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Message from the Coordinator

12.01.2015Stefan Nalletamby

Dear Readers,

Happy New Year to you and your loved ones! 2014 was an important year for the MFW4A Partnership Secretariat, characterised by substantive progress in the implementation of our 2012 - 2014 Strategy and our move from the African Development Bank's (AfDB) temporary home in Tunis to the Bank's statutory headquarters in Abidjan. The move was made possible thanks to the resilience and goodwill of our staff who worked hard to ensure business continuity.

The third Partnership Forum in Dakar, Senegal, in June 2014 was a significant milestone for us. The event provided a unique opportunity for African opinion leaders, financial sector stakeholders and development partners to take stock of progress in Africa's financial systems, share experiences, exchange best practices, and discuss innovative approaches to challenges facing African financial systems. All of us at the Partnership Secretariat are grateful for your enthusiastic support as evidenced by the participation of more than 350 delegates from over 40 countries. Our thanks also go to the Organising Committee for putting together such a rich event. You can view a selection of photos from the Forum on Flickr, and download the full Forum report from our website.

In 2014, the Secretariat placed special emphasis on its work with African financial sector stakeholders. The Advisory Council was revamped and reconstituted as a smaller body with a mandate to provide advice and effectively support and contribute to the Partnership's strategic objectives. We look forward to engaging with our new Advisory Council members in 2015. Last year also saw the establishment of the African Pension Funds Network (APFN), a platform for the exchange of knowledge and expertise amongst industry participants across the continent. The network already counts several achievements, including the release of a joint publication Pension Funds and Private Equity: Unlocking Africa's Potential, with the Commonwealth Secretariat and the Emerging Markets Private Equity Association (EMPEA).

We also continued to strengthen our existing networks, including the Community of African Banking Supervisors (CABS), whose 2014-2016 work plan and budget was endorsed by the Association of African Central Banks (AACB) Bureau. In agricultural finance, we supported the Comprehensive Africa Agricultural Development Program (CAADP) through institutional support projects. We hired an agricultural finance expert with the support of GIZ to help with the policy process in the CAADP implementation. GIZ also funded a study to review the status of agricultural finance policy coordination across five African countries. You can download the Synthesis Report in both English and French.

Another cornerstone of our success in 2014 was our commitment to support regional and pan-African networks. We launched programmes to support the Conference Interafricaine des Marches d'Assurance (CIMA), the insurance regulator covering 14 francophone countries in West and Central Africa; and, the Conseil Régional de l'Epargne Publique et des Marchés Financiers (CREMPF) the capital markets regulator for the West African Monetary Union (WAMU), to raise funding for their respective market development strategies.

We also continued to coordinate donors' efforts to support financial sector development. The Housing Finance Donor Working Group (DWG) initiated discussions on the launch of a training programme for the francophone participants, in collaboration with Cape Town University and under the leadership of the Agence Française de Développement (AFD). Moreover, work plans were endorsed for both the Digital Finance and Remittances DWGs with plans to launch joint donor interventions in 2015 that respond to the priorities of Africa's financial sectors.

Our website was upgraded in 2014 to provide an enhanced browsing experience. The high and continuously increasing usage of the website, blogs, social media, newsletters, press digests, and the knowledge centre that houses publications confirm the value of MFW4A's knowledge products and services. We have also developed an Online Collaborative Platform (OCP) designed to facilitate interactions among MFW4A working group members, foster knowledge sharing and promote peer-to-peer learning. Last but not least, we have been maintaining a comprehensive Donor Projects' Database that is proving useful for our stakeholders seeking information on financial sector related projects in Africa.

Our Annual Supervisory Committee (SC) Meeting was held in December 2014, hosted by the German Federal Ministry of Economic Cooperation and Development (BMZ) in their headquarters in Bonn, Germany. MFW4A SC members, staff, and some Advisory Council members discussed the Partnership's new three-year Strategy, expected to be endorsed at the end of January, 2015. The 2015-2017 Strategy will put the Secretariat and the Partnership in a stronger position to deliver the change that Africa's financial sector needs. Specifically, the Strategy aims to:

  • Transform MFW4A from a partnership of donors to a partnership between donors and African financial sector stakeholders;
  • Elevate the Partnership from its current position of a knowledge hub into an effective catalyst for positive change in the financial sector landscape; and
  • Ensure long-term financial sustainability for the Partnership and the Secretariat.

