 2.2 2.2 2.0 2.1 2.2 0.7
Ghana 0.5 4.5 7.1 1.3 1.1 3.6 3.0 2.1 2.5
Nigeria 0.9 0.6 1.1 0.8 0.9 1.0 2.5 3.9 5.2 4.7 10.6
Egypt 8.0 8.5 10.0 11.2 13.1 17.7 22.1 33.5 32.0 31.6 16.1
Namibia 0.0 0.0 0.2 0.4 0.9 0.8 0.7 0.9 5.2  
South Africa 5.8 7.2 4.6 7.1 8.5 6.5 10.9 19.0 22.3 33.7 8.9

Table 1.7: Market Indicators For African Markets – December 2004

                                             
Country Market Cap $m No. of Listings T/O Ratio % Local Market Index
Botswana 1723 18 5.0 2885
Cote D’Ivoire 1328 38 0.7 99.8
Egypt 26094 1148 16.1 2362
Ghana 704 24 2.5 7357
Kenya 1423 57 3.8 3093
Malawi  1 0.0 140
Mauritius   40 5.0 724
Morocco 8591 55 10.6 3504
Namibia 171 13 5.2  
Nigeria 5740 195 10.6 23628
South Africa 184662 450 78.9 N. A
Sudan N. A N. A N. A N. A
Swaziland 127 5 6.7 0.00
Tanzania 10 1 0.0  
Tunisia 2131 47 13.7 1334
Zambia 217 9 22.5  
Zimbabwe 15632 76 19.2 1334319
Source : World Development Indicators – 2002

In addition, the turnover ratio in most African markets is extremely low indeed, averaging only 12.53 per cent in 2004. In 1995 for example, only US$372 million worth of shares were traded in all the stock exchanges in Africa (outside of South Africa) which is what the New York Stock Exchange trades every fifteen minutes! In 1996, Zambia traded only US$300,000 worth of shares, Swaziland US$400,000, Nigeria US$83 million and Malawi none. “Part of the reason for the low trading is that the companies listed are often tightly held by families or close groups of investors. Beside, the relatively few listed companies and securities” reflect a number of things, including poor national income distribution and the fact that high interest rates and tax policies make non-equity instruments more attractive than shares (Sparkes, 1989:35).

“Even in South Africa, the world’s tenth biggest exchange by market capitalization, the market is shallow……South African institutional investors are largely prevented by exchange controls from placing money abroad and hence tend to cling on to their shares” (The Economist, 1996:83)

Table 1.9: Market Indicators For Some Selected Countries – 2002

                                                  
RegionNo of listed Coym Market Cap US$m Turnover Ratio
Africa
South Africa 450 184,622 78.6
Egypt 1033 32,838.0 31.6
Nigeria 195 5,740 10.6
Zimbabwe 76 15,632 19.2
Ghana 24 340 2.5
Botswana18 1,723 5.0
Other Emerging Markets
India 5,650 131,011 225.8
Malaysia 865 123,872 17.5
Brazil 399 223,807 35.0
Taiwan 59 3,962 6.4
Argentina 83 103,434 2.2
Developed Markets
United States 6,355 13,810,429 210.3
Canada 4,004 700,751  
Japan 2,471 2,251,814 81.1
United Kingdom 1,923 2,217,324 84.4
Source : World Development Indicators – 2002

Professor Esosa Bob Osaze, Ph. D
Director, Securities and Exchange Commission (SEC)
Abuja, Nigeria.