A Comparative Analysis of Theperformance o FAfrican Capital Market Volume 2 2010

A COMPARATIVE ANALYSIS OF THE PERFORMANCE
OF AFRICAN STOCK MARKETS FOR THE PERIOD

2008-2009
VOLUME II
Research, Policy Analysis and Planning Department
JUNE 2010
RUNNING HEADER: A Comparative analysis of the Performance of African Stock Markets
ABSTRACT
The performance of capital markets is of significant importance to investors as they expect good
returns on their investment. To policymakers, stock market parameters such as indices are
recognized as leading indicators of economic activity. The level of stock prices can also have a
direct impact on consumption through the wealth effect. Given the importance of stock markets,
studies of their role in African economics are few and far between. Studies of the comparative
performance of African stock markets are even rarer. The comparison of performance against
other countries in Africa and beyond is an important initiative, since the Kenya Vision 2030
outlines the need for Kenya to be globally competitive. This research paper is an effort to fill the
void in this area of study. We compare the performance of 15 securities markets in Africa
including the 6 largest markets during the 2 year period, 2008 to 2009. This follows the baseline
research paper on the comparative performance of African securities markets, 1997-2003,
which provides significant input to this paper. This research paper has been adopted as a
working paper of the RPAP department and forms the first study in a new series of comparative
performance of Africas securities markets.
Contents
Page Number
Abbreviations
Executive Summary
1.0
Introduction
1.1
Background to the Study
1.2
Structure of The Study
1.3
Significance of the Study
1.4
Objectives the Study
1.5
Scope of the Study
1.6
Limitations of the Study
20-23
2.0
A Brief Literature Review
23-30
3.0
Research Methodology
31-32
4.0
3.1
Data Collection
3.2
Data Analysis
3.3
Presentation and Findings
Analysis and Findings
4.1
The State of African Capital Markets
4.2
The State of African Bond Markets
4.3
Profiles of African Stock Exchanges
33-65
5.0
The Global Financial Crisis
66-72
6.0
Recommendations & Conclusion
73-80
Bibliography
List of Tables:
1.1
List of African Stock Exchanges
1.2
African stock exchanges market capitalization
1.3
Number of listed companies
1.4
Market Capitalization of Listed companies (% of GDP)
1.5
Market turnover/Value traded
1.6
Volume traded
1.7
Turnover Ratio
1.8
Turnover (% of GDP)
1.9
Annualized % growth of market capitalization
1.10
Domestic debt in sub-Saharan Africa
1.11
Value of Bonds traded
1.12
Bond turnover (% of GDP)
1.13
African stock exchange structure
1.14
Automation of African Stock Markets
1.15
Demutualization trends
List of Charts:
1.1
Number of listed companies
1.2
Market capitalization (% of GDP)
1.3
Turnover Ratio
1.4
Turnover (% of GDP)
1.5
Annualized % returns to African equity markets
1.6
Average annual dollar returns to various regions
1.7
USD returns to African equity markets (2006)
1.8
USD returns to African equity markets (2007)
1.9
Annualized % growth of market capitalization
1.10
Standard deviation of annual returns
1.11
Risk-Return ratio
1.12
Bond market development in Africa
Abbreviations
GDP
Gross Domestic Product
HIPC
Heavily Indebted poor countries
IOSCO
International Organization of Securities Commissions
MDRI
Multilateral debt relief initiative
OECD
Organization for economic cooperation and development
S & P 500
Standard & Poors 500
SEMDEX
Securities Exchange and Development Enterprise Market Index
SSA
Sub-Saharan Africa
USD
United States Dollars
WAEMU
West African Economic and Monetary Union
WEO
World Economic Outlook
EXECUTIVE SUMMARY
Over the period 2000-2007, Sub-Saharan Africa (SSA) enjoyed robust growth and, in a context
of abundant global liquidity, attracted an increasing number of investors in search of high yields.
As a consequence, private capital inflows, including FDI, portfolio equity flows and debt flows
(i.e. portfolio bond flows and bank lending) experienced remarkable increases. Private capital
inflows took off, driven by a number of domestic and external factors that contributed towards
enhancing the regions attractiveness for foreign investors in search of high yields. Net foreign
direct investment (FDI) inflows grew progressively; portfolio equity flows took off; bonds flows
rapidly increased; and international banking activity all expanded significantly.
However, the financial turmoil originating in the developed world in August 2007 has since
spread to developing countries, and SSA has not been immune to the secondary effects of the
global financial crisis. SSAs growth dropped from 6.9% in 2007 to 5.5% in 2008; in January
2009, the International Monetary Fund (IMF) once more cut its forecast for growth that year by
1.6 % to 3.5%. In April 2009, the IMF revised again its forecast leading to a new projection for
SSA growth in 2009, equal to 1.7%. Private capital inflows to SSA were relatively robust up to
the first half of 2008, but dropped sharply from the third quarter of 2008, owing to a reduced
capability and propensity to invest on the part of foreign investors. Many bond issuance plans
were put on hold in countries such as Ghana, Kenya, Tanzania and Uganda. FDI inflows
continued to grow, but at a lower rate. Portfolio equity flows slowed down and sometimes
reversed, consistent with sharp falls in stock markets in South Africa, Nigeria, Kenya, Mauritius
and Cte dIvoire1.
In 2009 there was a marked divergence between the performance of the larger emerging
markets (up 74.5%) and the G7 markets (up 24.2%) relative to frontier markets (up 7%) and
Africa (down 6.9%) making 2009 the second consecutive year in which African equities have
underperformed most other regions of the world. This was largely liquidity driven as investors
1
The global financial crisis and sub-Saharan Africa The effects of slowing private capital inflows on growth; Jos
Brambila Macias and Isabella Massa; African Economic Conference 2009
faced with near-zero interest rates searched for higher yields among the larger, more liquid,
stocks and markets. However there remained a premium attached to liquidity as investors
sought to protect themselves in the event that risky positions had to be unwound quickly,
resulting in a focus on the larger stocks and markets. In such an environment, our smaller
African markets were doomed to underperform.
A.
THE PERFORMANCE OF AFRICAN EQUITY MARKETS
The Analysis is based on evidence from 15 African stock exchanges which represents 65% of
the total population of African Stock Exchanges. It has also taken into consideration the
significance of the following exchanges: Kenya, Ghana, Egypt, Morocco, Nigeria and South
Africa, which constitute of approximately 90% of stock exchange activity in the region. South
Africa alone constitutes of approximately 70% of stock market activity in the region.
i.
Market Capitalization
As at December 2009, the WFE total market capitalization was US$46.5 trillion. African stock
market capitalization accounted for a meager 2% during the period under review. In 2008, only
Ghana, Malawi, Tanzania and Tunisia registered an increase in market capitalization. However,
market performance improved in 2009 with a majority of stock markets posting a positive capital
appreciation with the exception of a few including Kenya, Nigeria and Ghana. In 2008, Malawi
Stock exchange registered the best performance while South Africa and Tunisia took the honors
in 2009. Market Concentration of the 5 largest exchanges in Africa is 95%. Data data indicates
that the Nairobi Stock Exchange, as at December 2009, was ranked 5th in Africa in terms of
market capitalization behind South Africa, Egypt, Nigeria and Morocco2. Ghana ranks in at a
close 6th. It will suffice to note that the Market Capitalization figures of Namibia and Botswana
only include the Listed Domestic Companies. This is because the two exchanges both have
domestic and foreign boards. In this regard, inclusion of the M-Cap of the foreign board will
make them rank 2nd and 3rd respectively in Africa.
ii.
Number of Listed Companies
It would suffice to note that Market Cap figures of Botswana and Namibia only represent locally listed companies
leaving out the foreign component which ensures comparability of data.
On the global front, African stock markets accounted for approximately 3% of listed companies
as at end of 2009. In this particular year, the net effect of new listings and de-listings was -76
companies. The number of firms listed has declined over 2006-2009 (growth rate of -4%) with
the well established markets of South Africa and Egypt recording significant drops in the number
of firms listed. The JSE has the highest number of listings on the continent numbering 396 and
accounting for approximately 26% of the total number of listings in African stock exchanges.
The Egyptian Exchange follows with 313 listings (21%) and Nigeria with 216 listings (14%).
Kenya ranks 6th in this indicator of stock market size behind South Africa, Egypt, Nigeria,
Morocco and Zimbabwe. Consequently, the top six stock exchanges in the continent with
regards to number of listings account for 76% of the total listings on African stock exchanges
while the top three exchanges account for 61% of total listings.
iii.
Market Capitalization as a % of GDP
The mean market capitalization (as a percentage of GDP) of 37.89% (28.75% excluding
S.Africa) pales in comparison to that of Malaysia of 149.46% but comparable to that of Turkey,
Argentina and South Korea. The size of the markets has, however been growing, with the mean
for Africa growing from 17% of GDP in 1991 to 38% in 2009. South Africa leads the pack with
an average market capitalization to GDP ratio of 211.67%. This is then followed by Ghana
(60.88%); Morocco (59.22%); Egypt (55.37%); Mauritius (54.59%); Botswana (31.86) and
Kenya at 31%, ranking it 7th in this measure.
iv.
Equity Turnover
As of 2008, the analysis suggests that the most actively traded market in Africa is South Africa,
accounting for over 70% of the entire African stock exchanges turnover. This makes it the most
liquid stock market in Africa. Egypt, Morocco and Nigeria account for 17%, 4%, and 3%
respectively. Tunisia (0.5%) and Kenya (0.2%) rank 5th and 6th respectively. The global equities
turnover was approximately USD 113 trillion in 20083 making Africas contribution to this figure
stand at approximately 0.005%.
v.
Volume
WFE Annual report, 2009.
From the analysis, stock market volume has been dominated by Nigeria of which accounts for
61% of total African stock exchanges share volume in 2008. This is followed by South Africa
(26%); Egypt (8%); and Kenya (1%). Kenya is ranked 4th in this indicator. The top four
exchanges account for approximately 98% of total share volume with the top two accounting for
88% of total share volume.
vi.
Turnover Ratio
The mean turnover ratio for African stock exchanges for the period under analysis was 13.09%.
The markets that registered a higher mean turnover ratio than the African average were: South
Africa (55%); Egypt (41%); Morocco (*40%); Nigeria (21%); Kenya, ranked 5th in this parameter,
registered a mean turnover ratio of 11% for the period under analysis.
vii.
Equity Turnover as a % of GDP
South Africa ranks first in Africa in this indicator registering a mean turnover to GDP ratio of
63% in 2008. This is then followed by Egypt (57%); Morocco (29%); Namibia (18%); Nigeria
(7%); Mauritius (5%) and Kenya (3%). Kenya was ranked 7th in the continent.
viii.
Annualized Index Returns
For the period 2007-2009, annualized dollar index returns in African capital markets have been
greatly affected with only Ghana, Tanzania, Tunisia and Zambia registering positive returns for
the 3 year period. In 2008, Ghana stock exchange registered the highest dollar index return in
Africa registering an increase of 58%. Other markets that registered positive growth in Africa
during this period were Malawi (26%); Tanzania (21%); Tunisia (11%) and Zambia (18%). The
Egyptian and Nigerian Stock Exchanges were the worst performing markets during the period
under review registering decreases of -56% and -46% respectively. Kenya was the 5th worst
performing market during the review period registering an index decrease of -35%. However, in
2009, market performance registered significant improvement with most markets registering
positive returns. Tunisia was the best performing market in Africa registering an index increase
of 48%. Other significant increases were observed in South Africa, Mauritius, Namibia, Zambia,
and Egypt stock exchanges. Kenya continued to register negative growth as the index declined
by 8% during the period.
ix.
Annualized Growth in Market Capitalization
During the period under review, average annualized percentage growth of market capitalization
registered mixed performance. In 2008, only three markets registered positive performance in
this indicator namely; Tanzania (36%), Tunisia (27%) and Ghana (17%). However, there was a
marked improvement in 2009, with only 5 African markets registering negative growth. These
included Nigeria (-41%), Ghana (-27%), Malawi (-17%), Morocco (-7%) and Tanzania (-6%).
The Nairobi stock exchange just recovered its pre-crisis market capitalization levels without any
significant increase in accumulated investor wealth during the period under review.
B.
THE PERFORMANCE OF AFRICAN BOND MARKETS
Bond market development in Africa has been on the rise with several countries, albeit them
being small and inactive, establishing these markets. Critical factors undermining the
development of bond markets in Africa include, but not limited to:
Lack of institutional and operating infrastructure
Low levels of liquidity
Narrow investor base
Narrow issuer base
Short Maturities
High borrowing costs
i.
Turnover
The largest bond exchange in the continent is the Bond Exchange of South Africa accounting
for 96% bond turnover in the continent. The rest of Africas bond markets numbers are simply
negligible. In 2008, the total value of bonds traded (in USD bn) stood at USD 2,416 bn. When
compared to global bond markets, Africa accounted for 2% of global bond turnover4.
IMF
ii.
Bond Turnover as a % of GDP
Table i: Bond Turnover as a % GDP

COUNTRY
SA
Botswana
Morocco
Egypt
Ghana
Sudan
Kenya
Namibia
Nigeria
Mauritius
Uganda
Zambia
Tanzania
Source: CMA Database
2006
779.35
0.00
0.00
1.81
3.33
1.10
2.96
2.15
2.69
0.01
0.34
0.00
2007
809.41
0.00
0.00
3.34
20.67
1.16
4.92
2.27
14.75
0.05
3.98
0.00
0.30
2008
842.60
0.28
0.00
2.18
0.00
1.30
3.64
1.22
30.99
0.00
4.00
0.01
0.21
Table ii: Comparative BTO as a % of GDP

2006
2007
2008
Kenya
2.96
4.92
3.64
Egypt
1.81
3.34
2.18
779.36
809.41
842.60
India
4.98
5.49
9.94
Malaysia
0.23
5.49
0.17
Srilanka
0.02
0.02
0.00
Canada
0.38
0.33
0.31
South Africa
The same trend is observed as indicated earlier. South Africas bond market turnover is 8 times
the size of its GDP with other African markets having marginal bond market activity when
compared with broader economic activity. The analysis indicates that African bond markets
have not yet been efficiently and effectively tapped with regards to unleashing their enormous
potential in deepening capital markets as well as contributing to economic growth. This should
be an area of special focus for policy makers in stimulating and sustaining their development.
C.
PERFORMANCE OF COMMODITIES AND FUTURES MARKET
According to United Nations Commodities Trading Statistics the volume of global commodities
trading was estimated at USD 192 Trillion. The derivatives market is much bigger with the total
value of derivatives estimated at more that USD 1,000 Trillion in 2009. In Africa only South
Africa has a vibrant derivatives market while Nigeria is moving towards its implementation. The
rest of Africa only have commodities markets in place.
Derivatives markets are very important for the development of capital markets in Africa as they
can facilitate the management of financial risk exposure, since they allow investors to unbundle
and transfer financial risk. In principle, such markets could contribute to a more efficient
allocation of capital and cross-border capital flow, create more opportunities for diversification of
portfolios, facilitate risk transfer, price discovery, and more public information.
In 2008 futures and options comprised 57% of South Africas trading volume, with only 1%
attributable to Agricultural Commodities Trading. During the same year the country traded 9% of
the total volume futures and options in emerging markets OTC derivatives market. Kenya is yet
to develop a derivatives market but following the pronouncement during the National Budget
speech 2010 that regulations to allow commodities futures trading are going to be put in place,
there is reason for optimism
D.
INFRASTRUCTURAL FACILITIES OF AFRICAN STOCK MARKETS
In analyzing the infrastructural characteristics of African capital markets, it is plain for all to see
the almost identical nature of the trading mechanisms, systems and products available in these
markets with the exception of South Africa, Zimbabwe, Mauritius, Namibia, Egypt and Morocco.
These are the same stock markets that are giving Kenyas stock exchange stiff competition.
Some similar characteristics come out very clearly from this analysis that are inherent in Africas
leading stock exchanges and that are not characteristic of Kenyas and many others namely:
i.
The diversified nature of the available mechanisms used for trading in these markets.
These include On-line trading; Margin trading and short Selling and Borrowing;
ii.
No restrictions to foreign participation in the stock market;
iii.
Shorter settlement cycles;
iv.
No Tax restrictions in some of these markets e.g. Egypt, Morocco and Mauritius. In
South Africa, they are no tax restrictions for resident investors; and
v.
Availability of a derivatives market in the case of South Africa.
The diversified nature of trading mechanisms significantly increases volumes and turnovers of
stock exchanges. The same can be said for having derivative markets as this is an additional
product to the current mix offered by African stock markets which will create an alternative
investor base in the capital market and also acts as a hedging product for investors in the equity
as well as bond markets. This in turn increases activity in exchange traded products universally.
In addition, Sub-Saharan African stock exchanges are gradually adapting to electronic systems,
but many of them still use manual trading systems as well as manual clearing and settlement
systems. The exorbitantly low turnover indicators we observed earlier should partly attributable
to these manual systems. Thus, it is important that sub-Saharan African stock exchanges adapt
fast to automation and electronic systems. This adaptation reduces the costs and inefficiencies
associated with manual systems increases trading activity and liquidity in the stock markets by
speeding up operations.
A comparative analysis of the performance of African stock markets
E.
RECOMMENDATIONS:
The examination of the current state of African stock markets indicates the many challenges
that these markets face specifically in terms of low capitalization and liquidity. However, they
continue to perform remarkably well in terms of return on investment. The recommendations
proposed in this paper should not be viewed independently but rather as part of a whole fabric,
as essential units to a process dedicated to the goal of capital market improvement. All-in-All,
the recommendations are meant to serve as guidelines to policy formulation and decision
making. The thinness and illiquidity of the current African stock markets, shortage of domestic
resource mobilization, the regions marginalization in the global markets for financial capital,
coupled with shrinking official aid flows, are at the heart of the challenges that these
prescriptions are intended to address. The following recommendations are made:
i.
Develop Incentives for listing on Stock exchanges as a means to achieve greater market
depth and trading activity. These include tax and fiscal incentives;
ii.
Foster public confidence and improve informational efficiency with disclosure rules,
accounting standards, enforceability of contracts, consistent with International best
practices;
iii.
Develop a well functioning stock market regulatory regime;
iv.
Privatization of state owned enterprises should be encouraged to be facilitated through