The achievements of the MFW4A Partnership Secretariat are the result of hard work and commitment of our partners and African financial sector stakeholders. I would like to extend my heartfelt appreciation for all of your support and engagement with our vision. MFW4A has become a key voice on financial sector development in Africa, and a lot of the interaction and the sharing of the knowledge and experiences in the field stem from the Partnerships' initiatives. Let's continue to keep this positive momentum going!

Stefan Nalletamby
MFW4A Partnership Coordinator



Pension Funds and Private Equity: Unlocking Africa’s Potential

21.07.2014Stefan Nalletamby

Dear Readers,

A resounding thank you to everyone who joined us in Dakar, Senegal, last month for our Partnership Forum. I hope you found the event as engaging and stimulating as we did. One of the lessons for the Secretariat that emerged from the Forum discussions is the need to deepen our engagement with key stakeholders in support of financial sector development in Africa. This means that we will be doing things differently, rather than doing different things. Our emerging work programme with pension funds is an example of this.

Pension funds play a critical role in finance through the mobilisation and allocation of stable long-term savings to support investment. Recent reforms in many African countries have created private pension systems, which are rapidly accumulating assets under management (AUM). The Nigerian pension industry, for example, grew from US$7 billion in December 2008 to US$25 billion in December 2013[1]. Similarly, Ghana's pension industry is expected to expand by up to 400 per cent in the four years from 2014 to 2018[2]. Pension assets now equate to some 80 per cent of GDP in Namibia [3] and 40 per cent in Botswana[4]. How can Africa mobilise these domestic resources to support private sector development, as well as the investment in infrastructure and social services that need to drive continued growth and transformation? How can these long-term savings support the development of capital markets on the continent?

In the coming days, we will be releasing a joint publication, "Pension Funds and Private Equity: Unlocking Africa's Potential" with the Commonwealth Secretariat and the Emerging Markets Private Equity Association (EMPEA). The report provides information that is crucial to a better understanding and appreciation of the pensions industry in Africa. In addition to outlining the latest data and regulatory profiles for 10 African countries, the report estimates how much capital could be available to support private equity in these countries as well as how much has already been mobilised to date. We chose to focus on private equity in particular because in the context of underdeveloped capital markets and a lack of long-term financing, private equity is an attractive option for African companies in search of capital and can be a catalyst for job creation and economic growth.

The report profiles the pension industries of Botswana, Ghana, Kenya, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Uganda and Zambia, in addition to providing expert insights from practitioners in the industry. The aim of this comparative analysis is to advance the dialogue among African pension fund managers, pensioners, regulators and other industry stakeholders about private equity and further the exchange of best practices across the region and with other emerging and developed markets. Whilst this publication focuses on private equity, the lessons learned are applicable to other sectors such as infrastructure and housing, as well as how these long term savings can be used to support the development of capital markets.

In that vein, and based on the publication, we are engaging with pension fund managers, through our recently launched Africa Pension Funds Network (APFN), to explore how the various barriers to unlocking domestic capital can be addressed. APFN was inaugurated during the Partnership Forum in Dakar in June, and membership currently includes industry associations and pension fund managers from Botswana, East Africa (covering Burundi, Kenya, Rwanda, Uganda, Tanzania and Zambia), Namibia, Nigeria, and South Africa, with more countries expected to join in the coming months. The network will provide a platform for exchange of knowledge and expertise amongst industry participants across the continent. The network will also facilitate cross-country collaboration through co-investments, peer-to-peer learning and provide a forum for engagement with other financial sector stakeholders at the pan-African level. We are already in discussions with the International Organisation of Pension Supervisors (IOPS) about the possibility of organising a meeting between African Pension Supervisors and APFN at the IOPS Global Forum in Namibia in October.

