Paradigm Shift

Factors Inhibiting The Growth Of African Capital Markets

There is a Limited Number of Savings Institutions in Africa.  Many African economies lack savings institutions in sufficient number to create a robust capital market. More significantly, a large proportion of the savings in Africa go into the informal rotating savings and credit associations (Osusus/Tontines) which are outside the formal financial system and thus not available for injection into the capital market for development purposes. In those economies that do have many savings institutions “pension funds and insurance companies are typically either owned or controlled by the government. An institution’s choice of financial assets is often limited to its government’s debt. This limits the growth of exchanges and means that, frequently, the only buyers with spare cash are foreigners” (The Economist, March 9, 1996:83)

The macro-economic indicators of growth and development in Africa clearly explain the unstable nature of the economic and investment and why capital markets across the continent have remained rather sleepy by comparison with  other emerging markets.

During much of the last decade, real GDP growth averaged only 2.9 per cent while Gross National Savings as a per cent of GDP averaged 17.6 per cent during the period 1999 to 2003. In addition, Gross Domestic Investment in relation to the GDP averaged only 20.6 per cent. With these statistics, it is obvious why there have not been viable capital markets across Africa. Capital markets, ipso facto, are established to channel surplus funds from savings institutions and individuals to funds deficit investment outlets. With savings so low, the capital markets are bound to lie prostate.

Table 1.10:  Africa Selected Economic Indicators

Source : World Development Indicators database, August, 2004

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