stock exchanges;
v.
Strengthen institutions for corporate governance and adopt best international practice in
terms of measures for the effectiveness of the corporate Board of Directors and
increased shareholder rights against controlling shareholders/management;
vi.
Consolidate the African stock markets and harmonize laws, regulations, capital market
institutions and monetary systems across the integrating regions;
vii.
Development of a talented financial manpower capable of managing risk for both the
banking and equity market sector toward the enhancement of risk control mechanisms
as markets become more sophisticated, and possibly venturing into the derivatives
arena;
14 | P a g e
viii.
Conduct privatization programs with transparency and ban government intervention in

the privatized enterprises and engage in full privatization rather than partial privatization
to avoid continuing government interference;
ix.
Foster the development of institutions that support and sustain African stock markets
such as pension funds, credit rating agencies etc;
x.
Develop a comprehensive capital market database to foster both practitioner/investment

analyst research and academic research-making it possible for African stock markets to
be subject to best research practices;
xi.
Quickly transform from manual into automated/electronic manual systems; the latter are
now the norm in the more advanced stock markets;
xii.
Consider demutualizing the stock exchanges as a mechanism for improved governance

stemming from separation and ownership of exchanges and promoting investor
confidence in the system; and
xiii.
Introduce measures that help foster linkage between formal and informal financial
systems, with eventual graduation into the stock markets.
In the case of Kenya, while all the above prescriptions apply, there are specific policy
formulation areas we could focus on immediately when compared to markets outperforming the
NSE in the continent which include:
a.
To increase market size:
i.
The provision of more incentives and programmes to encourage more listings on the
stock exchange: In South Africa, the main driver of new listings has been their active
policy of looking for new companies that qualify for listing throughout the
whole country whether large or small. They also arrange many international road
shows;
ii.
The development of an Alternative Issuing and Trading Platform that will cater for the
majority of companies that may wish to list but are hindered by the stringent
exchange requirements that could serve as an incubator market to the main
exchange. In South Africa, there is already in place an alternative exchange (AltX)
for quality small to medium companies. This is also the case with the Mauritius DEM.
(The study proposes that the Mauritius model could be adapted in the Kenyan
context)
15 | P a g e
iii.
The introduction of a derivatives market: The JSE has also operated a single stock
futures market (SAFEX) since 2001 which is now the largest such market in the
world. The development and operationalization of the Kenya
Agricultural
Commodities Exchange would be a step in the right direction;

iv.
The development of mechanisms to encourage companies to engage in dual listings;

and
v.
The aggressive pursuit of establishing MOUs with regional exchanges to encourage

cross-listings.
b.
To increase liquidity in the stock exchange:
i.
The complete automation of the market microstructure. This adaptation reduces the
costs and inefficiencies associated with manual systems increases trading activity and
liquidity in the stock markets by speeding up operations;
ii.
The introduction of alternative trading mechanisms in the stock market especially on-line
trading, margin trading and short selling. However these mechanisms can only be
introduced once the stock market infrastructure and microstructure is fully automated;
iii.
Consider policies to increase the amount of shares available for sale in the stock
exchange (free float) without actually affecting the demand for the same shares. This
can be achieved either through cross-listing, dual listing or integration of stock
exchanges; and
iv.
Actively engage in programs aimed at achieving greater public confidence. Among the
principal measures that could assist in confidence-building are:
Increasing media understanding and reporting on business matters;
Increasing the enforcement authority of government agencies;
Committing to public education as a primary goal of the public sector;
Enlarging the capacity for institutional investing by pension and retirement funds; (as
the retail investors savings pool is traditionally low in Kenya)
Encouraging issuance of preferred shares and corporate notes by private

companies; and
Eliminating the second-tier labeling of listed securities as it is possible that this may
be viewed negatively by some companies as is the case in Kenya and Mauritius
before the latter rebranded the market.
16 | P a g e
It is encouraging to note that the Kenyan capital market is undergoing major reforms that are
geared towards addressing some of the issues highlighted above, in particular, the review of the
legal framework, the demutualization of the NSE, development and formalization of the OTC
markets, investor and public education and the adoption of a risk based supervisory regime.
c.
Bond Market Reforms
Bond markets, however, which are an integral part of the capital markets, remain largely
underdeveloped in Africa with corporate bond markets nonexistent or in their infancy. Indeed, in
most African countries the public sector dominates debt issuance, mainly with debt instruments
of very short tenor and activities focused on the domestic primary market with limited secondary
trading. Bond markets are characterized by fragmented markets, high transaction costs,
illiquidity and general dissatisfaction with the primary dealer system. There is a fragmentation of
the market as evident by an excessive number of bonds issued with no benchmark bonds and
insufficient liquidity in each of the issues. In some countries such as Botswana, there has been
a lack of government bond issues largely because the governments has hitherto run budget
surpluses or have access to cheaper concessional donor funds5. In addition, there is a general
dissatisfaction with the Primary Dealer (PD) system among the regulators who argue that the
PDs do not effectively discharge their market-marking functions while the dealers are concerned
about the insufficient incentives. Also, there is a lack of issuance programs which impedes
potential investors (and PDs) from anticipating the future supply of securities.
Further, there is a pre-dominant buy and hold strategy by investors in the region coupled with
limited corporate issues and a narrow investor base. The buy and hold strategy serves to
exacerbate the problems arising from a limited supply of securities. The limited corporate issues
are a reflection of the competition from bank loans, underdeveloped corporate advisory services
coupled with excessive issuance costs and restrictive regulatory practices. Additionally, in
several countries both the government and corporate bond markets are constrained by the
narrow investor base which may partly be a reflection of the dominance of government-run
statutory funds in the institutional investment sector and a legal framework that does not
This may change in 2009/10 as increased expenditures and lower revenues are expected to create a deficit of 14%
of GDP in 2009/10 which will be financed using government reserves and savings and, if required, by borrowing in
domestic and international markets (Botswana 2009/10 government budget).
17 | P a g e
encourage the emergence of private pension funds and asset managers and/or the restrictions
on the entry of foreign investors.
The overall assessment of this report is that while bond markets at a national and regional level
remain largely underdeveloped, several initiatives are underway by governments, private
sectors and donors, however, with limited effectiveness. These are aimed at addressing
deficiencies in the legal system, enhancing bond issuance, broadening and diversifying the
investor base, strengthening market infrastructure, developing supranational, sub-national and
corporate bond markets and the promotion of regional initiatives. While pockets of collaboration
exist, a more inclusive partnership on the ongoing and planned initiatives is needed so as to
leverage synergies and maximize the effectiveness of the initiatives.
Market Reforms will have to focus on the following key issues:
How Local and Global capital can be harnessed by efficient markets
Investors will want to see:
certainty - of owning and selling securities
market liquidity
depth and breadth of securities and reflection of the economy
more and new products (derivatives)
fair and equal treatment
ease of trading
low cost of trading
Issuers will want to see:
ease of raising capital
efficient pricing
tax breaks
low costs associated with issuing
The following recommendations are therefore proposed:
Tax breaks to encourage more and varied issues
Encourage listings that reflect the economic mix
Lower trading and settlement costs
18 | P a g e
Negotiated brokerage
Lower statutory charges on higher turnover
More and varied products e.g. derivatives
Dematerialization of the securities industry
Electronic trading including on-line trading
Information availability both company and trading
Fair and equal treatment of all investors
Separate brokers from market oversight
Certainty and transparency around new primary issues
Ease of securities placements
Pension industry reform
E.
More investment products e.g. unit trusts and ETFs
CONCLUSION
To the casual observer, one glance at the performance of African stocks in 2009 may be
enough to convince them the continents stock exchanges severely underperformed last year
and was thrown into particularly sharp relief by the Bric indices, which overshadowed Africa with
gains of over 70 % in 2009. But that the future looks promising. As a result of the symbiotic
nature of stock exchanges across Africa, much of the damage done last year were one-off
events in one country that had a knock-on effect on markets across the region. As the effects of
the Global Financial Crisis begin to wear off, we can see markets recovering across the
continent.
19 | P a g e
CHAPTER ONE
1.0
INTRODUCTION
Over the period 2000-2007, SSA enjoyed robust growth and, in a context of abundant global
liquidity, attracted an increasing number of investors in search of high yields. As a
consequence, private capital inflows, including FDI, portfolio equity flows and debt flows (i.e.
portfolio bond flows and bank lending) experienced remarkable increases. Private capital
inflows took off, driven by a number of domestic and external factors that contributed towards
enhancing the regions attractiveness for foreign investors in search of high yields. Net foreign
direct investment (FDI) inflows grew progressively; portfolio equity flows took off; bonds flows
rapidly increased; and international banking activity all expanded significantly.
However, the financial turmoil originating in the developed world in August 2007 has since
spread to developing countries, and SSA has not been immune to the secondary effects of the
global financial crisis. SSAs growth dropped from 6.9% in 2007 to 5.5% in 2008; in January
2009, the International Monetary Fund (IMF) once more cut its forecast for growth that year by
1.6 % to 3.5%. In April 2009, the IMF revised again its forecast leading to a new projection for
SSA growth in 2009, equal to 1.7%. Private capital inflows to SSA were relatively robust up to
the first half of 2008, but dropped sharply from the third quarter of 2008, owing to a reduced
capability and propensity to invest on the part of foreign investors. Many bond issuance plans
were put on hold in countries such as Ghana, Kenya, Tanzania and Uganda. FDI inflows
continued to grow, but at a lower rate. Portfolio equity flows slowed down and sometimes
reversed, consistent with sharp falls in stock markets in South Africa, Nigeria, Kenya, Mauritius
and Cte dIvoire6.
In 2009 there was a marked divergence between the performance of the larger emerging
markets (up 74.5%) and the G7 markets (up 24.2%) relative to frontier markets (up 7%) and
Africa (down 6.9%) making 2009 the second consecutive year in which African equities have
underperformed most other regions of the world.
6
The global financial crisis and sub-Saharan Africa The effects of slowing private capital inflows on growth; Jos
Brambila Macias and Isabella Massa; African Economic Conference 2009
20 | P a g e
This was largely liquidity driven as investors faced with near-zero interest rates searched for
higher yields among the larger, more liquid, stocks and markets. However there remained a
premium attached to liquidity as investors sought to protect themselves in the event that risky
positions had to be unwound quickly, resulting in a focus on the larger stocks and markets. In
such an environment, our smaller African markets were doomed to underperform.
It is increasingly clear that we are observing some tectonic shifts in the structure of the global
economy. Today about 45% of the worlds economy has a deficit of 10% or more, most
concentrated in the advanced economies. In the IMFs view, the outlook for the advanced
economies remains subdued with the current slowdown likely to prove to be structural rather
than cyclical. Confronted with this, investors have turned to the emerging markets to deliver
higher yield. While faster growth in the Bric7 countries appears to have temporarily stepped
into the breach opened by the slowdown in the US and Europe, this growth is likely to soon face
significant headwinds. The Achilles heel of the Bric economies is their dependence on exportled growth. With busted consumer markets in the US and Europe, it is unlikely that the Bric
countries can keep their factory-to-the-world economies growing for much longer. Although
Bric governments are attempting to lift domestic consumption with enhanced fiscal measures,
wages and incomes are likely to be too low to support the level of demand needed to absorb
their surplus industrial capacity.
Africa is therefore likely to offer sanctuary when investors finally begin to focus on the
fundamental performance of companies and economies. African growth has never been
predicated on exports and has remained robust despite the global slowdown. Corporate
earnings remain strong with average earnings per share growth for 2008: 32 %, 2009: 8 % and
forecast 2010: 22 %. African equities trade on a P/E 2010 of 10.1 times relative to 17 times for
emerging markets and 20 times for advanced economies. The valuation differential between
Africa and other emerging markets is not a reflection of any fundamental difference in economic
outlook. The IMF World Economic Outlook issued on 26 January 2010 projected global growth
in 2010 at 3.9 %, advanced economies: 2.1 %, emerging markets 6.0 % and Africa: 4.3 %.
The investment case for Africa remains intact and today our markets offer rare opportunities to
buy stocks with double digit earnings growth and yet trading on single digit P/E ratings.
Brazil, Russia, India and China
21 | P a g e
The robust state of economic growth in Africa, the rising consumption power of an emergent
middle class, the advantageous population demographics of the continent and the low valuation
of its equity markets will eventually result in a re-rating of our markets.
1.2
STRUCTURE OF THE STUDY
This paper is organized as follows. The first section describes of the performance of African
stock and debt markets based on the available evidence in 2008 and 2009 while benchmarking
the African constituents with other exchanges in selected emerging markets. The paper also
makes note of demutualization trends as well as infrastructural indicators of African stock
exchanges. Finally, the paper extensively comments on the effects of the Global Financial Crisis
and subsequent recession on African stock markets, whilst proposing a way forward.
1.3
SIGNIFICANCE OF THE STUDY
The unavailability of tangible data on the performance of the NSE in the African context is an
impeding factor to effective policy formulation with regards to deepening the capital markets.
There is, therefore, need to have an empirical assessment of the performance of the Nairobi
stock exchange Vis a Vis other African stock exchanges. A quantitative assessment of the
NSEs performance is a very significant exercise especially with regards to policy development
that will spur the growth of the Kenyan capital markets.
1.4
OBJECTIVES OF THE STUDY:
The Broad objective of the study is to analyse the performance of the Nairobi Stock Exchange
Vis a Vis other African Stock Exchanges, using various performance measurement indicators
for the last 2years.
The specific objectives of the study are outlined below:
Analyse and compare the performance of the Nairobi Stock Exchange with other African
stock markets for a similar period of time.
Analyse and compare the performance of Kenyas secondary debt market with other
African debt markets for a similar period of time.
Benchmark the performance of the NSE with other emerging markets
22 | P a g e
1.5
SCOPE OF THE STUDY
The study analyzes the performance of 15 African stock exchanges. Other markets that have
been analysed for benchmarking purposes include Malaysia, Singapore, SriLanka, Korea
Taiwan, Argentina, Jordan and India.
1.6
LIMITATIONS & ASSUMPTIONS OF THE STUDY
Access to data from secondary sources was difficult. As a result, the study to a large extent
relied on statistics compiled from members of the African Stock Exchange Association (ASEA)
and academic research publications from the IFC, IMF, World-Bank, UNDP etc. In addition,
access to international databases was restricted due to lack of subscription rights availed to the
department. Data for a sizable number of African stock markets is highly fragmented and
somewhat inaccurate when available. This is especially so within the Maghreb and Southern
African regions including Mozambique. As this is a working paper series, quantitative data will
be reviewed on annual basis to smoothen out inconsistencies arising from the use of
unbalanced data panels.
23 | P a g e
CHAPTER TWO
2.0
A BRIEF LITERATURE REVIEW
Stock markets have been a growth industry in sub-Saharan Africa. Securities exchanges now
exist in 23 sub-Saharan countries. In 1998, Africas first regional exchange, the Bourse
Regionale des Valeurs Mobilieres (BRVM), opened in Abidjan, Ivory Coast, replacing the preexisting Ivory Coast Exchange and creating a single exchange linking the French-speaking
members of the West African Economic and Monetary Union (Benin, Burkina Faso, Cote
DIvoire, Guinea Bissau, Mali, Niger, Senegal, and Togo). The growth has not ended. Plans are
in place for new exchanges in countries such as Gambia and Sierra Leone. Most of the
exchanges are of recent vintage, with the exception of exchanges in Kenya (1954), Nigeria
(1960), and much older exchanges in South Africa, Egypt, Morocco and Zimbabwe.
Table 1: List of African Stock Exchanges 2009
Exchange
Bourse Rgionale des Valeurs Mobilires*
Location
Abidjan
Founded
1998
Algeria
Bourse des Valeurs Mobilieres d'Alger
Algiers
1997
Botswana
Botswana Stock Exchange*
Gaborone
1989
Douala
2001
Cameroon
Douala Stock Exchange
Cape Verde
Bolsa de Valores de Cabo Verde
Praia
Egypt
Cairo & Alexandria Stock Exchange*
Cairo, Alexandria
1883
Ghana
Ghana Stock Exchange*
Accra
1990
Nairobi
1954
Tripoli
2007
Malawi
Malawi Stock Exchange*
Blantyre
1995
Mauritius
The Stock Exchange of Mauritius*
Port Louis
1988
Morocco
Casablanca Stock Exchange*
Casablanca
1929
Kenya
Nairobi Stock Exchange*
Libya
Libyan Stock Exchange*
24 | P a g e
Mozambique
Maputo Stock Exchange*
Namibia
Namibia Stock Exchange*
Nigeria
Abuja Securities and Commodities Exchange
Nigerian Stock Exchange*
Rwanda
Rwanda Over The Counter Exchange
South Africa
AltX
Bond Exchange of South Africa
JSE Limited*
The South African Futures Exchange
Sudan
Sudan Stock Exchange
Maputo
1999
Windhoek
1992
Abuja
Lagos
2001
1960
Kigali
2008
Johannesburg
Johannesburg
Johannesburg
Johannesburg
2003
1989
1887
1990
Sudan
Swaziland
Swaziland Stock Exchange*
Mbabane
1990
Tanzania
Dar es Salaam Stock Exchange*
Dar es Salaam
1998
Tunisia
Bourse de Tunis
Tunis
1969
Uganda
Uganda Securities Exchange*
Kampala
1997
Lusaka
Lusaka
1994
Harare
1993
Zambia
Agricultural Commodities Exchange of Zambia
Lusaka Stock Exchange*
Zimbabwe
Zimbabwe Stock Exchange*
Source: www.wikipedia.org,
The dominant impetus for the recent creation of securities exchanges has been the
privatisation programs that have swept across Africa. Privatisation offerings attract a variety
of investors, including domestic and foreign individuals, institutions (such as pension funds,
insurance companies and banks), employee share ownership plans (ESOPs), and collective
investment schemes such as unit trusts and mutual funds. None of such investors would be
attracted to an offering without some assurance that there is a secondary market in which to
dispose of the shares at a later date in order to cash in on market appreciation or to change
investments. This is the requisite element of liquidity. Holders of equity securities have no exit
mechanism for their investment without an established secondary marketplace. The exchanges
provide the resale market, commonly known as a secondary market.
25 | P a g e
2.1
Impediments to the Growth of Stock Exchanges in Africa
As noted, the growth of stock exchanges in Africa has been primarily driven by government
privatisation programs. However, there are still some persisting impediments to the
development of stock exchanges experienced unilaterally in the region some of which are
highlighted below:
i.
The over-the-counter market is not well developed in sub-Saharan countries.