We will be building on these foundations over the summer using new tools such as our Online Collaborative Platform, an interactive and secured social networking platform aimed at supporting and catalysing MFW4A networks and working groups, the African Partners Directory, a database repository of key stakeholders active in Africa's financial sectors, and the more traditional tools like the bi-weekly newsletter.

To conclude, I would like to extend special thanks to all our partners for the constructive and stimulating collaboration that is driving us towards our common goal of promoting Africa's financial sectors. I would also like to thank the Secretariat team for their sterling efforts and achievements so far.

To all our readers, sincere and best wishes for an enjoyable and restful summer/winter break.

Stefan Nalletamby
MFW4A Partnership Coordinator



[1] National Pension Commission Nigeria (PenCom).

[2] According to National Pensions Regulatory Authority officials, pension industry assets could grow from ¢1.06 billion to ¢5.5 billion in this period.

[3] Namibia Financial Institutions Supervisory Authority Annual Report, 2013.

[4] Based on Non-Bank Financial Institutions Regulatory Authority (NBFRIA) and World Bank figures.

Financial sector research in Africa – looking forward

11.11.2013Thorsten Beck

It is about two years ago that the AfDB, GIZ and World Bank published the Financing Africa book, a broad analysis of trends in Africa's financial systems, of gaps and challenges, and of different policy options. For researchers focused on Africa's financial systems, the past years have been exciting, with many different forms of innovations being introduced and assessed. But there have also been new challenges for analysts and policy makers alike, as I will lay out in the following. Cooperation between different stakeholders, including practitioners, donors, policy makers and researchers can help move forward the frontier for Africa's financial systems. In the following, I will focus on five areas where more data and more research can support better informed policy making.

Long-term finance

One first area is that of long-term finance, which can be seen as the second (next to lack of financial inclusion) critical dimension of shallow financial markets in Africa. As documented in the Financing Africa publication, there is a bias on banks' balance sheets toward short-term liabilities and, more critically, short-term assets, only few countries have liquid equity and debt markets, and there is a dearth of effective contractual savings institutions, such as insurance companies, pension funds and mutual funds. This dearth of long-term financial intermediation is in contrast to the enormous need for long-term financing across the continent, for purposes of infrastructure, long-term firm financing for investment and housing finance.

The long-term finance agenda is an extensive one, both for researchers and policy makers. First, there is still a dearth of data on long-term financing arrangements, including on corporate bond market structures and costs, insurance markets and private equity funds. Second, identifying positive examples and gauging interventions and policies will be critical, as will be expanding to Africa the small literature on equity funds and their effect on enterprises that exists for U.S. and Europe and (increasingly) for emerging markets. One important constraint mentioned in the context of long-term finance is the lack of risk mitigation tools. Partial credit guarantees can play an important role, but their design and actual impact has not been studied sufficiently yet.

Small enterprise growth

A second important challenge is that of extending the financial inclusion agenda from micro- up to small enterprises, both in terms of supply- and demand-side constraints. The emphasis stems from the realization that job-intensive and transformational growth is more likely to come through formal than informal enterprises. Assessing different lending techniques, delivery channels and organizational structures conducive to small business lending is important, as is assessing the interaction of firms' financing constraints with other constraints, including lack of managerial ability and financial literacy. This research agenda is important for both financial institutions and policy makers. For financial institutions, the rewards can lie in identifying appropriate products for small enterprises and entrepreneurial constraints that might prevent take-up and impact repayment behavior by small enterprises.

For policy makers, the rewards can lie in identifying policies and institutions that are most relevant in alleviating small firms' growth constraints.

