Capital markets key to Africa’s development agenda

Chilo Ketlhoafetse | Monday February 13, 2023 06:00

At the helm: Botswana Stock Exchange CEO, Thapelo Tsheole, is also the president of the African Securities Exchange Association which works to forge linkages between countries on the continent PIC: MORERI SEJAKGOMO

The Africa Continental Free Trade Area (AfCFTA) is a major initiative aimed at promoting trade and economic integration across Africa. The capital market can play a key role in helping to accelerate the efforts of the AfCFTA by providing businesses and entrepreneurs with access to the capital they need to expand their operations and take advantage of the opportunities created by the free trade agreement.

One way the capital market can help accelerate the efforts of the AfCFTA is by providing businesses with access to long-term funding. For example, bonds and shares issued by companies can provide a source of long-term funding for businesses looking to expand into new markets or invest in new projects. This can help businesses take advantage of the increased trade and investment opportunities created by the AfCFTA. Additionally, the capital market can also help to promote cross-border investment within Africa.

This can be achieved by providing investors with access to a wide range of investment opportunities across different countries, sectors, and asset classes. This in turn can help to increase the flow of capital across borders and promote economic integration within Africa.

Furthermore, the development of the capital market can also help to facilitate the growth of small and medium-sized enterprises (SMEs) which are the backbone of the African economy.

By providing SMEs with access to long-term funding, the capital market can help these businesses to grow, create jobs, and contribute to the economic development of the continent.

However, several challenges must be overcome for this integration of each country's capital market to occur. Some of the key challenges facing the integration of capital markets across Africa include a lack of regulatory harmonisation among different countries i.e each country has its own set of rules and regulations governing its capital markets, making it difficult for investors to navigate the different markets and for businesses to raise capital across borders.

There is also inadequate infrastructure in many countries with some even lacking essential banking systems, regulators, stock exchanges and clearing houses to support a well-functioning capital market. This is worsened by limited market liquidity which makes it difficult for investors to buy and sell securities and for businesses to raise capital.

Over and above the regulatory challenges, there is the major issue of political instability and corruption across some states, which can create a lack of trust among investors and make it difficult for businesses to operate in confidence. This is further worsened by a lack of investor education and awareness of understanding capital markets, which makes it difficult for them to make informed investment decisions.

Despite these challenges, several steps can be taken to overcome them and promote the integration of capital markets across Africa. Some of the key solutions include regulatory harmonisation: African countries can work together to develop a common set of rules and regulations governing capital markets. This will make it easier for investors to navigate the different markets and for businesses to raise capital across borders.

Efforts have been made to address this, with the launch of the new e-platform made of 2,400 listed companies and a combined market capitalisation of $1.6 trillion. This is one of the efforts of the African Securities Exchange Association (ASEA) currently headed by Thapelo Tsheole of the Botswana Stock Exchange.

In his interview with Tania Habimana of CNBC Africa – Business in Africa, they noted the idea of a Pan-African Stock exchange, being a platform that can find synergy among the different capital markets and how this can create an opportunity to free Africa from the dependency of the outside economic environment and its impact on the continent.

It is further worth noting that African countries have limited domestic capital which capital markets can rely, on due to poverty and limited access to financial services. The lack of investment within some individual countries deters the growth prospects as well, but this new integrated stock exchange and the implementation of the AfCFTA, would allow the flow of economic benefits from liquid markets to emerging markets, and hopefully, this would bring forth the introduction of many financial products we find in developed markets that have not been possible before as Africa has generally been an emerging market.

In conclusion, the capital market can play a key role in helping to accelerate the efforts of the AfCFTA by providing businesses and entrepreneurs with access to the capital they need to expand their operations and take advantage of the opportunities created by the free trade agreement.

The capital market can provide long-term funding, and cross-border investment opportunities and also help in facilitating the growth of SMEs, which are crucial for the economic development of the continent.

The two are somewhat intertwined and interdependent to succeed mutually to service the 1.4 billion African population, thereby a vast opportunity to value its total market capitalisation.

*Chilo Ketlhoafetse is a Chartered Accountant and media finance specialist focusing on economic issues affecting the local business environment. Commentary and interactions can be sent to ctketlhoafetse@gmail.com and Twitter @chilo_ket.