There is, therefore, little or no liquidity for shares not listed on an exchange. Despite the
stated merits of a stock exchange, it must nevertheless be emphasized that a stock
exchange does not ipso facto provide or ensure liquidity. It would be a non sequitur to
conclude that, because an exchange exists and securities are listed thereon, there will
always or even usually be ready and willing buyers whenever there are ready and willing
sellers of securities. A stock exchange is by far the best opportunity for liquidity to occur,
but an exchange is not a guarantee of liquidity.
ii.
One of the unfortunate characteristics of most sub-Saharan stock exchanges is that

they do not create as liquid a market as one would hope. In other words, there is
often such little trading interest in a listed security that placing a sell order on an
exchange often fails to be met with a matching buy order, and vice versa. Sometimes
there is a dearth of sellers, sometimes a dearth of buyers. Usually there are too few of
either category. In developed, vibrant markets, a shortage of buyers or sellers is usually
a temporary, short-term phenomenon. Market forces cause share prices to rise or fall
based on investor demand, higher if there are more buyers than sellers, lower if more
sellers than buyers. As share prices move up or down, the information is broadly
disseminated to broker-dealers and the investing public. Before long, holders of shares
who are willing to cash in for a profit come forward to sell, or potential buyers who find
the lowering price to be attractive enter the market to buy. Inevitably the price movement
creates trading.
iii.
Normal market forces do not seem to operate as easily in African exchanges. One
problem may be the lack of widespread communication facilities, which inhibit the
dissemination of knowledge of timely market movements. A second problem is
26 | P a g e
much more fundamental; the tendency of many of the newer investors within subSaharan countries to view their share holdings as long-term property, not to be
sold except for extraordinary circumstances. Additionally, most exchanges have
adopted internal constraints on the price change that a stock might incur in any given
trading period. With very little trading activity, and exchange constraints in place, stocks
are much more likely to remain at a relatively stagnant level rather than drift downward
for want of buying activity, or upward for want of selling activity. Without such movement,
potential sellers or buyers remain on the sidelines.
iv.
The lack of significant numbers of listed companies is a major cause of the paucity
of daily trading and the concomitant lack of liquidity within the stock markets. With few
investment options available, it is no wonder that investors do not engage in trading one
security for another, moving in and out of stocks in the manner seen in developed
markets. Ghana is an excellent example of this problem. Although there are 31
companies with securities listed on the Ghana Securities Exchange, only a very few of
those companies experience daily trading activity. The largest company, Ashanti Gold
Mines, is formally listed but does not trade at all on the Ghana exchange, as its shares
are dollar-traded in the United States. In other exchanges, often no more than a handful
of stocks are active, the rest being quite dormant unless major developments occur. The
two fundamental questions of (i) how to attract more listings, especially from
privately-owned companies, and (ii) how to develop greater public interest and
participation in stock trading are inextricably linked. Privately-held companies do not
find an illiquid market attractive, and until there is more market listings and trading,
public interest is difficult to develop.
v.
Beneath all of these problems lies a more basic impediment to stock exchange
development - a lack of public confidence in the integrity of the securities markets.
Throughout sub-Sahara Africa there is a profound distrust of government and centralized
financial institutions. Government corruption is notorious and rampant. But corruption
has not been confined to government offices. Across the continent there has been a
stream (some might suggest a river or torrent) of bank failures, collapse of corporations,
and mismanaged pensioned provident funds. In Kenya for example, the collapse of 3
stock-brokers have severely dented investor confidence. This unfortunate history has
caused many to believe, not without reason, that bedrooms and closets are safer
27 | P a g e
repositories of savings than banks and other commercial institutions. Now place into this
historical formula a stock exchange, and it is not difficult to understand that the
exchange is perceived by many as combining the worst of two worlds - government
control and a centralized financial institution.
Building public confidence is central to market development. Without active, continuous public
support and participation, markets will flounder for lack of products and liquidity. With relatively
little trading, downturns can be magnified, as there is a very thin supply of buyers to begin with.
This exacerbates the problem, as even those in the market begin to doubt the wisdom of their
choice and must face the criticism of skeptical family and friends.
2.2
Recent Trends Worldwide that are contributing to the growth of stock exchange
development
i.
Privatization
Privatization of state owned enterprises is the method being used to achieve such mass
participation. The results have been impressive and hold out promises of rapid and broad based
economic growth for those nations. The exercise will swell the ranks of individual and corporate
shareholders, as it will also hopefully replace the state with new core investors. Information
technology will hopefully be adopted in the stock exchanges and also hopefully modern
depositories will be established to take the burden of share transfers off paper-based registrar
systems and hence speed up securities settlement and delivery in nations with notoriously poor
postal systems.
ii. Distribution and Linkage of Stock Exchanges
Cross border stock exchange alliances have become fashionable. Advances in information
technology have made it increasingly possible for stock exchanges of nations to consider the
formation of alliances to take advantage of economies of scale and permit their investors to
build and enjoy portfolios having greater diversity of securities. These alliances which are still in
their exploratory and formative stages are also to enable investors in one market partake in the
securities in other markets and vice versa.
28 | P a g e
iii. Ownership Challenges and Regulations
Recent trends in stock exchange development are combining with advances in technology to
create new operating as well as ownership challenges.
First is that the cost of setting up a new IT enabled stock exchange is too high for a
number of gentlemen brokers to fund. Nor are their individual or collective personal
guarantees likely to be adequate so that the exchange could be limited by guarantee.
In an economy coming out of mass poverty and in which concentrations of economic
power are few and suspect. It is only the state that would be eligible to set up the stock
exchange or a commercial (demutualized) entity that can be sustainable.
Second, is that the trading operation of a stock exchange by itself is initially, and until
substantial volumes are achieved, scarcely a profitable activity if the public interest is to
continue to be served.
Third, and resulting from the foregoing is that the stock exchange is now seen
increasingly for what it really is, namely an essential financial infrastructure for many
economies.
iv. New Role in Economic Growth
It used to be that the role of the stock market in economic development was all but ignored in
economic literature. It is suggested that this may have derived in part from the fact that such
fathers of modern economics as Ricardo and Keynes ignored the stock market in all their
prescriptions notwithstanding that they made fortunes trading on the stock market.
The new view, Robert G King & Ross Levine (1992), places substantial premium on the role of
entrepreneurs, on the role of financial intermediaries in assessing and allocating resources and
in the role of the stock market not only as a signal of performance but also as a barometer of
economic condition and a vehicle for mass mobilization of people and capital for development.
The view is that Growth is predicated on the ability of the entrepreneur to mobilize resources
and to develop intangible human capital. Africa may not have lacked entrepreneurs, but it has
29 | P a g e
lacked any kind of market for such entrepreneurs to raise capital except in the informal capital
markets where costs and rates of return are usuriously exorbitant.
However, and a result of the foregoing, stock exchange development in Africa is now being
promoted, not only to enable investors from the developed nations to peacefully participate in
but also being promoted to enable Africans themselves to participate and to enjoy the benefits
of liquid and clean markets.
30 | P a g e
CHAPTER THREE
3.0
RESEARCH METHODOLOGY
3.1
Sampling
The study proposed to use a theoretical population of all African stock exchanges. However, the
accessible populations are stock exchange members of the African Stock Exchanges
Association, which then formed the sampling frame. The sample used was an unbalanced
selection of 15 African stock exchanges and another 8 exchanges from Asia, the Middle East
and Latin America respectively for benchmarking purposes.
3.2
Measurements
Secondary Analysis of data is applied. The performance measurement indicators include, but
not limited to, Equity Turnover; Share Volume; Share Index/ market capitalization return; Market
capitalization; Bond Turnover; Turnover ratio; Market Capitalization as a percentage of GDP;
Number of listed companies and infrastructure of stock exchanges. These are all defined within
their context in the report.
3.3
Data Collection and Preparation
The study, to a significant extent, relied on data collected from secondary sources, specifically,
internet research. Other sources included, but not limited to, the use of journals and other
scholarly or media publications. Quantitative Data was categorized and documented within an
excel database structure.
3.4
Data Analysis
The data is analyzed through descriptive statistics. Univariate analysis is used for analyzing
quantitative data while content analysis has been used in analyzing non-quantitative data. An
error margin of +- 5% has been applied to all sets of unbalanced data where applicable.
31 | P a g e
3.5
Findings
Findings are presented in tabular and graphical presentations with the inclusion of analytical
interpretation narratives. An information paper will then be prepared for the purpose of
discussion by the Management and Board of the Capital Markets Authority.
3.6
Validity
As this was not a causal study, internal and conclusion validity were not considered. The
measurements applied to assess the performance of markets are used worldwide hence
constructs are valid. In addition, proposals made based on the analysis of findings are similar to
those made in other studies hence recommendations are externally valid.
32 | P a g e
CHAPTER FOUR
4.0
FINDINGS AND ANALYSIS
The Analysis is based on evidence from 15 African stock exchanges which represents 65% of
the total population of African Stock Exchanges. It has also taken into consideration the
significance of the following exchanges: Kenya, Ghana, Egypt, Morocco, Nigeria and South
Africa, which constitute of approximately 90% of stock exchange activity in the region. South
Africa alone constitutes of approximately 70% of stock market activity in the region.
4.1
THE STATE OF AFRICAN STOCK MARKETS
4.1.1
Stock Market Size:
I.
Market Capitalization:
Market capitalization is a measurement of corporate or economic size equal to the share price
times the number of shares outstanding of a public company, providing a total value for the
company's shares and thus for the company as a whole. Market capitalization represents the
public opinion of a company's net worth and is a determining factor in stock valuation. (Note:
market capitalization is a market estimate of a company's value, based on perceived future
prospects, economic and monetary conditions). The table below compares the total stock
market capitalization for various African Stock exchanges over the examination period.
Table 2: Stock Market Capitalization (USD-bn)
Botswana (DC)
Egypt
Ghana
Kenya
Sudan
Malawi
Mauritius
Morocco
Namibia (DC)
33 | P a g e
2006
4.09
93.35
12.18
11.41
4.66
0.6
3.54
49.32
1.58
2007
5.44
139.69
12.74
13.61
5.18
1.29
6.04
76.02
1.74
2008
3.68
85.84
14.91
10.98
4.17
1.79
3.34
60.5
0.77
2009
4.28
91.21
10.91
10.95
NA
1.48
4.82
56.4
0.96
% 20072008
-32.35%
-38.55%
17.03%
-19.32%
-19.50%
38.76%
-44.70%
-20.42%
-55.75%
% 20082009
16.30%
6.26%
-26.83%
-0.27%
NA
-17.32%
44.31%
-6.78%
24.68%
Nigeria
South Africa
Tanzania
Tunisia
Uganda
Zambia
TOTAL AFRICA
AVERAGE AFRICA
WFE8 Total MCAP
% of AMCAP to WFW
Total
Av. % in WFE
Members
Emerging Markets
Buenos Aires SE
Bursa Malaysia
Bombay SE
Taiwan SE
Istanbul SE
Amman SE
Singapore SE
South Korea
40.32
816.88
2.44
3.7
2.39
3.19
1050.15
105.65
836.34
2.79
4.4
3.53
4.83
1219.84
80.6
549.2
3.8
5.6
2.87
4.1
832.44
47.75
799.02
3.57
8.2
3.34
5.27
1048.16
50,650
60,855
32,584
46,525
2.38%
2.29%
2.79%
2.21%
2006
2007
51.24
235.58
818.88
594.66
162.4
29.73
384.29
834.4
57.07
325.29
1819.1
663.72
286.57
41.22
539.18
1122.61
2008
39.85
189.24
647.2
356.71
234
31.83
481.25
834.59
2009
45.75
286.16
1306.5
657.61
118.33
35.9
264.97
470.8
-23.71%
-34.33%
36.20%
27.27%
-18.70%
-15.11%
-31.76%
-14.20%
-40.76%
45.49%
-6.05%
46.43%
16.38%
28.54%
25.91%
-2.57%
-86.76%
% 20072008
-30.17%
-41.82%
-64.42%
-46.26%
-18.34%
-22.78%
-10.74%
-25.66%
29.96%
% 20082009
14.81%
51.22%
101.87%
84.35%
-49.43%
12.79%
-44.94%
-43.59%
Source of Data: CMA Database;*Zimbabwe figures used for analysis are for 2006, before currency revaluation: DC
Domestic Company market Capitalization
As at December 2009, the WFE total market capitalization was US$46.5 trillion. African stock
market capitalization accounted for a meager 2% during the period under review. In 2008, only
Ghana, Malawi, Tanzania and Tunisia registered an increase in market capitalization. However,
market performance improved in 2009 with a majority of stock markets posting a positive capital
appreciation with the exception of a few including Kenya, Nigeria and Ghana. Year on Year, the
most significant improvements were registered by the JSE and Namibian Stock Exchange while
Ghana and Malawi registered declining results. The NSE improved marginally. In 2008, Malawi
Stock exchange registered the best performance while South Africa and Tunisia took the honors
in 2009. Market Concentration of the 5 largest exchanges in Africa is 95%. The data above
indicates that the Nairobi Stock Exchange, as at December 2009, was ranked 5th in Africa in
terms of market capitalization behind South Africa, Egypt, Nigeria and Morocco9. Ghana ranks
in at a close 6th. It will suffice to note that the Market Capitalization figures of Namibia and
Botswana only include the Domestic Listed Components. This is because the two exchnages
World Federation of Exchanges

