Africa
AFRICA, buffeted by fiscal, environmental and political risks, urgently needs to develop vibrant capital markets to bolster its economic growth and accelerate sustainable development, financial experts have argued.
Participants at the 27th African Securities Exchanges Association, ASEA, Conference, hosted in Gaborone, Botswana from 26-27 November 2024 underscored that Africa can benefit from viable capital markets through the mobilisation of domestic resources at a time the continent is facing high indebtedness and the lack of affordable finance.
“Access to finance is a major constraint to African development and capital markets are a key player to overcome this constraint,” said Jean-Marc Kilolo, Economic Affairs Officer, with the Economic Commission for Africa (ECA), speaking at the opening of the conference.
Organized by the the African Securities Exchanges Association, ASEA, the African Securities Dealers Association, ASSDA, African Exchange Linkage Project, AELP, and the Economic Commission for Africa, ECA, the two-day conference will explore the theme, “Enhancing Africa’s Capital Markets Collaboration and Integration through the AELP.”
The chair of the Botswana Stock Exchange, Kopano Bolokwe, noted that some significant strides have been made in the regional AELP project as an avenue for fulfilling long-held aspirations for the integration of African capital markets.
Bolokwe highlighted the need to recognise the differences between African countries in governing laws, securities rules, trading and post-trading, clearing and settlement mechanisms in looking at market integration.
He challenged African stock exchanges and brokers to do the “heavy lifting” in ensuring the smooth integration of capital markets under the AELP project.
ECA is supporting the deepening financial markets in Africa through technical assistance. For example, ECA has assisted the Ethiopian Stock Exchange and the Uganda Stock Exchange in crafting its strategic document on the local currency bonds market. Besides, ECA provides capacity building support to member States to ensure there are more African sovereigns that are investment grade, in order to reduce risk perception on the continent.
ECA has been pushing for the reform of the global financial architecture with a key aim to reform sovereign credit rating in order to reduce the perceived risk of African and get an accurate assessment of creditworthiness. Currently there is a gap between the perceived risk and the real risk that hinders long term investment.
“In tackling the perceived risk in Africa, it is very important to make sure that African officials know how to engage sovereign credit rating agencies, so we need to build statistical capacity to provide accurate information so that we have assessments that reflect our potential,” Kilolo said, emphasising that the African Peer Review mechanism is supporting the establishment of an Africa credit rating agency to provide an alternative assessment that accounts for Africa’s idiosyncrasies.
African countries are paying more in debt payments than the amount they are getting from concessional funding and foreign aid.
ECA is promoting the development of a regional stock exchange where carbon credits and other green instruments could be traded. This would facilitate the monetisation of ecological services that Africa offers the world, thanks notably to the second largest forest it hosts in the Congo Basin.
Participants discussed ways to strengthen African capital markets through integration and cooperation, paving the way for increased liquidity and cross-border trading. The call for deeper financial market development is urgent. Africa’s reliance on foreign capital exposes economies to exchange rate risks and global financial shocks.
AELP fosters market connectivity by linking stock exchanges, and enabling brokers to execute trades directly across participating markets.
“The AELP project is of paramount importance for our continent’s capital markets integration as we have chosen to link our markets,” said Pierre Celestin Rwabukumba, the chair of the ASEA, adding that, “The importance of the AELP on linking our markets is obvious. Not only are we linking our markets, but we are improving our liquidity if we manage to do it in the right way and we are working together towards one common goal of raising more money for our economies.”
The AELP covers several key exchanges including the Botswana Stock Exchange, Casablanca Stock Exchange, Bourse Régionale des Valeurs Mobilières, BRVM, The Egyptian Exchange, Nairobi Securities Exchange, Nigerian Exchange, Johannesburg Stock Exchange, Ghana Stock Exchange, Stock Exchange of Mauritius and Uganda Securities Exchange.
Through a single, connected investment space, the AELP helps African markets grow more competitive globally and offers new opportunities to both local and international investors. Under Phase 1 of the AELP seven largest African stock exchanges and 31 stockbrokers were interconnected and Phase 2 of the project currently underway will expand interconnectivity to include ten exchanges and potentially 50 stockbrokers by the end of 2025.
Strong local financial systems can support long-term investments, improve economic resilience, and enhance economic sovereignty, participants, the conference heard. It was discussed that by developing domestic financial markets, African countries can reduce dependence on volatile foreign capital and manage capital flows more effectively.
A.I
Nov. 28, 2024
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