Less Talk, More Action for Africa

28 October 2003

All Africa

English

Johannesburg, Oct 27, 2003 (Moneyweb/All Africa Global Media via COMTEX) -Developed financial markets, the right infrastructure and efficient stock exchanges are key factors that will help drive the African Renaissance.

Those were some of the views given at a capital markets workshop in Johannesburg organised by the United Nations Economic Commission for Africa (Uneca).

Speaking at the workshop, Firstrand CEO, Paul Harris said that hard infrastructure such as roads, buildings and telecommunications are the easy part of development. Soft infrastructure - which includes sound, well-regulated financial markets and involves the creation of a solid legal and regulatory framework free from political interference - is much harder to put in place and needs to provide investors with confidence, said Harris.

According to Sunil Benimadhu, CEO of the Stock Exchange of Mauritius, stock exchanges could also become powerful drivers of transformation in Africa.

Stock exchanges are important barometers of macro-economic performance, he says, without which the privatisation process under way in Africa would have been more difficult: "Stock markets greatly facilitate the privatisation process by providing investors with entry and exit routes."

African countries have benefited from the existence of stock exchanges, said Benimadhu, as they attract foreign capital inflows, increase foreign exchange reserves, have raised awareness of good corporate governance and "created an enabling environment for the alignment of local business practices and standards with international best practice".

There are, however, some factors which limit the continuing development of stock markets in African countries, says Benimadhu. These include low liquidity, a small domestic investor base, manual trading and settlement infrastructure, low efficiency, lack of availability of real-time market information, and poor corporate governance practices.

Uneca director, Patrick Asea, said that most stock exchanges in Africa still operate "according to a blue-print laid out in 19th century Europe". By this he referred to open-outcry dealing, fixed commissions, closed membership, high barriers to entry and monopolistic practices.

Asea called for regional capital-market integration, which he said would allow investors to buy and sell securities on any African stock market without restriction. But he added that he felt the odds against such a successful integration were "staggering".

In spite of the obstacles to growth, however, Africa has experienced the highest increase in the number of new stock exchanges worldwide over the last 15 years. Outside of South Africa, the number of new African stock exchanges grew threefold from 6 in 1988 to 19 in 2002 - almost one a year. Over the same period, the market capitalisation of these exchanges climbed from $5,5bn to $66bn.

Political and macro-economic risks, however, offer another concern to African development. "Investors are generally ready to put up with diversifiable risks, but they are unwilling to look at markets characterised by political and macro-economic uncertainties," said Benimadhu. He believes the biggest constraints in this area are political instability, internal strife and the relative volatility of GDP growth, which has prevented investors from accurately forecasting economic changes.

Although lots of good work has already been done in Africa, Harris said more action rather than more talk is needed. He added that facilitation rather than control, and realistic progress rather than impractical objectives would also help on the road to further development.

by Shirley Kemp

KEYWORD: South Africa.