It would suffice to note that Mcap figures of Botswana and Namibia only represent locally listed companies
leaving out the foreign component which ensures comparability of data.
34 | P a g e
both have domestic and foreign boards. In this regard, inclusion of the M-Cap of the foreign
board will make them rank 2nd and 3rd respectively in Africa.
II. Number of Listed Companies:
Table 3: Number of Listed Companies
Botswana
Cote d'Ivoire
Egypt
Ghana
Kenya
Mauritius
Malawi
Morocco
Namibia
Nigeria
South Africa
Swaziland
Tanzania
Tunisia
Uganda
Zambia
Zimbabwe
Sudan
Mozambique
Libya
AFRICA TOTAL
AFRICA MEAN
AFRICA MEDIAN
AFRICA % OF WFE
WFE TOTAL
EMERGING MARKETS
Malaysia
Mexico
Thailand
Chile
Bombay SE
Argentina
2006
18
40
595
32
52
41
11
63
28
202
401
6
10
48
11
16
83
51
5
4
1,717
85.85
36
3.80%
45,211
2007
30
40
435
32
54
41
13
73
27
212
422
6
10
48
12
17
85
53
7
6
1,623
81.15
36
3.49%
46,509
2008
31
40
373
35
56
40
15
73
29
213
425
5
14
50
13
19
90
53
6
6
1,586
79.30
37.5
3.46%
45,846
2009
31
40
313
35
55
40
15
73
29
216
396
5
15
52
13
21
96
53
6
6
1,510
75.50
37.5
3.33%
45,358
% 2008-2009
0.00%
0.00%
-16.09%
0.00%
-1.79%
0.00%
0.00%
0.00%
0.00%
1.41%
-6.82%
0.00%
7.14%
4.00%
0.00%
10.53%
6.67%
0.00%
0.00%
0.00%
-4.79%
1020
151
518
246
4796
106
1027
131
523
244
4887
111
976
373
525
238
4921
112
959
406
535
236
4,955
106
-1.74%
8.85%
1.90%
-0.84%
0.69%
-5.36%
-1.06%
Source of Data: International Financial Statistics (IMF); Emerging Markets Database (IMF); Table adapted from Senbet & Otchere
(2008).
On the global front, African stock markets accounted for approximately 3% of listed companies
as at end of 2009. In this particular year, the net effect of new listings and de-listings was -76
companies.
The number of listed companies on African stock exchanges is also small
compared to other emerging markets as seen in the table above. As of 2009, the mean number
of firms listed on African Stock Markets is 75 as compared to 959 and 4,955 in Malaysia and
35 | P a g e
India respectively. The number of firms listed has declined over 2006-2009 (growth rate of -4%)
with the well established markets of South Africa and Egypt recording significant drops in the
number of firms listed.
The JSE has the highest number of listings on the continent numbering 396 and accounting for
approximately 26% of the total number of listings in African stock exchanges. The Egyptian
Exchange follows with 313 listings (21%) and Nigeria with 216 listings (14%). Kenya ranks 6th in
this indicator of stock market size behind South Africa, Egypt, Nigeria, Morocco and Zimbabwe.
Consequently, the top six stock exchanges in the continent with regards to number of listings
account for 76% of the total listings on African stock exchanges while the top three exchanges
account for 61% of total listings.
Chart 1: Number of Listed Companies
III. Market Capitalization as a %age of GDP:

Generally, this ratio is used to determine whether an overall market is undervalued or
overvalued. It is calculated as:
36 | P a g e
The result of this calculation is the %age of GDP that represents stock market value. Typically,
a result of greater than 100% is said to show that the market is overvalued, while a value of
around 50%, which is near the historical average for the U.S. market, is said to show
undervaluation10. However, it is also a measure of stock market size relative to GDP. This paper
uses the latter.
Table 4: Market Capitalization of Listed Companies (% of GDP)
COUNTRY
Botswana
Egypt
Ghana
Kenya
Mauritius
Morocco
Namibia
Nigeria
South Africa
Tanzania
Tunisia
Uganda
Zambia
Malawi
Africa - Mean
Africa - ex S.Africa
Africa - Median
Emerging Markets
Buenos Aires SE
Bursa Malaysia
Bombay SE
Taiwan SE
Istanbul SE
Amman SE
Singapore SE
10
2006
28.4
72
97
50.09
78.5
86.13
22.76
28.1
280.41
17.18
14.68
22.38
45
35.47
2007
39.93
86
96
49.34
96.5
71.91
25.24
58.2
303.01
15.06
14.1
30.2
47.99
48.65
2008
40.7
53
109
31.81
56
96.75
14.69
41.9
NA
21.69
NA
24.85
56.72
44.83
2009
36.8
48.53
70.39
33.49
54.59
62.1
10.15
29.5
278.18
16
20.41
21.22
38.77
38.44
Mean
(2006-2009)
31.86
55.37
60.88
31.09
54.18
59.22
14.15
27.75
211.67
11.22
12.74
13.65
26.36
18.6
37.89
28.75
51.9
% Cumulative
Growth (20062009)
132.47%
68.57%
596.93%
231.58%
83.25%
89.91%
11.29%
220.30%
80.36%
522.57%
40.37%
3322.58%
432.55%
8.37%
14.75%
149.46%
105.71%
173.53%
19.23%
156.56%
149.59%
However, determining what % level is accurate in showing undervaluation and overvaluation has been hotly
debated.
37 | P a g e
South Korea
56.55%
(2008).
The mean market capitalization (as a %age of GDP) of 37.89% (28.75% excluding S.Africa)
pales in comparison to that of Malaysia of 149.46% but comparable to that of Turkey, Argentina
and South Korea. The size of the markets has, however been growing, with the mean for Africa
growing from 17% of GDP in 1991 to 38% in 2009. South Africa leads the pack with an average
market capitalization to GDP ratio of 211.67%. This is then followed by Ghana (60.88%);
Morocco (59.22%); Egypt (55.37%); Mauritius (54.59%); Botswana (31.86) and Kenya at 31%,
ranking it 7th in this measure. However, as highlighted earlier, Zimbabwes figures are grossly
inflated and as such are not suitable for comparison using this indicator.
Table 5: Nominal GDP (USD Bn) 2008 - 2009
COUNTRY
Botswana
Egypt
Ghana
Kenya
Sudan
Malawi
Mauritius
Morocco
Namibia
Nigeria
South Africa
Mozambique
Swaziland
Tanzania
Tunisia
Uganda
Zambia
EMERGING MARKETS
Argentina
Malaysia
India
Taiwan
Turkey
Jordan
Singapore
South Korea
Source: IMF; www.wikipedia.org
38 | P a g e
2008
12.97
162.82
16.12
34.51
58.44
4.27
8.65
86.33
8.56
212.08
276.76
9.74
2.62
20.49
40.18
14.53
14.31
2009
11.63
187.95
15.5
32.7
54.68
4.57
8.76
90.82
9.46
173.43
287.23
9.83
2.98
22.31
40.17
15.74
13
328.39
194.93
1,217,490
NA
794.2
20.01
181.95
929.12
310.07
191.46
1235.98
378.97
615.33
22.93
177.13
832.51
Among other factors, the high market cap-to-GDP ratio for some countries is mainly due to two
reasons:
i.
The listing of foreign companies locally, especially in S.Africa, Botswana and Namibia
ii.
The expansion of Local companies into overseas countries/stock markets.
This implies that listed companies in the stock market are effectively serving more than one
economy. In addition, having substantial investments in other jurisdictions ensures a substantial
source of revenues from abroad. In other words, the large market capitalization of these
companies does not necessarily have a direct relationship with the GDP of the country of origin.
Some common characteristics of the markets with high market capitalization to GDP ratio are
that they:
i.
serve as regional financial hubs, which attract listing of overseas companies;
ii.
have domestic companies with significant regional and international business;
iii.
have a sound legal framework and a relatively developed economy; and
iv.
Possess a domestic economy of relatively small size (i.e. their economies are globally
integrated)
39 | P a g e
Chart 2: Mean Market Capitalization as a % of GDP (2009)
4.1.2
Liquidity of African Capital Markets:
Beyond mere capitalization, it is the functional efficiency of the stock markets that contributes
significantly to economic growth. African stock markets, thus, should be assessed on the basis
of their efficiency in carrying out their functions. Although the growth in the number of stock
40 | P a g e
exchanges has been impressive, their existence alone is not complementary to economic
growth. Except for the S.African stock market, pre-emerging markets in Africa are by far the
smallest of any region, both in terms of number of listed companies and market capitalization.
Moreover, trading activity is minimal. In most African stock markets, trading is concentrated in
only a few stocks. These stocks themselves account for a considerable part of the total
capitalization of the entire market. In this regard, we analyze turnover and volumes to measure
general liquidity and turnover ratios to measure operational efficiency in these markets that
facilitate and enhance ease of completing stock market transactions.
I.
Turnover:
This indicator refers to the value of shares traded on a stock exchange during a day, month, or
year. It is calculated by multiplying the number of shares traded (share volume) at the exchange
with their respective values (prices). Turnover is a stock market liquidity indicator and it
measures stock market trading relative to the size of the market.
Table 5: Market Turnover/Value Traded (USD mn)
COUNTRY
Ghana
Uganda
Egypt
Morocco
Kenya
Malawi
Mauritius
Namibia
Nigeria
S.Africa
Botswana
Zambia
Tanzania
Sudan
Tunisia
AFRICA TOTAL
% of AFRICA TOTAL TO WFE TOTAL
EMERGING MARKETS
Buenos Aires SE
Bursa Malaysia
Bombay SE
Taiwan SE
Istanbul SE
Amman SE
41 | P a g e
2007
144.90
39.80
66,008.00
40,766.00
1,417.02
37.00
445.96
1,536.66
16,600.00
1,144,964.00
137.53
72.36
26.22
899.80
1,179.30
1,283,007.58
0.01%
7,382.53
169,722.83
343,775.81
1,010,064.72
294,294.96
17,427.08
2008
316.69
41.92
96,825.00
25,600.00
1,250.00
59.70
437.42
1,008.00
20,010.00
395,235.21
155.06
167.84
25.73
939.59
2,792.60
553,603.79
0.005%
6,616.70
93,557.40
301,648.29
830,086.67
247,893.07
28,690.07
50.80
9.20
73,474.06
NA
502.2
20.31
333.56
1,051.56
4,700.00
335,863.73
110.68
43.78
34.50
NA
NA
% OF TOTAL TO
(2008)
0.06%
0.01%
17.49%
4.62%
0.23%
0.01%
0.08%
0.18%
3.61%
71.39%
0.03%
0.03%
0.00%
0.17%
0.50%
2,993.70
86,032.60
263,352.14
905,130.69
301,127.73
13,646.72
% OF WFE TOTAL
TO
0.01%
0.08%
0.27%
0.73%
0.22%
0.03%
2009
Singapore SE
South Korea
WFE TOTAL (USD BN)
381,288.68
2,005,993.75
112,969
259,885.03
1,432,479.94
113 ,258
245,425.37
1,559,039.91
80 ,455
0.23%
1.26%
(2008).
The table above analyses stock market turnover for various African stock exchanges for the
period 2007-2009. As of 2008, the analysis suggests that the most actively traded market in
Africa is South Africa, accounting for over 70% of the entire African stock exchanges turnover.
This makes it the most liquid stock market in Africa. Egypt, Morocco and Nigeria account for
17%, 4%, and 3% respectively. Tunisia (0.5%) and Kenya (0.2%) rank 5th and 6th respectively.
The global equities turnover was approximately USD 113 trillion in 200811 making Africas
contribution to this figure stand at approximately 0.005%.
II. Volume:
Volume measures market liquidity by counting the number of shares that are traded for a given
security over a given time period. Volume data is recorded for individual stocks, exchange
traded funds (ETFs), options, and for indices as a whole. Volume reflects the supply and
demand for stocks. A stock with low volume is said to be illiquid.
Theoretically, low volume means that the market is illiquid (reflects a lack of selling/buying
"urgency in the market). It also implies high price volatility.12On the other hand, high volume
usually implies that the market is highly liquid, resulting in low price variability. This also reduces
the price effect of large trades. In general, with an increase in volume, broker revenues will
increase and market makers have a greater opportunity for profit as a result of higher turnover.
Volume is also an indication of the ease of trading within the market.
Table 6: Volume Traded (USD mn)
COUNTRY
Botswana
Egypt
Ghana
Kenya
Sudan
Malawi
Mauritius
11
12
WFE Annual report, 2009.

