For investors, the desire is clear: well-regulated markets that meet international standards, but without being over-regulated.
This tension between regulation and accessibility is at the heart of Africa’s capital market integration debate.
The road to integrated and efficient capital markets in Africa is long and fraught with challenges.
The Vision:
Market participants agree that harmonising regulations, reducing trading costs, and improving information flow are essential steps toward creating a more interconnected financial ecosystem.
The Current State of Affairs:
Capital markets in Africa are still relatively small and fragmented, Markus Scheuermaier, Senior Country Officer for Botswana and Lesotho at the International Finance Corporation told the African Securities Exchanges Association (ASEA) Conference last year November.
He pointed out that these markets are not always regulated to international standards, and this lack of uniformity makes cross-border investments difficult.
Adding to this concern was Abena Amoah, Managing Director of the Ghana Stock Exchange, noting the region’s "complex, fragmented rulebook". It's a structure that raised her question: What if we threw it out entirely?
Contemplating A Shared Stock Exchange:
Economist Dr Keith Jefferis ponders the idea of smaller countries surrounding Botswana benefitting from shared stock exchanges, rather than each maintaining their own.
However, this vision faces significant challenges, considering the diverse regulatory, political, and economic conditions across the continent.
Amoah, a firm believer that every country needs its own capital markets and stock exchange, cited the importance of local ownership in capital formation.
Experts like Selloua Chakri, founder of SCL Advisory call for consensus-building across countries to drive integration and market growth. For Chakri, the key question remains: Where do we start, and what do we have in common to move forward?
The High Cost of Fragmentation:
One of the significant challenges facing African capital markets today is the high cost of maintaining separate stock exchanges.
Dr. Jefferis pointed to the fact that smaller exchanges incur substantial costs for IT infrastructure, trading systems, and other fixed expenses. He proposed that sharing resources could reduce costs while maintaining national identities. By sharing systems, countries could cut overheads and, in turn, make their markets more attractive to both local and international investors.
In supporting this view, Amoah proposed that markets should focus on reducing operational costs and making investment instruments more widely available across African markets.
Zoom Into Barriers:
Cross-Border Investments
Elevated costs for exchanges seem to be passing on to investors, an obstacle to cross-border investments in Africa.
Sunil Benimandhu, CEO of the Stock Exchange of Mauritius, highlighted the significant fees associated with currency conversion for cross-border trading. This not only drives up transaction costs but also discourages investors from diversifying their portfolios across African exchanges.
For the African Exchanges Linkage Project (AELP) to reach its potential, he argued that these costs must be reduced, making cross-border investments more viable.
Information Asymmetry
Moreover, Benimandhu noted the information gap between investors and the opportunities available on African exchanges. He pointed out that even within the exchange space, many stakeholders are unaware of attractive investment opportunities in markets such as Kenya or Nigeria as an example. He stressed that closing this informational gap is crucial for attracting both local and international capital flows into African markets.
Liquidity And Ticket Sizes
For African capital markets to thrive, companies listed on the continent’s exchanges must offer growth potential that appeals to global investors.
Jefferis noted that liquidity and ticket sizes are often barriers for international investors, but a broader range of investment instruments could address these concerns.
For Africa to become a magnet for global capital flows—both from within the continent and beyond—it will need to develop financial instruments that meet global standards while catering to the unique needs of African markets.
Experts say this will require deep collaboration across exchanges, regulators, and investors to ensure that companies can scale and attract the capital they need to grow.
Zoom out:
West African Capital Market Integration Council
The creation of the West African Capital Market Integration Council (WACMIC) represents a significant step toward harmonising financial regulations.
Comprising leaders from the stock exchanges of ECOWAS member states, including Ghana, Nigeria, Sierra Leone, and others, WACMIC’s goal is to streamline rules for issuing and trading securities across the region.
According to Amoah, regulators are now in the process of operationalising these rules, after nearly 13 years of efforts—a milestone that has the potential to transform the way capital flows across West Africa.
SADC Protocol on Finance and Investment
In Southern Africa, the Southern African Development Community (SADC) is also making strides with its Protocol on Finance and Investment, which was established in 2006. The protocol aims to create a harmonised securities market to attract investment and boost regional economic competitiveness.
The Bigger Picture:
During a panel discussion on the future of capital markets, Dr. Jefferis argued that such efforts are crucial for emerging markets, which need to adopt regional perspectives rather than overly nationalistic ones.
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