How African stock markets can power the continent’s economy.

African stock markets are fairly nascent, especially when compared to the big global exchanges like NYSE, or the London Stock exchange. However, even though miniscule at present, the African stock markets prominence is growing ever more by the day. As of December 2009, the world’s stock exchanges had a market capitalization of $46.5 trillion. Africa accounted for only 2 percent of this capitalization. In that year, South Africa, Nigeria, and Egypt stock exchanges accounted for much of the stock exchange activity in the continent.

Still, more needs to be done to increase the number of listed firms in the stock exchanges. As of 2009, the listed firms in Africa accounted for only 3 percent of the global listed firms. What’s more, in recent years, there has been a reduction rather than an increase in the number of listed companies in the stock exchanges. There are many reasons why more companies are not trooping to the stock exchanges as happens elsewhere in the world.

For one, many businesses in Africa are family owned. This is the same scenario with other businesses elsewhere on the globe. However, in Africa, we find that there is an even more resolve for the small and medium owned family businesses to retain full control over their businesses. Given the general nature of funding for such businesses, it becomes easier to see why this trend is so widespread. Most

small business founders use their own sources of funding, or from friends and family, as opposed to angel investors and venture capital firms. Even for expansion, it’s all about bootstrapping as taking business loans and funds from outside sources is greatly frowned upon- especially when it means giving up some ownership of your business, and opening up your business to more scrutiny from the various stakeholders.

While the Initial Public Offer- IPO, is the hallmark that a founder has arrived in the United States, and increasingly in China, it’s not so in Africa. To this end, the stock exchanges must do more to enhance their reach to founders and business people, and sell to them the stock markets as capital raising vehicles. To confirm this trend, in the year 2009, there was a net reduction of 76 companies that had delisted from the African stock exchanges. In the subsequent years, the statistics may even be grim. What’s more, much of the activity in the stock exchanges is being facilitated by foreigners rather than natives.

However, some exchanges are getting ever more innovative. The Nairobi Securities Exchange for instance, recently launched a special scheme to allow small and medium sized growth enterprises to secure funding for expansion. It has also launched a real estate trust fund, which would see investors with as little as $20 dollars able to make investments in the currently booming real estate sector in Kenya. It must be noted that in Africa, shares and trading in the securities faces competition from other investment avenues, especially land and real estate, sectors that many assume to have a quick return to investors- while not breaking too much sweat in the process.

Equally, there are few commodities exchanges in the continent, which is rather a shame considering that three out of every five jobs in Africa directly or indirectly depend on agriculture, and the commodities sector.

In that regard then, quickly modernizing the stock exchanges, increasing the number of financial instruments to be traded, and enhancing the credibility of the stockbrokers and financial advisers, as well as adopting online trading platforms would go a long way towards putting stock exchanges at the center of any investment debate in the continent.