According to Telsar (1981)
42 | P a g e
2006
87.25
9,082.00
98.29
1,454.67
7,567.78
160.57
250.79
2007
124.89
15,091.00
287.22
1,938.20
9,411.56
359.52
300.80
2008
192.71
25,489.63
545.79
5,860.00
289.01
607.53
318.68
2009
167.59
28,576.98
97.00
3,169.12
NA
592.42
NA
% of Total
2008
0.06%
8.15%
0.17%
1.87%
0.09%
0.19%
0.10%
Morocco
Namibia
Nigeria
S.Africa
Tanzania
Uganda
Zambia
Tunisia
Africa Total
Africa Mean (2003-2008)
Africa Median
178.78
234.59
36,700.00
74,565.40
23.09
15.49
858.66
NA
139,216.97
211.98
242.60
138,100.00
71,199.80
30.27
484.13
1,472.52
NA
247,896.50
156.67
291.76
193,140.00
83,780.00
26.98
216.93
1,527.80
158.24
312,605.16
147,209.30
105,465.56
400.10
342.97
102,850.00
80,977.85
121.30
123.23
875.01
189.34
16,445.00
0.01%
23,757.00
0.01%
29,500.00
0.01%
46,446.00
3,302.26
5,221.81
4,487.00
4,040.60
284,820.69
NA
154,476.00
248,061.00
54,162.40
91,571.81
80,462.90
105,777.30
Taiwan SE
737868.309
898,238.39
783,176.21
1,098,295.96
Istanbul SE
4,104.30
4,479.36
114,307.71
205,303.77
Amman SE
91,197.98
116,344.64
5,442.27
6,022.47
Singapore SE
260,515.97
574,108.70
260,654.66
423,862.20
South Korea
202,882.84
240,224.91
212,946.50
319,472.00
WFE TOTAL (Bn)

% of African Total to WFE total
EMERGING MARKETS
Buenos Aires SE
Bursa Malaysia
Bombay SE
0.05%
0.09%
61.78%
26.80%
0.01%
0.07%
0.49%
0.05%
(2008).
From the analysis, stock market volume has been dominated by Nigeria of which accounts for
61% of total African stock exchanges share volume in 2008. This is followed by South Africa
(26%); Egypt (8%); and Kenya (1%). Kenya is ranked 4th in this indicator. The top four
exchanges account for approximately 98% of total share volume with the top two accounting for
88% of total share volume. The same trend is observed in 2009 though analysis was based on
2008 data due to the unbalanced set of 2009 indicators.
a.
Operational Efficiency in enhancing Liquidity:
We use standard approaches in measuring indicators of functional efficiency in liquidity of

African stock markets of which are highlighted below:
43 | P a g e
1. The ratio of total value of shares traded on the exchange to GDP. This indicator
measures the markets trading activity relative to the size of the economy;
2. The ratio of total value of shares traded to the total capitalization of the market. This
indicator is known as turnover ratio, and it measures the markets overall trading
activity relative to the size of the market itself.
These indicators do not directly measure the stock market liquidity in the sense of the ease at
which investors can buy and sell securities at posted prices, but they are rough measures of the
overall trading activity relative to the size of both the economy and the stock market.
III. Turnover Ratio (Stock market Turnover as a % of Market Capitalization)
The turnover ratio the value of shares traded as a %age of market capitalization. Turnover
ratio measures trading activity relative to size of the market. A higher turnover ratio implies
higher demand for securities and as such higher generation of revenues in terms of transaction
costs.
Table 7: Turnover Ratio (Turnover as a % of Market Capitalization)
COUNTRY
Botswana
Egypt
Ghana
Kenya
Mauritius
Morocco
Namibia
Nigeria
South Africa
Tanzania
Tunisia
Uganda
Zambia
Sudan
Malawi
Mozambique
Africa Mean
WFE Mean
Africa-Median
EMERGING MARKETS
Buenos Aires SE
44 | P a g e
2006
1.76
48.7
0.42
11.54
4.14
61.36
0.63
14.7
42.08
0.67
15.24
0.25
3
10
2.33
1.86
11.85
78.6
3.34
2007
2.88
38.73
1.14
10.41
5.74
61.36
0.98
28.21
52.31
0.94
13.2
1.42
1.55
12.3
2.86
1.16
14.96
90.3
2.88
2008
3.86
37.4
2.1
11.42
9.66
NA
1.38
21.86
71.84
0.68
NA
1.81
0.66
5
3.34
3.3
12.45
98.5
3.86
2009
2.68
73.9
NA
5
6.93
NA
NA
13.26
40.4
NA
NA
NA
NA
NA
1.33
NA
NA
78.40%
NA
Mean 20062008
2.83
41.61
1.22
11.12
6.51
40.91
1.00
21.59
55.41
0.76
9.48
1.16
1.74
9.10
2.84
2.11
13.09
89.13
3.36
7.2
8.9
3.6
6.37
Bursa Malaysia
Bombay SE
Taiwan SE
Istanbul SE
Amman SE
Singapore SE
South Korea
36.2
31.9
141.7
141.3
NA
58.2
171.4
57.1
29.4
153.3
129.7
38.1
77.6
192.6
20.3
30.9
141.7
110.9
23.5
48.9
261.2
23.9
19.4
168.1
165.6
34.8
46.1
149
37.87
30.73
145.57
127.30
20.53
61.57
208.40
(2008).
The mean turnover ratio for African stock exchanges for the period under analysis was 13.09%.
The markets that registered a higher mean turnover ratio than the African average were: South
Africa (55%); Egypt (41%); Morocco (*40%); Nigeria (21%); Kenya, ranked 5th in this parameter,
registered a mean turnover ratio of 11% for the period under analysis.
The relatively low turnover ratio for most markets could be partly due to the fact that there
exists a strong trading interest from institutional investors. In addition, high turnover ratios could
also be explained by the fact that a significant portion of the shares in these exchanges were
held by families or strategic investors. Therefore, the actual free float of shares available for
trading in these exchanges is much lower. In contrast, where the market is characterized by a
relatively large pool of active retail investors trading turnover ratios for shares are much higher.
This phenomenon could be evidenced in the Kenyan stock market, where institutional investors
(including foreign investors) hold significant chunks of listed companies (75%) and the free float
of shares available to other investors is extremely thin at (25%), of which a huge chunk is
hoarded by very few shareholders, consequently, exposing the market to speculative
tendencies and market manipulation13.
13
A survey on investor profiles at the Nairobi stock exchange (2007) found that over 70% of the available free float
was in the hands of 20 % of shareholders i.e. corporate & HNW individuals
45 | P a g e
Chart 3: Mean Turnover as a % of Market Capitalization (2000-2007)
IV. Turnover as a %age of GDP:

This is basically a measure of stock market activity in relation to economic activity. This ratio
does not directly measure the costs of buying and selling securities at posted prices. Yet,
averaged over a long time, the value of equity transactions as a share of national output is likely
46 | P a g e
to vary with the ease of trading. In other words, if it is very costly or risky to trade, there will not
be much trading.
Table 8: Turnover as a % of GDP
COUNTRY
Botswana
Egypt
Ghana
Kenya
Mauritius
Morocco
Namibia
Nigeria
South Africa
Tanzania
Uganda
Zambia
Africa Mean
Africa Median
WFE Mean
EMERGING MARKETS
Buenos Aires SE
Bursa Malaysia
Bombay SE
Taiwan SE
Istanbul SE
Amman SE
Singapore SE
South Korea
2007
0.9
41.4
0.7
4.5
5.12
41.9
3.7
28.2
52.5
0.1
0.1
0.6
14.98
4.5
96.6
2008
0.6
57.57
2.26
3.62
5.42
29.65
18.74
7.79
63.1
0.15
0.45
1.55
15.91
5.42
101.5
% 20072008
-33%
39%
223%
-20%
6%
-29%
406%
-72%
20%
50%
350%
158%
6%
20%
5%
8.9
57.1
29.4
153.3
129.7
42.3
77.6
196.3
7
36
29
145.5
135.1
59.1
63.7
192.6
-21%
-37%
-1%
-5%
4%
40%
-18%
-2%
(2008).
South Africa ranks first in Africa in this indicator registering a mean turnover to GDP ratio of
63% in 2008. This is then followed by Egypt (57%); Morocco (29%); Namibia (18%); Nigeria
(7%); Mauritius (5%) and Kenya (3%). Kenya was ranked 7th in the continent.
47 | P a g e
Chart 4: Mean Turnover as a % of GDP (2008)
Table 7 and 8 above show that indicators of stock market development via trading activity
measures are small implying that most stock markets are characterized by low provision of
liquidity and exit strategies. The low liquidity (rather illiquidity), more than market capitalization,
should be of great concern to Africa in light of empirical evidence which suggests market
liquidity as a vital channel for linking stock market development with economic performance.
There a number of potential impediments to liquidity of African stock markets including, but not
limited to, the following:
Institutional investors, as well as Governments maintaining minority holdings, are not

active traders in secondary markets.
Markets tend to be dominated by a few large companies e.g. 5 companies account for
75% of transactions in Abidjan; Ashanti Goldfields accounts for 90% of total
capitalization in the Ghana stock market; Safaricom Ltd accounting for over 65% of
turnover in Kenyas stock market).
48 | P a g e
For sure, African stock markets are still small and have low trading activity, but they are
experiencing rapid improvement both in capitalization (size) and liquidity. These developments
have been in response to improvements in regulatory and economic environments that the
region has experienced over the recent past. Simultaneously, foreign participation is also
growing, and Africa is marching to an emerging markets club.
4.1.3
I.
Returns in African Capital Markets:

Annualized Index Returns:
In index returns, African capital markets have continued to perform incredibly well despite their
numerous challenges. Average annual returns to African equity markets in dollar terms have
averaged 14% over the last 12 years from January 1995 to December 2004, relative to 8% for
South Africa; 6.3% for G7 countries; and 6.6% for the Global equities markets14.
For the period 2007-2009, annualized dollar index returns in African capital markets have been
greatly affected with only Ghana, Tanzania, Tunisia and Zambia registering positive returns for
the 3 year period. In 2008, Ghana stock exchange registered the highest dollar index return in
Africa registering an increase of 58%. Other markets that registered positive growth in Africa
during this period were Malawi (26%); Tanzania (21%); Tunisia (11%) and Zambia (18%). The
Egyptian and Nigerian Stock Exchanges were the worst performing markets during the period
under review registering decreases of -56% and -46% respectively. Kenya was the 5th worst
performing market during the review period registering an index decrease of -35%. However, in
2009, market performance registered significant improvement with most markets registering
positive returns. Tunisia was the best performing market in Africa registering an index increase
of 48%. Other significant increases were observed in South Africa, Mauritius, Namibia, Zambia,
and Egypt stock exchanges. Kenya continued to register negative growth as the index declined
by 8% during the period.
14
African Business Research Ltd; ASEA conference, 2007.
49 | P a g e
Table 9: Annualized Index Returns (2006-2009)
COUNTRY
Botswana
Egypt
Ghana
Kenya
Mauritius
INDEX
DCI
EGX 30 Index
2006
2007
2008
2009
6,195.45
8,421.63
7,035.50
6,973.41
10,549.74
4,596.49
7,241.89
6,208.77
5,006.02
6,599.77
10,431.64
NA
GSE ASI
NSE 20 Share
Index
5,645.65
5,444.83
3,521.18
3,247.44
NASI
NA
100.00
73.37
SEMDEX
1,204.46
1,852.21
1,182.74
2007-2008
Returns
-16%
2008-2009
Returns
3%
-56%
35%
58%
Annualized
Index
Returns
2007-2009)
-15%
-39%
8%
-35%
-8%
71.64
-27%
-2%
-28%
1,660.87
-36%
40%
-16%
-15%
18%
-16%
-39%
Malawi
MASI
2,310.67
4,849.79
6,091.15
5,154.95
26%
Morocco
9,479.45
12,694.97
10,984.29
10,443.81
-13%
-5%
-40%
39%
Namibia
MASI
NSX Overall
Index
828.44
929.41
556.26
771.91
Nigeria
NSE ASI
33,189.30
57,990.22
31,450.78
South Africa
FTSE/JSE ASI
24,915.20
28,957.97
21,348.45
NA
27,666.45
-21%
-46%
-26%
-96%
30%
-7%
-11%
Sudan
Khartoum Index
2,972.76
2,962.10
2,745.85
Tanzania
DSEI
NA
1,022.50
1,239.93
1,192.37
21%
-4%
19%
Tunisia
TUNINDEX
2,331.05
2,614.07
2,892.40
4,291.72
11%
48%
35%
-6%
-24%
12%
24%
Uganda
USE ASI
849.75
991.12
779.25
732.53
-21%
Zambia
EMERGING
MARKETS
Buenos Aires
SE
LASI
1,249.02
2,114.83
2,505.88
2,794.89
18%
NA
NA
3,416.99
2,072.40
8,507.61
6,842.25
General Index
Bursa Malaysia
FBM EMAS
NA
NA
5,726.46
Bombay SE
BSE-500 Index
NA
NA
3,596.85
Taiwan SE
TAIEX
NA
NA
4,591.22
8,188.11
Istanbul SE
ISE National 100
NA
NA
26,864.07
52,825.02
Amman SE
ASE Index 100

FTSE Straits
Times Index
KOSPI
NA
NA
2,758.44
2,533.54
NA
NA
1,761.56
2,897.62
NA
NA
1,124.47
1,682.77
Singapore SE
South Korea
Source: WFE Database; ASEA year book 2007-2008
50 | P a g e
-57%
-39%
49%
90%
78%
97%
-8%
64%
50%

Chart 5: Annual returns to African equity markets 2007-2009
Source: World Federation of Exchanges
II. Annualized growth in Market Capitalization:
On the Annualized %age growth of market capitalization, (this indicator measures

growth/accumulation of investors wealth in the stock market and is measured in %age terms)
the mean for Africa was 52.4% over the last eight years (2000-2007). However, this figure was
influenced heavily by Zimbabwes figures for 2005/2006. Excluding Zimbabwe, the mean
annualized growth in Market Capitalization for Africa was 31%. Kenyas stock market registered
an annualized Market Capitalization return of 40% over the last eight years. These returns rank
Kenya 4th in Africa outperformed only by Uganda (370.45%), Nigeria (41.99%) and Ghana
(59.2%).
During the period under review, average annualized percentage growth of market capitalization
registered mixed performance. In 2008, only three markets registered positive performance in
this indicator namely; Tanzania (36%), Tunisia (27%) and Ghana (17%). However, there was a
marked improvement in 2009, with only 5 African markets registering negative growth. These
51 | P a g e
included Nigeria (-41%), Ghana (-27%), Malawi (-17%), Morocco (-7%) and Tanzania (-6%).
The Nairobi stock exchange just recovered its pre-crisis market capitalization levels without any
significant increase in accumulated investor wealth during the period under review.
Table 9: Average Annualized % Growth of Market Capitalization (2007-2009)
COUNTRY
Botswana
Egypt
Ghana
Kenya
Sudan
Malawi
Mauritius
Morocco
Namibia
Nigeria
South Africa
Tanzania
Tunisia
Uganda
Zambia
Total Africa
Average Africa
EMERGING MARKETS
Buenos Aires SE
Bursa Malaysia
Bombay SE
Taiwan SE
Istanbul SE
Amman SE
Singapore SE
South Korea
2007-2008
-32%
-39%
17%
-19%
-19%
39%
-45%
-20%
-56%
-24%
-34%
36%
27%
-19%
-15%
-32%
-14%
2008-2009
16%
6%
-27%
0%
-30%
-42%
-64%
-46%
-18%
-23%
-11%
-26%
15%
51%
102%
84%
-49%
13%
-45%
-44%
-17%
44%
-7%
25%
-41%
45%
-6%
46%
16%
29%
26%
-3%
Source of Data: International Financial Statistics (IMF); Emerging Markets Database (IMF); ASEA; WFE
52 | P a g e
Chart 9: Average Annualized Growth in Market Capitalization (2007-2009)
4.1.4 Factors Behind Africas Performance
The African continent has been hammered, similar to other parts of the world, by the global
financial crisis, which began with the collapse of the Housing market in the United States and
has further deepened towards the end of 2008, causing many countries to enter into a
recession. The shock waves have reached our countries in the region, hitting key drivers of
growth, in particular trade flows, capital and investment inflows, natural resource sectors and
exports.
53 | P a g e
The global economic downturn has indeed presented significant challenges for world stock
markets. The majority of African exchanges, in particular those linked to the world markets,
were hard hit by the crisis and have actually suffered one of the worst market declines in 2008,
posting annualized losses on their indices ranging from 56% to 7%. Three markets; Ghana,
Tunisia and Zambia Stock Exchanges, have, however, managed to realize gains on their
indices.
African exchanges have however concluded the year with an aggregate market
capitalization of US$ 1,048 billion, up from US$ 832 billion recorded in 2008. Capital Withdrawal
from the market by foreign portfolio investors created excess supply of shares in the market with
less demand of the same hence a sharp decline in the prices of most of the exchanges.
In addition, strategies implemented by world economies to mitigate the effects of the crisis had
an impact on relative interest rates and affected portfolio flows. Market correction was hoisted
by the tightening of liquidity in the banking sector arising from the decline in public sector
spending and excess supply of stocks necessitated by profit taking by investors. Despite the
declines in key market indicators, the fundamentals of the stock markets remained strong as
indicated by strong corporate earnings and growth potentials. Going forward the stock markets
has exhibited some signs of recovery. However, investors are still being ruled by cautious
optimism while studying the effect of the global financial crisis on the domestic market.
Despite the global turmoil and the poor markets' performance for the period 2007-2009, African
exchanges continue to focus on the development of the operational infrastructure as well as the
regulatory framework of their markets, to secure an efficient and transparent market, while
promoting stronger corporate governance practices. Experiencing the global financial crisis and
monitoring its effects on our continent and the action plans and development strategies of the
African markets, is raising poise that this is an exciting opportunity and a real chance for Africa
to be more engaged in the global financial system, realizing our capacity as an attractive
investment destination and one of the best world performers in terms of return on portfolio
investment.
54 | P a g e
4.2
THE STATE OF AFRICAN BOND MARKETS
Bond market development in Africa has been on the rise with several countries, albeit them
being small and inactive, establishing these markets. Critical factors undermining the
development of bond markets in Africa include, but not limited to:
Lack of institutional and operating infrastructure
Low levels of liquidity
Narrow investor base
Narrow issuer base
Short Maturities
High borrowing costs
4.2.1
I.
Liquidity of African Bond Markets:

Turnover:
Bond turnover refers to the value of bonds traded between a given time period. It is a measure
of the liquidity (level of trading activity) in the market. Below is a table outlining bond turnover for
specific African countries for the period 2006-2009.
Table 11: Total Value of Bonds Traded in USD-mn (2006-2008)
COUNTRY
SA
Botswana
Morocco
Egypt
Ghana
Sudan
Kenya
Sudan
Namibia
Nigeria
Mozambique
Mauritius
Uganda
Tanzania
Zambia
TOTAL
EMERGING MARKETS
Buenos Aires SE
55 | P a g e
2006
2,010,740.00
NA
321.97
1,940.00
355.82
399.90
673.72
399.90
148.79
4,930.00
5.57
0.41
36.52
42.91
33.88
2,020,029.39
2007
2,296,330.00
30.34
373.22
4,360.00
2,769.56
534.30
1,357.23
534.30
157.07
35,410.00
3.46
3.73
467.52
NA
18.80
2,342,349.53
2008
2,329,820.89
73.23
256.00
3,676.80
0.17
450.00
1,230.00
703.35
65.75
79,570.00
13.31
0.15
461.13
36.54
1.18
2,416,358.50
2009
1,612,156.56
NA
NA
7,312.39
NA
NA
1,480.00
NA
170.12
NA
NA
NA
NA
78.50
9.90
27,353.27
47,676.29
54,912.62
21,412.72
% of Total TO
(2008)
96.42%
0.00%
0.01%
0.15%
0.00%
0.02%
0.05%
0.03%
0.00%
3.29%
0.00%
0.00%
0.02%
0.00%
0.00%
Bursa Malaysia
350.60
1,606.28
677.84
384.41
Bombay SE
612.47
436.70
4,609.74
10,680.56
Istanbul SE
466,651.36
405,044.97
390,081.60
401,042.36
2.70
9,318.62
5.40
19,552.65
0.86
15,014.08
3.59
7,833.45
305,146.85
70, 035
380,954.02
112, 969
335,925.96
113 ,258
401,773.07
80 ,455
Amman SE
Singapore SE
South Korea
WFE TOTAL (USD BN)
The largest bond exchange in the continent is the Bond Exchange of South Africa accounting
for 96% bond turnover in the continent. The rest of Africas bond markets numbers are simply
negligible. In 2008, the total value of bonds traded (in USD bn) stood at USD 2,416 bn. When
compared to global bond markets, Africa accounted for 2% of global bond turnover15.
II. Turnover as a % of GDP:
This indicator generally measures the trading activity of the bond market relative to economic
activity. It is a measure that implies the level of bond market contribution (significance) in that
particular economy. The table below analyses this ratio for the period 2003-2007 for selected
African countries.
Table 12: Bond Turnover as a % GDP
COUNTRY
SA
Botswana
Morocco
Egypt
Ghana
Sudan
Kenya
Namibia
Nigeria
Mauritius
Uganda
Zambia
Tanzania
15
IMF
56 | P a g e
2006
779.35
0.00
0.00
1.81
3.33
1.10
2.96
2.15
2.69
0.01
0.34
0.00
2007
809.41
0.00
0.00
3.34
20.67
1.16
4.92
2.27
14.75
0.05
3.98
0.00
0.30
2008
842.60
0.28
0.00
2.18
0.00
1.30
3.64
1.22
30.99
0.00
4.00
0.01
0.21
Table 13: Comparative BTO as a % of GDP

2006
2007
2008
Kenya
2.96
4.92
3.64
Egypt
1.81
3.34
2.18
779.36
809.41
842.60
India
4.98
5.49
9.94
Malaysia
0.23
5.49
0.17
Srilanka
0.02
0.02
0.00
Canada
0.38
0.33
0.31
South Africa
The same trend is observed as indicated earlier. South Africas bond market turnover is 8 times
the size of its GDP with other African markets having marginal bond market activity when
compared with broader economic activity. The analysis indicates that African bond markets
have not yet been efficiently and effectively tapped with regards to unleashing their enormous
potential in deepening capital markets as well as contributing to economic growth. This should
be an area of special focus for policy makers in stimulating and sustaining their development.
4.2.2
The effect of the global financial crisis on African bond markets
Bond Markets in Africa, as emerging and frontier markets, were fairly sheltered from the debris
of this storm during the period under review. The turmoil in the global financial markets did,
however, have some impact on the domestic economy. As a result, the expansion of the local
primary bond markets came under pressure particularly towards the latter part of 2008, owing to
a combination of increased risk aversion and higher debt spreads. A slowdown in listings was
also observed in majority of the markets specifically South Africa and Egypt. However, Kenya
registered an increase in corporate bond listings. The slowdown in listings growth was affected
primarily by contractions in the categories of securitisations and other corporates such as
mining, insurance, food, telecommunications, transport companies and health but excluding
banks.
The level of short-term borrowing in the form of commercial paper showed a slight increase,
while medium term borrowing registered significant increase particularly in Q3 and Q4 of 2009
as corporates became more inclined towards these instruments in the wake of the negative
57 | P a g e
sentiments filtering down to the local financial markets. In addition, issuance by government and
state-owned enterprises propped up growth in total listings.
The stresses experienced in global financial markets also filtered through to the domestic
secondary bond market. The third and fourth quarters of 2008 were, for the most part
characterized by higher outflows of capital from the domestic bond market as foreigners fled to
the relative safety of US Treasuries. However, as from Q2 2009, net inflows are being observed
in these markets.
4.3
PROFILES OF AFRICAN STOCK EXCHANGES

I.
Operating Structures of African Stock Exchanges:
African stock markets face challenges not only in their functional efficiency as discussed earlier,
but in their operational efficiency. Brokerage services are poor, and settlement and operational
procedures are slow. In some countries, it takes months to execute a single transaction. This is
mainly due to lack of automation and weak stock market operational infrastructure, in addition to
lack of quality personnel. The tables below summarize the infrastructural indicators of African
stock Exchanges.
Table 14: African Stock Exchange Profiles
EXCHANGE
YEAROF
REGULATOR
ESTABLISHMENT
1
SABESA
1996
FSB
MARKETS
SETTLEMENT
TRADING
COMMODITIES
AVAILABLE
CYCLE
MECHANISM
EXCHANGE
Cash,Bond&
T+3
ShortSelling&
NA
Derivatives
2
BOTSWANA
1989
MoF
BSE
3
MOROCCO
EGYPTCASE
1929
CDVM
GHANAGSE
Cash&Bond
1883(Alexandria)
CMA
1990
Cash&Bond
NA
T+3
Online
NA
T+2
IntraDay,Online
NA
T+3
NA
NA
Market
SEC
Cash&Bond
Market
58 | P a g e
DayTrading
Market
1903(Cairo)
5
T+4
Market
CSE
4
Equity &Bond
Borrowing
SAJSE
1887
FSB
Cash&Derivative
T+5
Margin,IntraDay,
NA
Online,Short
Selling&
Borrowing
7
SUDANKSE
1994
MoF
CashMarket
T+0
IntraDay
NA
LIBYALSM
2006
LSM
CashMarket
T+3
NA
NA
MALAWIMSE
1996
ReserveBank
CashMarket
T+5
IntraDay
NA
Cash&Bond
T+5
IntraDay
NA
T+5
IntraDay;Margin
NA
T+3
IntraDay;Online
ACSE
T+3
IntraDay
NA
T+5
NA
NA
T+7
IntraDay;Short
NA
ofMalawi
10
KENYANSE
1954
CMA
Market
11
NAMIBIANSE
1992
NA
Cash&Bond
Market
12
NIGERIANSE
1961(NSE):ASCE
SEC
(2001)
13
MAURITIUS
1989
Market
FSC
SEM
14
Cash&Bond
Cash&Bond
Market
UGANDAUSE
1997
CMA
Cash&Bond
Market
15
ZIMBABWE
1946
ZSE
CashMarket
ZSE
Selling&
Borrowing
16
Tanzania
1996
CM&SA
Dares
CashMarket,
T+5
OnlineTrading
NA
BondMarket
SalaamStock
Exchange
17
Zambia
1993
SEC
BondMarket
T+3
IntradayTrading
NA
1999
MoF
BondMarket
T+3
Onlinetrading
NA
LusakaStock
Exchange
18
Mozambique
Stock
Exchange
Source: ASEA Handbook
Key:
BESA:
Bond Exchange of South Africa
LSM:
Libyan Stock Market
ACSE:
Abuja Commodities & Securities Exchange
NA:
Not Available
59 | P a g e
In analyzing the infrastructural characteristics of African capital markets, it is plain for all to see
the almost identical nature of the trading mechanisms, systems and products available in these
markets with the exception of South Africa, Zimbabwe, Mauritius, Namibia, Egypt and Morocco.
Does this trend seem familiar? These are the same stock markets that are giving Kenyas stock
exchange a run for her money. Some similar characteristics come out very clearly from this
analysis that are inherent in Africas leading stock exchanges and that are not characteristic of
Kenyas and many others namely:
vi.
The diversified nature of the available mechanisms used for trading in these markets.
These include On-line trading; Margin trading and short Selling and Borrowing.
vii.
No restrictions to foreign participation in the stock market
viii.
Shorter settlement cycles
ix.
No Tax restrictions in some of these markets e.g. Egypt, Morocco and Mauritius. In
South Africa, they are no tax restrictions for resident investors.
x.
With Regards to South Africa, the availability of a derivatives market.
The diversified nature of trading mechanisms significantly increases volumes and turnovers of
stock exchanges. The same can be said for having derivative markets as this is an additional
product to the current mix offered by African stock markets which will create an alternative
investor base in the capital market and also acts as a hedging product for investors in the equity
as well as bond markets. This in turn increases activity in exchange traded products universally.
II. Automation of African Stock Exchanges:
Table 15: Automation of African Stock Markets
COUNTRY
CSD
TRADING SYSTEM
TRADING DAYS
Algeria
Electronic
Electronic
1*
Botswana
Electronic
Manual
Cote d'Ivoire
Electronic
Electronic
Egypt
Electronic
Electronic
Ghana
Manual
Manual
Kenya
Electronic
Electronic
60 | P a g e
Malawi
Manual
Manual
Mauritius
Electronic
Electronic
Morocco
Manual
Electronic
*Namibia
Manual
Electronic
Nigeria
Electronic
Electronic
South Africa
Electronic
Electronic
*Swaziland
Manual
Manual
Tanzania
Electronic
Electronic
Tunisia
Electronic
Electronic
Uganda
Manual
Manual
Zambia
Electronic
Manual
*Zimbabwe
Manual
Manual
(2008).
In addition, Sub-Saharan African stock exchanges are gradually adapting to electronic systems,
but many of them still use manual trading systems as well as manual clearing and settlement
systems. Table 15 shows indicators of African stock markets infrastructure, showing the
prevalence of slow manual systems. The exorbitantly low turnover indicators we observed
earlier should partly attributable to these manual systems. Thus, it is important that sub-Saharan
African stock exchanges adapt fast to automation and electronic systems. This adaptation
reduces the costs and inefficiencies associated with manual systems increases trading activity
and liquidity in the stock markets by speeding up operations.
Off course, automation is an expensive undertaking with considerable resource applications for
governments sponsoring stock exchanges. However, Africa has to be fully engaged in this
venture of stock market development and adopt best practices in operational efficiencies. This is
particularly important as African stock exchanges contemplate regional consolidation of
markets, which would be difficult without automation. In-fact, without such moves, the benefits of
regional integration, as well as financial globalization of Africa, will vanish.
61 | P a g e
III. Demutualization of African Stock Exchanges
Demutualization, refers to the entire process of changing the legal structure of a stock exchange
from a manual association, with one vote per member (and possibly consensus-based decision
making), into a company limited by shares, with one vote per share with majority-based decision
making16. It involves the separation of trading rights and ownership, and in most cases the
exchange becomes a for-profit firm and even, self list. Akhar (2002). The majority of African
stock exchanges are organized as mutual entities, but demutualization has gained popularity.
The main reason is that mutualization breeds poor corporate governance. In a mutual
exchange, stock market participants, such as traders and brokers, have monopoly power
through exclusive access to trading systems.
Table 16: Ownership Characteristics of African Stock Exchanges
Country
Botswana
BRVM
Ownership Characteristics
Established by statute (Botswana Stock Exchange Act,
1994) as body corporate
Statutory body Committee of Botswana Stock
Exchange manages exchange
3 members appointed by Minister of Finance
2-6 elected from membership of stock exchange
Egypt
Ghana
Kenya
Mauritius
Namibia
16
IOSCO 2005
62 | P a g e
Private corporation
13.5% owned by the West African Economic and
Monetary Union (WAEMU)
Remainder distributed among brokerage firms,
chambers of commerce and industry, sub-regional
institutions and other private institutions or WAEMU
companies
Mutual; Member-based
Company limited by guarantee
Member owned
Registered under the Companies Act in 1991 as a
company limited by guarantee (Mutual, Member based)
Shareholder owned
Trading membership separate from ownership
not for profit
comprises 43 associate members (banks, listed
companies, investment institutions, etc.)
Executive Committee of nine members of the business
community, representing different business sectors, and
South Africa
Tanzania
Zimbabwe
Nigeria
the tenth member represents(Namibia Financial

Institutions Supervisory Authority,
Regulated by the Stock Exchanges Control Act (1985,
amended 1992)
Limited by guarantee
Mutual, member based
Mutual, member based
Incorporated in September 1996 as a private company
limited by guarantee and not having a share capital
under the Companies Ordinance (Cap. 212).
The ZSE is regulated by the Zimbabwe Stock Exchange
Act Chapter 24:18 of 1996. It operates under the
supervision of a nine member Committee comprising of
2 members appointed by the Minister of Finance and
not less than 4 and not more than 7 members elected
from within the stock broking fraternity.
With demutualization, there are gains from competition among exchanges and improved
governance due to market discipline on the insiders. These gains are being leveraged by
opening up ownership of exchanges to public investors.
Table 17: Demutualization Trends
Demutualized Exchanges
Demutualization Date
Listing IPO date
Region
Stockholm Stock Exchange
1993
1998
Europe
Deutsche Bourse
2000
2001
Europe
Oslo stock exchange
2001
2001
Europe
BME Spanish exchanges
2001
Europe
Borsa Italiana SpA
1997
Europe
London Stock Exchange
2000
2001
Europe
Euronext*
2000
2001
Europe
Athens Stock exchange
1999
2000
Europe
Budapest stock Exchange
2005
Europe
Copenhagen stock exchange
1997
Europe
Swiss exchange
2002
Europe
Hong Kong stock exchange
2000
2000
Asia
Singapore stock exchange
1999
2000
Asia
Phillipines stock exchange
2001
63 | P a g e
Asia
National stock exchange of 1993
Asia
India
Osaka securities exchange
2001
Bursa Malaysia
2004
Tokyo stock exchange
2001
Australian stock exchange
1998
1998
Australia/Newzealand
Sydney futures exchange
2000
2002
New Zealand stock exchange
2003
2003
American stock exchange
2001
Nasdaq
2001
2002
North America
Toronto stock exchange
2000
2002
North America
Chicago Mercantile exchange
2002
2002
North America
trade 2005
2005
North America
2006
2006
North America
Mercantile 2000
2006
North America
2005
2005
North America
securities 2002
2005
North America
Chicago
Board
of
Asia
2005
Asia
Asia
North America
(CBOT)
New York Stock Exchange
New
York
exchange
Inter continental exchange
International
exchange
Johannesburg stock exchange
2005
Africa
Table: Geographical Distribution