Regulatory reform agenda

A third important challenge refers to regulatory reform. While global discussions and reform processes are driven and dominated by the recent Global Financial Crisis and the fragility concerns of economies with developed if not sophisticated financial markets, Africa's fragility concerns are different and its reform capacity lower. Some of the suggested or implemented reforms seem irrelevant for almost all African countries (such as centralizing over-the-counter trades) or might have substantially worse effects in the context of shallow financial markets than in sophisticated markets increasingly dominated by high frequency trading (such as securities trading taxes). Prioritizing regulatory reforms according to risks and opportunity costs for financial deepening and inclusion is therefore critical in the definition of the regulatory reform agenda for African countries. While not necessarily an area for fundamental academic research, financial sector researchers can contribute to this conversation by helping identify regulatory constraints for financial deepening and broadening and potential sources for stability risks, based on past experiences from Africa and other regions.

Cross-border banking

A fourth important challenge is that of cross-border banking and the necessary regulatory framework. Identifying cross-border linkages between countries is critical, and data collections, such as by Claessens and van Horen (2014), represent an important first step. Understanding the channels through which cross-border banking can help deepen financial systems and foster real integration, and the channels through which cross-border banks can threaten financial stability, is critical. In this context, the optimal design of cross-border cooperation between regulators and supervisors to minimize risks from cross-border banking while maximizing its benefits is important (Beck and Wagner, 2013). African supervisors have been addressing the challenge of regulatory cooperation both on the bi-lateral and sub-regional level as well as on the regional level, with the establishment of the Community of African Bank Supervisors. Financial research can support this cooperation and integration process.

The politics of financial sector reform

A final important area is the political economy of financial sector reform. Short-term political interests and election cycles undermine the focus on long-term financial development; interests to maintain the dominant position of elites undermine the incentives of governments to undertake reforms that can open up financial systems and, thus, dilute the dominant position of the elites. On the other hand, the financial sector is critical for an open, competitive, and contestable economy because it provides the necessary resources for new entrants and can thus support economic transformation. Better understanding the political constraints in financial sector reforms and identifying windows of opportunity are therefore important. Focusing on the creation of broader groups with a stake in further financial deepening can help develop a dynamic process of financial sector reforms. An increasing literature has tried to understand the political economy of financial sector reform in developed and emerging markets; extending this literature to Africa can support the optimal design of financial sector reform programs.


Research in these five areas will have to be supported by an array of new data and a variety of methodological approaches. This implies expanding data availability towards non-bank providers, such as equity funds, but also exploiting existing data sources better, including credit registry and central bank data sets. In addition to exploiting more extensive micro-level data sets, a variety of methodological approaches is called for. I would like to point to just two of them. First, randomized experiments involving both households and micro- and small enterprises will shed light on specific technologies and products that can help overcome the barriers to financial inclusion in Africa. One of the challenges to overcome will be to include spill-over effects and thus move beyond partial equilibrium results to aggregate results. Second, further studies evaluating the effect of specific policy interventions can give insights into which policy reforms are most effective in enhancing sustainable financial deepening and positive real sector outcomes.

For research to succeed in obtaining the necessary data, asking relevant questions but also maximizing its impact, a close interaction between researchers and donors, practitioners and policy makers is necessary. This relationship can often be critical for obtaining micro-level data, such as from credit registries or specific financial institutions, or for undertaking experiments or RCTs. However, these links are also critical for disseminating research findings and having an impact on practice and policy in the financial sector.


Thorsten Beck is Professor of Banking and Finance at Cass Business School in London and Professor of Economics at Tilburg University in the Netherlands. He was the founding chair of the European Banking Center at Tilburg University from 2008 to 2013. Previously he worked in the research department of the World Bank and has also worked as consultant for - among others - the IMF, the European Commission, and the German Development Corporation. His research and policy work has focused on international banking and corporate finance and has been published in /Journal of Finance/, /Journal of Financial Economics/, /Journal of Monetary Economics/ and /Journal of Economic Growth/. His research and policy work has focused on Eastern, Central and Western Europe, Sub-Saharan Africa and Latin America. He is also Research Fellow in the Centre for Economic Policy Research (CEPR) in London and a Fellow in the Center for Financial Studies in Frankfurt. He studied at Tübingen University, Universidad de Costa Rica, University of Kansas and University of Virginia.

