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The largest stock exchanges in Africa are connecting their networks to facilitate the financing of the economy. The interconnection of seven financial centers is a first step towards creating an African capital market.
Seven stock exchanges participate in this platform, which is still in the experimental phase: Johannesburg, Lagos, Nairobi, Casablanca for Morocco, Abidjan, the Egyptian stock exchange and the Mauritius stock exchange. A heterogeneous union in terms of the size of the participants: the BRGM, which brings together the eight countries of the sub-region, weighed 10 billion dollars in market capitalization at the end of 2021, ten times less than Johannesburg, the oldest and most prosperous of African stock exchanges. with more than 1,000 billion dollars in market capitalization. But interconnection is not fusion, it is above all a means of better circulating money from one country to another in a continent that is still hyper-fragmented.
In concrete terms, how does that work ?
With this platform, an Ivorian can buy a share issued in Nairobi by contacting the sworn Ivorian broker. He will then get in touch with his another self Kenyan to carry out the operation. The fee should not double, but be shared between the two brokers. On a continent where only one in ten adults has a bank account, talking about cross-border stock market investing may seem surreal. However, it is an essential development to make the stock market more attractive, explains Ange Panou, economist at Sika Finance. Savers, whether individuals or institutions, such as pension funds, will thus be able to diversify their investments. For Nigerians who suffer from frequent depreciations of the naira, buying debt issued in CFA francs on the Ivorian market, for example, can be a good way to protect their capital. Going through sworn brokers also means securing your specific Ange Ponou operation. Investing in the stock market is safer than the fraudulent Ponzi schemes that have ruined overly gullible Ivorians. Not to mention crypto investments, so easy to access, yet so dangerous to preserve value.
Is the Stock Exchange really appreciated by African companies?
Today in Africa, most people prefer to finance themselves through bank loans or private equity, private funds, because it is cheaper, less demanding in terms of regulation, and less complicated than the stock market. As a result, the fruits of the growth achieved by these companies enrich the banks or the funds but not the premises, while on the stock market the dividends are redistributed at the end of the year to the local shareholders. The interconnection will thus make it possible to attract capital from new horizons and thus to attract businesses. On condition of also creating new markets adapted to the size of the SMEs which form 80% of the economic fabric of a country like Côte d’Ivoire.
Initially, it was the States that promoted the interconnection of African Stock Exchanges
The idea was launched in 2015. States realized that raising capital on Western markets, the famous Eurobonds, could prove dangerous when the euro or the dollar strengthened. With the interconnection of stock exchanges, they hope to be able to finance themselves on the African market, which partially reduces the exchange risk, and makes them less dependent on Western or Asian creditors in the event of a debt crisis. The pandemic has weakened the finances of African states, but it has also accelerated projects to interconnect stock exchanges, believes Ange Ponou. If the experiment carried out since Friday is conclusive, the new platform will be inaugurated at the beginning of December in Abidjan.