Region
No. of demutualized exchanges
North America
29
11
35
Asia
23
Australia/New Zealand
10
Africa
South America
31
100
Europe
Total
Source of Data: Table adapted from Senbet & Otchere (2008).
64 | P a g e
It appears that the pressure for change is felt everywhere in the stock exchange industry, with at
least one exchange in all continents demutualizing. The exception is Latin America. Even so,
Mexico has initiated the process. One of the catalysts for demutualization has been
improvements in technology which have created both opportunities and threats for the
exchange industry. On the one hand, technological advancement has facilitated trading of
shares on several stock exchanges. Technology has also helped exchanges to overcome
national boundaries. Thus technology has expanded traded trading opportunities. On the other
hand, the migration of order flow to other markets has affected the local franchise that the
exchanges had in their respective countries. The increasing internationalization of financial
markets has reduced barriers to access and has set national exchanges in direct competition
with each other. Exchanges are also facing severe competition from electronic communications
networks (ECNs). In the context of Africa, demutualization can also help deter undue
government influence that could have occurred under mutual exchanges. Mendiola et al (2003)
and Otchere (2006) document evidence of the improvement in performance and governance of
demutualized exchanges. In addition, Otchere observed evidence of increased trading activity
by foreign investors after Australias stock exchange demutualization and self listing and
provides preliminary evidence that find that liquidity on the stock exchange improved after the
change of governance structure and the attendant conversation of the exchange to a publicly
traded companies.
65 | P a g e
CHAPTER FIVE17
5.0
THE
GLOBAL
FINANCIAL
CRISIS:
IMAPCT
AND
OPPORTUNITIES FOR AFRICA

5.1
Macroeconomic Situation and Prospects
In the years before the global recession in 2009 most African economies had enjoyed
impressive economic growth, with average annual growth in 2006-08 amounting to about 6%
and gross domestic product (GDP) per capita growth to almost 4%. The African economies
benefited from a combination of favourable factors, including high commodity prices and rapidly
growing export volumes, generally prudent macro policies, debt relief and sustained aid and
foreign direct investment (FDI) inflows. Moves towards more market-friendly economic
framework conditions had also helped to foster growth. African growth would have been even
higher had it not been restrained by infrastructure bottlenecks (notably in transport and energy),
pervasive corruption and political instability in several regions. The world economic crisis
brought this period of relatively high African growth to a sudden end. In the meantime, the world
economy is recovering again, and Africa is expected to benefit from improved international
conditions. This chapter first looks at the international environment and then explores the
various channels through which the global crisis has been transmitted to Africa. It then
discusses how the African continent and the various regions and countries have weathered the
global crisis and what the economic prospects are for 2010 and 2011.
5.2
The global economy is recovering from its deepest recession since World War-II
In early 2009 there were fears that developed countries could fall into a depression like that of
the early 1930s. One year later, there are clear signs that the worst is over. Since mid-2009, the
world economy is gradually recovering, mainly driven by expansionary macro policies and a
positive inventory cycle. The global recession of 2008/09 had started in the United States with
the breakdown of the subprime mortgage market as a result of insufficient regulations. It then
spread to almost all parts of the world. Stock markets collapsed world wide, and business and
17
Adopted From African Economic Outlook 2010, a publication of the African Development Bank
66 | P a g e
consumer confidence declined to historically low levels. The financial turmoil hit the global
economy at a time when it had already passed its cyclical peak after the supply shocks due to
price hikes of oil and non-oil commodities. Around the world, domestic demand weakened, and
the downturn was amplified and spread internationally through sharply falling foreign trade. The
recession was sharpest in developed countries. However, the crisis also severely affected some
emerging countries (such as Russia, Singapore, Mexico, and Hong Kong, China). In contrast, in
China and India, boosted by expansionary policies, output continued to grow at relatively high
rates, although somewhat lower than before. The African economy also suffered from the global
recession but has maintained on average positive growth.
The recovery of global output since mid-2009 could not compensate for the earlier losses.
Therefore, in 2009 world real GDP declined by around 2% against the previous year making
2009 the first year with negative global growth since World War-II. Output growth in the OECD
area contracted even more, by 3.5%. Global trade collapsed mainly owing to weaker import
demand in developed countries. Despite a recovery during the second half of 2009, global trade
volumes contracted in 2009 by 12.5%. The recession in the developed countries led to a sharp
fall of oil prices and other commodity prices. This was an important channel through which the
crisis has been transmitted to commodity exporting countries including those in Africa. While the
drop in commodity prices led to terms-of-trade losses in Africa and other commodity-exporting
countries, it provided terms-of-trade gains to commodity-importing countries. In that sense,
commodity exporters including those in Africa acted as shock absorbers and helped commodityimporting countries overcome the recession. The terms-of-trade effects reversed, however, in
the course of 2009 when commodity prices recovered again.
The global downturn would have been even more severe and lasted longer had central banks
and governments all over the world not acted forcefully by implementing large stimulus
measures. Short-term interest rates were reduced in developed countries to historically low
levels, near zero. Monetary conditions were further eased by unconventional measures to inject
liquidity into markets, in particular by the so-called quantitative easing, which is an indirect way
of monetising government and private debt. Governments also provided direct support to ailing
banks and sometimes nationalised private banks. Fiscal policy supported aggregate demand
both through automatic stabiliser effects; that is, by accepting higher cyclical budget deficits due
to the economic downturn and by implementing additional large-scale stimulus packages. These
packages included additional infrastructure investment, tax cuts and subsidies to households
67 | P a g e
including for the purchase of new cars. The cyclical effect on public budgets together with the
stimulus measures led to a sharp increase of budget deficits. In OECD countries, fiscal deficits
increased in 2009 on average by almost 5% of GDP to above 8% of GDP. These forceful
monetary and fiscal policies helped restore confidence and halted the economic downturn. In
the second half of 2009 most developed countries again achieved positive output growth.
However, because of the earlier decline, real GDP in 2009 as a whole remained lower than in
2008.
In April 2010 the global recovery was still not self-sustained and it is unclear at what point the
monetary and fiscal stimuli can be withdrawn without the risk of jeopardising the recovery. Given
the large fiscal deficits and future fiscal pressures from the ageing populations in many
developed and emerging countries, the fiscal room for further supporting aggregate demand is
limited, and countries will have to return to fiscal consolidation. Monetary policies will also have
to tighten and absorb the excess liquidity to prevent the resurgence of inflationary expectations
and asset bubbles. Indeed, a large part of the newly created liquidity has flown into financial
assets and has raised asset prices with the risk of new bubbles while business investment has
remained weak. But given the low capacity utilisation, as reflected by the large gaps between
actual and potential output, and the expected further deterioration in labour markets in many
countries, the exit from expansionary policies is expected only after 2010.
5.3
Global conditions are expected to improve in 2010 and 2011, but risks remain
Since the trough of the recession in the first half of 2009, the global recovery has made
significant progress. Global output is on the rise and business sentiment is improving world
wide. An exception is the development in emerging countries where boosted by China
industrial production already exceeds pre-crisis levels. A number of constraining factors
continue to weigh on the global recovery. In many countries private consumption is constrained
by household indebtedness, high unemployment, weak income growth and the withdrawal of
fiscal stimuli. Investment activity is dampened by the high degree of unused capacity and also
by credit constraints as banks consolidate their balance sheets. Financial markets remain
nervous as the financial position of some banks remains unclear and as sovereign risks of some
high-debt countries have increased. Furthermore, foreign trade growth could be constrained if
trade protectionist measures gain in importance.
68 | P a g e
The global recovery is precarious. Nonetheless, global output is expected to increase by 3.4%
in 2010 and 3.7% in 2011. In many advanced countries, GDP growth will be lower than growth
of potential output so that unused capacities remain high and will further rise. While developed
countries are expected to recover only gradually, emerging countries, notably China, and also
India, will remain important engines for global growth. Given the moderate recovery of global
output, the increase in oil prices and non-fuel commodity prices is likely to remain subdued in
the near future.
5.4
AFRICAN ECONOMIC OUTLOOK-CHALLENGES AND PROSPECTS
5.4.1
Africas economic growth has been slashed by the global recession
Various channels transmitted the global economic crisis to Africa. The direct effect of the crisis
of the worlds financial centres on African banks was relatively small because of the banks low
degree of integration with international financial markets and relatively strict capital market
regulations. The major channel of crisis transmission was through the collapse of commodity
prices and the fall of export volumes. Another channel of crisis transmission was the decline of
workers remittances. Many African countries depend on remittances and, faced with job losses
or wage declines in their host countries, African workers reduced the transfers to their families
at home. A third important channel of crisis transmission was the decline of foreign direct
investment. Multinational firms reduced their investment globally and also in Africa, notably in
those sectors most affected by the global crisis, such as mining and tourism. On the positive
side, donor countries have generally maintained their aid commitments and disbursements to
Africa, despite substantial fiscal pressures at home. Furthermore, the debt relief under the
Heavily Indebted Poor Countries (HIPC) Initiative by the International Monetary Fund (IMF) and
the World Bank, which benefited 29 African countries has reduced debt service costs and
helped these countries cope better with the crisis. Last but not least, loans by the IMF, the
World Bank and the African Development Bank (AfDB) have been increased significantly.
5.4.2
Africas economic growth weakened but remained positive
Overall, it appears that the African economy has been more resilient to the global crisis than
other emerging economies, with the exception of those in Asia, notably China and India. The
effect of the crisis, although less severe than on most other continents, was nonetheless
69 | P a g e
significant. Although in the three years before the 2009 global recession Africa had achieved an
average annual growth of around 6%, in 2009 the growth rate was slashed by 3.5 % to 2.5%;
actual growth in Africa was almost exactly what had been predicted in last years African
Economic Outlook (2.3%). The economic weakening was most pronounced in the mining and
manufacturing sectors, which recorded negative growth in many countries; these sectors were
particularly exposed to the fall of commodity prices and global trade. The other sectors, notably
agriculture and services, were more resilient and mitigated the economic downturn. In fact, in
most African countries agricultural sectors benefited from good harvests thanks to favourable
weather conditions. But in some countries, such as South Africa, Kenya, Chad and parts of
Namibia, bad harvests led to falling agricultural production, thus exacerbating the effect of the
global crisis. Domestic services including real estate and telecommunications (notably mobile
telephony) were generally resilient to the crisis and continued to contribute to growth. In
contrast, the global crisis heavily affected tourism sectors, which weakened GDP growth in
many countries (notably in Egypt, Madagascar, Morocco, Mauritius, Namibia, Senegal,
Cape Verde, So Tom and Principe, and Seychelles).
On the demand side, both falling export demand and a weakening of domestic demand mostly
led the downturn. Private consumption benefited from lower food and energy prices, but
deteriorating labour markets and lower workers remittances often outweighed this positive
effect. Remittances declined in most African countries with the decline being most pronounced
in North Africa and in the neighbouring countries of South Africa. Business investment
weakened in most African countries as a result of falling capacity utilisation in mining and
manufacturing and falling foreign direct investment (FDI). The decline in commodity prices
reduced investment in mining sectors, which are often those where most foreign investment
inflows to Africa have historically been concentrated. In contrast, in several countries public
investment and public consumption increased as a result of fiscal stimulus programmes. The
weakening of exports and domestic demand, together with exchange rate depreciations in some
countries, led to a sharp decline in imports. As import volumes declined more than export
volumes, the real foreign balances of African countries improved (on average), thus mitigating
the adverse effect from weaker aggregate demand on domestic output.
70 | P a g e
5.4.3
The global financial crisis depressed stock prices in Africa, but most markets
have rebounded
Excluding South Africas Johannesburg Stock Exchange, African equity markets remain mostly
small and illiquid. Though the number of functioning stock markets have risen, the majority of
markets list only a handful of companies and post very low turnovers. Equity financing therefore
does not play a significant role in financing Africas investment activity. Nonetheless, the global
financial crisis has been a major blow to African stock markets as observed in chapter four
above. During 2009 African stock markets generally improved, again mirroring improvements in
international markets. The stock market rally was most pronounced in Tunisia. However, some
African stock markets, such as in Nigeria, failed to improve, owing to domestic problems
including difficulties in the banking sector.
5.4.4
Past fiscal prudence and disinflation have created space for expansionary macro
policies
During previous economic crises in Africa, such as the commodity price busts of the late 1980s,
the response of many African governments had been to introduce direct controls, including
exchange rate controls and untargeted subsidies. This time policy responses were quite
different. Authorities generally refrained from direct controls with a few exceptions, such as in
Sudan, where the central bank introduced restrictions on foreign exchange to reduce import
demand.
Owing to fiscal prudence and generally better macroeconomic fundamentals, in the years prior
to the global crisis, and to the earlier debt relief, many countries were able to continue their
major public spending programmes. They thus avoided a pro-cyclical policy, which would have
aggravated the downturn. A number of countries, including South Africa, Kenya and Egypt, went
further by adopting stimulus packages and targeted programmes to mitigate the downturns
effect on poverty. But faced with deteriorating current accounts and falling exchange rates,
some countries, such as Angola, Ethiopia, Sudan and the Democratic Republic of Congo, were
forced to pursue tight fiscal policies to contain the fiscal and current account deficits and to
protect their foreign reserves.
71 | P a g e
The weakening of the economies together with stimulus packages caused fiscal balances in
Africa to deteriorate on average by around 6.5% of GDP, from a surplus of 2.2% of GDP in 2008
to a deficit of 4.4% of GDP in 2009, thus mitigating the downturn of aggregate demand.
Monetary policy was also eased in most African countries by reductions in key policy interest
rates. The fall in inflationary pressures due to lower energy and food prices facilitated this
monetary easing. In South Africa, the central bank responded to the recession by cutting the
repo rate by 500 base points. Other African countries also instituted sizeable rate cuts such as
Kenya where the Central Bank Rate was cut by 125 basis points to ease liquidity in the
economy.
5.4.5
African economies will gain strength in 2010 and 2011
In the course of 2009, the world economy has resumed positive growth, world trade has picked
up and commodity prices have rebounded from their troughs. This forecast assumes that the
global recovery will continue at a moderate pace in 2010 and 2011 and that prices of oil and
non-oil commodities will remain at satisfactory levels. After falling by 2.5% in 2009, export
volumes of African countries are expected to increase on average by 3.2% in 2010 and by 5%
in 2011. However, as commodity exports to a large degree drive Africas economic recovery,
this recovery is not broad-based. Investment activity will recover only moderately, and private
consumption will remain weak in many countries as employment, wages and remittances are
only gradually picking up and as in some countries households remain highly indebted. Special
factors will boost growth in several countries. These factors include new investment and/or new
production of oil and gas in Chad and Ghana, and of uranium in Namibia; the upcoming football
World Cup will support growth in South Africa. Africas real GDP is expected to grow on average
by 4.5% in 2010 and by 5.2% in 2011. While this is a clear improvement from sluggish growth in
2009, growth remains lower than in years prior to the global crisis.
72 | P a g e
CHAPTER SIX
6.0
RECOMMENDATIONS:
The examination of the current state of African stock markets indicates the many challenges
that these markets face specifically in terms of low capitalization and liquidity. However, they
continue to perform remarkably well in terms of return on investment.
Given the important role well-functioning stock markets seem to play in economic growth the
policy question then becomes what can countries do to promote them? Fully answering this
question is well beyond the scope of any single study. Legal, regulatory, accounting, tax, and
supervisory systems influence stock market liquidity. The efficiency of trading systems
determines the ease and confidence with which investors can buy and sell their shares. And
the macroeconomic and political environments affect market liquidity.
Well functioning domestic stock markets are vital for domestic resource mobilization, since they
provide incentives and profitable options for domestic capital to be retained. Retention of
domestic capital is important in the light of massive capital flight that Africa has witnessed over
the years. The development of the local stock market is important both in terms of buffering the
volatility of external capital flows and helping achieve the political success of privatization.
Moreover, if Africans themselves are reluctant to invest in their own local stock markets, it can
hardly be interpreted abroad as a vote of confidence. Consequently, domestic participation is
important in building international credibility. Thus, policy measures should target the
mobilization of domestic resources through the cultivation of attractive investment opportunities
and fostering deep and well-functioning domestic stock markets.
The recommendations proposed in this paper should not be viewed independently but rather as
part of a whole fabric, as essential units to a process dedicated to the goal of capital market
improvement. All-in-All, the recommendations are meant to serve as guidelines to policy
formulation and decision making.
73 | P a g e
6.1
Policies for building capacities of African Stock Markets:
The thinness and illiquidity of the current African stock markets, shortage of domestic resource
mobilization, the regions marginalization in the global markets for financial capital, coupled with
shrinking official aid flows, are at the heart of the challenges that these prescriptions are
intended to address.
Develop Incentives for listing on Stock exchanges as a means to achieve greater market depth
and trading activity. These include tax and fiscal incentives.
a) Foster public confidence and improve informational efficiency with disclosure rules,
accounting standards, enforceability of contracts, consistent with International best
practices.
b) Develop a well functioning stock market regulatory regime.
c) Privatization of state owned enterprises should be encouraged to be facilitated through
stock exchanges.
d) Strengthen institutions for corporate governance and adopt best international practice in
terms of measures for the effectiveness of the corporate Board of Directors and
increased shareholder rights against controlling shareholders/management.
e) Consolidate the African stock markets and harmonize laws, regulations, capital market
institutions and monetary systems across the integrating regions.
f)
Development of a talented financial manpower capable of managing risk for both the
banking and equity market sector toward the enhancement of risk control mechanisms
as markets become more sophisticated, and possibly venturing into the derivatives
arena.
g) Strengthen and build a well functioning securities markets regulatory scheme with strong
supervisory, monitoring and enforcement role for regulators (e.g. risk based supervision)
h) Conduct privatization programs with transparency and ban government intervention in
the privatized enterprises and engage in full privatization rather than partial privatization
to avoid continuing government interference.
i)
Foster the development of institutions that support and sustain African stock markets
such as pension funds, credit rating agencies etc.
j)
Develop a comprehensive capital market database to foster both practitioner/investment