References and further readings

Beck, Thorsten, 2013a. Finance, Growth and Fragility: The Role of Government. CEPR Discussion Paper 9597.

Beck, Thorsten, 2013b. Finance for Development: A Research Agenda. Research Report for ODI.

Beck, Thorsten and Robert Cull, 2014. Banking in Africa, in: Berger, Allen, Phil Molyneux and John Wilson (Eds.): Oxford Handbook of Banking, 2nd edition.

Beck, Thorsten, Samuel Munzele Maimbo, Issa Faye, and Thouraya Triki, 2011. Financing Africa: Through the Crisis and Beyond. Washington, DC: The World Bank.

Beck, Thorsten and Wolf Wagner, 2013, Supranational Supervision: How Much and for Whom? CEPR Discussion Paper 9546.

Claessens, Stijn and Neeltje van Horen. 2014. Foreign Banks: Trends and Impact. Journal of Money, Credit and Banking, forthcoming.

Bond index: why the weighting methodology matters?

30.09.2013Cedric Mbeng Mezui, Christian Schedling

Indices have been around for centuries to measure performance and change. The first conceptual index was created by Rice Vaughan in 1675 in his book 'A Discourse of Coin and Coinage' when he compared price levels over time (Chance, 1966). In 1707, William Fleetwood published the first price index in the Chronicon Preciosum to show the change of prices over time (Chance, 1966). The first investment index was calculated when, according to McHugh and Wood (2006), Charles Henry Dow "invented" the concept of following parts of the stock market separately as indices, in 1896. As editor of the Wall Street Journal, he believed that "averages" or indices can be an indicator of business conditions. Charles Dow set up the rail index (now called the Trannies) and the Industrial index.

Many initiatives have been launched to construct weighted benchmark indexes to reproduce the underlying performance of emerging and African domestic bond markets, such as Ecobank Middle Africa Bond Index, JP Morgan EM Index, JP Morgan Next Generation markets index, Citi's WGBI, the GBI-EM Index, etc. They all look at a clear and transparent set of inclusion rules for selecting countries and instruments eligible for the index. This is well aligned with the African Development Bank agenda to actively contribute to the development of sustainable domestic debt markets in Africa through the creation of the African Domestic Bond Fund (ADBF) which will be invested in local currency denominated sovereign and state guaranteed sub-sovereign bonds.

An index is defined as a selection of securities with the same or similar risk features chosen to represent a particular market. Investors use indices to measure the performance (i.e. beta) in those particular markets. However, the debt crises in Europe for both sovereign and corporate bonds have steered some investors to query the advantages of indexes constructed based on the traditional technique of market-capitalization. For some index developers, cap-weighted fixed income indices are considered to provide suboptimal portfolio allocations and impair performance.

Market capitalization-weighted fixed income indexes

For an index to measure market performance it should be fully inclusive. For practical purposes it is impossible to measure the beta of every single instrument in the market. Therefore a representative sub-set is selected based on a transparent, replicable, relevant and objective rules set. For practitioners, a cap-weighted index reveals the relative value of debt securities as determined by market participants, without altering the market's relative structure. The main variable defining a security's weight in a cap-weighted index is its price (Bennyhoff, 2012). In an open economy, the market price of a security reveals every market participant's information, views, and anticipations about the value of that bond. Additionally, a liquid market makes sure that the price of any given security reflects the consensus appraisal of its intrinsic value, accounting for the projected risk and return from every investor's valuation practice. The cap-weighted index is the benchmark for most of fixed income investors. It holds its constituents in proportion to the size of their issuance. A benefit of the cap weighted index methodology is the easiness to track because it changes automatically as the price of underlying bonds change.