analyst research and academic research-making it possible for African stock markets to
be subject to best research practices.
74 | P a g e
k) Quickly transform from manual into automated/electronic manual systems; the latter are
now the norm in the more advanced stock markets.
l)
Consider demutualizing the stock exchanges as a mechanism for improved governance

stemming from separation and ownership of exchanges and promoting investor
confidence in the system.
m) Introduce measures that help foster linkage between formal and informal financial
systems, with eventual graduation into the stock markets.
In the case of Kenya, while all the above prescriptions apply, there are specific policy
formulation areas we could focus on immediately when compared to markets outperforming the
NSE in the continent which include:
a.
To increase market size:
i.
The provision of more incentives and programmes to encourage more listings on the
stock exchange: e.g. In South Africa, the main driver of new listings has been their
active policy of looking for new companies that qualify for listing throughout the
whole country whether large or small. They also arrange many international road
shows.
ii.
The development of an OTC market (Alternative Trading Platform) that will cater for
the majority of companies that may wish to list but are hindered by the stringent
exchange requirements that could serve as an incubator market to the main
exchange. E.g. South Africa has developed an alternative exchange (AltX) for quality
small to medium companies. This is also the case with the Mauritius DEM. (The
study proposes that the Mauritius model could be adapted in the Kenyan context)
iii.
The introduction of a derivatives market: The JSE has also operated a single stock
futures market (SAFEX) since 2001 which is now the largest such market in the
world. The development and operationalization of the Kenya
Agricultural
Commodities Exchange would be a step in the right direction.

iv.
The development of mechanisms to encourage companies to engage in dual listings.
v.
The aggressive pursuit of establishing MOUs with regional exchanges to encourage

cross-listings.
75 | P a g e
b.
To increase liquidity in the stock exchange:
vi.
The complete automation of the market microstructure. This adaptation reduces the
costs and inefficiencies associated with manual systems increases trading activity
and liquidity in the stock markets by speeding up operations.
vii.
The introduction of alternative trading mechanisms in the stock market especially online trading, margin trading and short selling. However these mechanisms can only
be introduced once the stock market infrastructure and microstructure is fully
automated.
viii.
Consider policies to increase the amount of shares available for sale in the stock
exchange (free float) without actually affecting the demand for the same shares. This
can be achieved either through cross-listing, dual listing or integration of stock
exchanges.
ix.
Actively engage in programs aimed at achieving greater public confidence. Among

the principal measures that could assist in confidence-building are:
Increasing media understanding and reporting on business matters;
Increasing the enforcement authority of government agencies;
Committing to public education as a primary goal of the public sector;
Enlarging the capacity for institutional investing by pension and retirement funds; (as
the retail investors savings pool is traditionally low in Kenya)
Encouraging issuance of preferred shares and corporate notes by private

companies; and
Eliminating the second-tier labeling of listed securities as it is possible that this may
be viewed negatively by some companies as is the case in Kenya and Mauritius
before the latter rebranded the market.
It is encouraging to note that the Kenyan capital market is undergoing major reforms that are
geared towards addressing some of the issues highlighted above, in particular, the review of the
legal framework, the demutualization of the NSE, development and formalization of the OTC
markets, investor and public education and the adoption of a risk based supervisory regime.
76 | P a g e
c.
To Increase activity in the Bond Markets18:
The current financial crisis has added impetus and urgency to the need to develop domestic
capital markets in Africa due to the deteriorating fiscal space. The crisis has not only affected
the financial sector, but its impact is seen in the broader economy in terms of declining export
revenues and sudden reversal in capital flows, which hitherto had helped finance long-term
investments. This has led to deteriorating fiscal space, creating an urgent requirement for
governments to mobilize resources from domestic capital markets to help meet their budget
shortfalls. Furthermore, well-functioning and efficient domestic bond markets will guarantee
greater diversification of long-term financing and improve resource allocation into domestic
investments. This will enable African countries to access long-term debt in local currency
thereby providing much-needed financing for the constantly growing housing and infrastructure
needs.
This is imperative because these countries are unable to access international capital markets
and are faced with a likely decrease in aid financing in the face of the global financial crisis.
Indeed, it is estimated that Africa will need US$20 billion of infrastructure investment per year,
that is, double the current size, in order to narrow the gap with its developing country peers and
show faster progress toward the Millennium Development Goals (World Bank, 2005). This
translates into approximately 5 percent of GDP for initial investment and an additional 4 percent
of GDP for operation and maintenance (World Bank, 2005). The stock of housing finance is no
more than 2 percent in many African countries for which data is available compared to 39
percent in the European Union, 20 percent in South Africa, 16 percent in Thailand, and 15
percent in Chile (World Bank, 2007).
Bond markets, however, which are an integral part of the capital markets, remain largely
underdeveloped in Africa with corporate bond markets nonexistent or in their infancy. Indeed, in
most African countries the public sector dominates debt issuance, mainly with debt instruments
of very short tenor and activities focused on the domestic primary market with limited secondary
trading. As of the end-2006, 74 percent of the African countries issued treasury bills while only
49 percent of the countries issued longer-dated government securities (AfDB, 2007). Although
several countries have listed the bonds on the stock exchange, secondary market trading
remains virtually non existent due to the buy and hold strategy of domestic banks who hold the
18
Regional economic outlook, April 2007-IMF
77 | P a g e
bulk (about 70 percent) of the debt due, in part due to the limited lending opportunities and also
due to some prudential requirements like liquid asset ratios in some countries that require banks
to hold a certain amount of their assets in government-issued paper. With the exception of S.
Africa, corporate bonds markets are largely nonexistent.
Bond markets are characterized by fragmented markets, high transaction costs, illiquidity and
general dissatisfaction with the primary dealer system. There is a fragmentation of the market
as evident by an excessive number of bonds issued with no benchmark bonds and insufficient
liquidity in each of the issues. In some countries such as Botswana, there has been a lack of
government bond issues largely because the governments has hitherto run budget surpluses or
have access to cheaper concessional donor funds19. In addition, there is a general
dissatisfaction with the Primary Dealer (PD) system among the regulators who argue that the
PDs do not effectively discharge their market-marking functions while the dealers are concerned
about the insufficient incentives. Also, there is a lack of issuance programs which impedes
potential investors (and PDs) from anticipating the future supply of securities.
Further, there is a pre-dominant buy and hold strategy by investors in the region coupled with
limited corporate issues and a narrow investor base. The buy and hold strategy serves to
exacerbate the problems arising from a limited supply of securities. The limited corporate issues
are a reflection of the competition from bank loans, underdeveloped corporate advisory services
coupled with excessive issuance costs and restrictive regulatory practices. Additionally, in
several countries both the government and corporate bond markets are constrained by the
narrow investor base which may partly be a reflection of the dominance of government-run
statutory funds in the institutional investment sector and a legal framework that does not
encourage the emergence of private pension funds and asset managers and/or the restrictions
on the entry of foreign investors.
Within East Africa, there are also several national initiatives underway in seven key areas. First,
work is underway to promote liquidity through reforming the government bond system including
through the consolidation of bonds into benchmark issues and re-opening of issues. Second,
there are initiatives aimed at improving trading and settlement systems, third, some work is
19
This may change in 2009/10 as increased expenditures and lower revenues are expected to create a deficit of 14%
of GDP in 2009/10 which will be financed using government reserves and savings and, if required, by borrowing in
domestic and international markets (Botswana 2009/10 government budget).
78 | P a g e
underway to enhance transparency in primary and secondary markets. Fourth, there are efforts
to build links between issuers, regulatory authorities and market participants. Fifth, there are
efforts to reform the primary dealer system so as to enhance incentives for primary dealers and
strengthen the effective discharge of their responsibilities. Sixth, there is considerable marketing
and awareness-raising campaigns to encourage corporate bond issues and lastly, legal and
regulatory reforms are being undertaken.
The overall assessment of this report is that while bond markets at a national and regional level
remain largely underdeveloped, several initiatives are underway by governments, private
sectors and donors, however, with limited effectiveness. These are aimed at addressing
deficiencies in the legal system, enhancing bond issuance, broadening and diversifying the
investor base, strengthening market infrastructure, developing supranational, sub-national and
corporate bond markets and the promotion of regional initiatives. While pockets of collaboration
exist, a more inclusive partnership on the ongoing and planned initiatives is needed so as to
leverage synergies and maximize the effectiveness of the initiatives.
Market Reforms will have to focus on the following key issues:
How Local and Global capital can be harnessed by efficient markets
Investors will want to see:
certainty - of owning and selling securities
market liquidity
depth and breadth of securities and reflection of the economy
more and new products (derivatives)
fair and equal treatment
ease of trading
low cost of trading
Issuers will want to see:
ease of raising capital
efficient pricing
tax breaks
low costs associated with issuing
The following recommendations are therefore proposed:
79 | P a g e
Tax breaks to encourage more and varied issues
Encourage listings that reflect the economic mix
Lower trading and settlement costs
Negotiated brokerage
Lower statutory charges on higher turnover
More and varied products e.g. derivatives
Dematerialization of the securities industry
Electronic trading including on-line trading
Information availability both company and trading
Fair and equal treatment of all investors
Separate brokers from market oversight
Certainty and transparency around new primary issues
Ease of securities placements
Pension industry reform
6.2
More investment products e.g. unit trusts and ETFs
CONCLUSION
To the casual observer, one glance at the performance of African stocks in 2009 may be
enough to deduce that the continents stock exchanges severely underperformed last year
In spite of this poor performance the combination of prevalence of hot money from gains in
India and China as well as the flat yields expected in mainstream US and European markets,
means that investors are now looking for the real growth story of 2010. They would be well
advised to consider Africa as an investment destination. It is precisely because of last years
performance that African stocks are a good bet for 2010.
However, the potential of African stocks this year is not just based on economic cycles and
investor behaviour. Instead, Africa boasts solid economic fundamentals, with a cheap P/E ratio
of roughly 12 and a dividend yield of some 5 %. Because of last years performance, the market
is also awash with cheap valuations that are sure to be exploited. Moreover, because of the
symbiotic nature of stock exchanges across Africa, much of the damage done last year were
80 | P a g e
one-off events in one country that had a knock-on effect on markets across the region. As the
setbacks from these events subside, we can see markets recovering across the continent.
References:
1. The global financial crisis and sub-Saharan Africa The effects of slowing private capital
inflows on growth; Jos Brambila Macias and Isabella Massa; African Economic
Conference, 2009.
2. United Nations Development Programme (UNDP): African Stock Markets Hand book
2004.
3. African Business Research Ltd; ASEA conference, 2007.
4. The global financial crisis and sub-Saharan Africa The effects of slowing private capital
inflows on growth; Jos Brambila Macias and Isabella Massa; African Economic
Conference 2009.
5. World Federation of Exchanges Annual Report 2008.

6. ASEA Year Book, 2007-2009.
7. IMF Emerging Markets Database 2008-2009.
8. CMA Survey on Investor Profiles ant the Nairobi stock Exchange 2007.
9. Tables sourced from Senbet and Otchere ,2008.
10. List of African Stock Exchanges: www.wikipedia.org
11. CMA Kenya Quarterly Statistical Bulletin Dec 2009.
12. United States World Commodities Trade Statistics , 2000.
81 | P a g e

A Comparative Analysis of Theperformance o FAfrican Capital Market Volume 2 2010

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A COMPARATIVE ANALYSIS OF THE PERFORMANCE

OF AFRICAN STOCK MARKETS FOR THE PERIOD

RUNNING HEADER: A Comparative analysis of the Performance of African Stock Markets

Background to the Study

Structure of The Study

Significance of the Study

Objectives the Study

Scope of the Study

Limitations of the Study

A Brief Literature Review

Presentation and Findings

Analysis and Findings

The State of African Capital Markets

The State of African Bond Markets

Profiles of African Stock Exchanges

The Global Financial Crisis

Recommendations & Conclusion

List of African Stock Exchanges

African stock exchanges market capitalization

Number of listed companies

Market Capitalization of Listed companies (% of GDP)

Market turnover/Value traded

Annualized % growth of market capitalization

Domestic debt in sub-Saharan Africa

Value of Bonds traded

Bond turnover (% of GDP)

African stock exchange structure

Automation of African Stock Markets

Number of listed companies

Market capitalization (% of GDP)

Annualized % returns to African equity markets

Average annual dollar returns to various regions

USD returns to African equity markets (2006)

USD returns to African equity markets (2007)

Annualized % growth of market capitalization

Standard deviation of annual returns

Bond market development in Africa

Gross Domestic Product

Heavily Indebted poor countries

International Organization of Securities Commissions

Multilateral debt relief initiative

Organization for economic cooperation and development

Standard & Poors 500

Securities Exchange and Development Enterprise Market Index

United States Dollars

West African Economic and Monetary Union

World Economic Outlook

THE PERFORMANCE OF AFRICAN EQUITY MARKETS

Number of Listed Companies

Market Capitalization as a % of GDP

WFE Annual report, 2009.

Equity Turnover as a % of GDP

Annualized Index Returns

Annualized Growth in Market Capitalization

THE PERFORMANCE OF AFRICAN BOND MARKETS

Lack of institutional and operating infrastructure

Low levels of liquidity

Narrow investor base

Narrow issuer base

High borrowing costs

Bond Turnover as a % of GDP

Table i: Bond Turnover as a % GDP

Table ii: Comparative BTO as a % of GDP

PERFORMANCE OF COMMODITIES AND FUTURES MARKET