However, for many index developers (Arnott, Hsu, Li and Shepherd, 2010), the optimality of cap-weighted indexes as investment options hinge on the hypothesis of perfectly efficient capital markets and rational investors with mean-variance utility preferences. In the real-life, market mispricing is reflected in the market prices. As the rationale is that a cap-weighted portfolio bases its component weights on prices and that is a correlation between pricing errors and portfolio weights that leads to suboptimal distribution and performance. In brief, should an investor focus on elements, such as GDP, landmass, population, energy consumption, or an investor focus more on issues such as political risk, inflation, exchange rate policy, external debt... Practitioners consider that market capitalization captures all the potential factors that investors collectively analyze to fix a bond's price.

Fundamentally-weighted fixed income indices

In the weighting methodology constructed using fundamental variables (GDP, landmass, population, energy consumption); the weighting is based on the issuer's aptitude to pay its debt rather than on the quantity of debt outstanding. This methodology suggests that countries with better fundamentals get greater weights than those with weaker fundamentals. The use of these proxies lies in the fact that these four elements symbolize a country's capital, labor force, natural resources and technological sophistication. They play a catalytic role as primary inputs to an economy's growth. It seems that the fundamentally weighted portfolios outperform both cap-weighted portfolio benchmarks (Shepherd, 2012) and weighting according to fundamentals has led to a major enhancement to the Sharpe ratio.

The weighting of these indexes is based on several macroeconomic elements. Nonetheless, indebtedness is not the sole factor in assessing sovereign risk. For instance, if a country crowds in the market with new bond issues to the extent that investors start having doubts about the repayment capabilities of the sovereign entity, prices of outstanding issues may drop in anticipation of a lower credit value of the debt, and consequently the country's market capitalization will fall. This is well aligned with Reinhart (2010) analysis that showed that there is a certain level of debt that governments can reach before a slowdown in economic growth begins.

What needs to be considered for decision?

A cap-weighted fixed income index leads to suboptimal allocations and performance (or beta). On the contrary, a fundamentally weighted fixed income index yields superior performance over time. However, for practitioners the best index is certainly not one that offers the highest return during a given period of time but the one that most precisely measures the risk-reward features of the collective capital invested within the market being tracked.

Market capitalization offers advantages when considering the entire market and fundamentally weighted indices represent the segment of the universe that has the higher return potential. Both approaches have pros and cons. whereas in 'normal' times market cap weighted indices are less volatile in its composition and therefore cheaper to track, the fundamentally weighted indices have advantages in times of recessions and market turmoil. Maybe a combination of both would be the ideal solution - so called 'collared' schemes. The advantage would be moderate turnover and full scalability in times of efficient markets and diversification and less dependency on stressed sectors of the markets in turmoil.

Cedric Mbeng Mezui: Senior Financial Economist, African Development Bank

Christian Schedling: Managing Partner at Concerto

Reflections on the Drivers and Development Prospects of African Stock Markets

16.07.2013Simplot Kwenda

Recent press reports have commented on the limitations of the stock markets in Francophone Africa[1], underlining their low levels of development compared to their Anglophone counterparts. These reports further draw some form of a causal link between language and financial sector development. 

There is no doubt that the most dynamic African stock markets are located in the Anglophone countries. However, there is a need for a deeper analysis of the discourse that defines the relationship between the use of language (as a manifestation of the cultural environment) and the development of financial markets.  

This article therefore presents a brief assessment of the African stock market highlighting their performance and the opportunities they offer.  


About 94% of the world’s population live in countries with a functioning stock market[2]. In Africa, although several countries have stock markets that have been established for the past fifteen years, these markets have experienced delays in gaining firm footholds in their countries most notably in DRC, Madagascar, Mauritania, Somalia, Eritrea, Guinea and Burundi. Despite these shortcomings, several of these countries have unveiled plans to establish stock exchanges, most often under the impetus of the Central Banks.  

Not all existing African stock markets have the same levels of maturity. The table below presents an overview of the top 10 markets in Africa. The figures are based on the latest available data on capitalisation, liquidity and trading volume[3]:









Sociétés Cotées


345 775

 789 037

370 192




222 295

 48 682

15 984




218 562

 39 028

3 912




96 142

 60 088

4 366




72 836

 6 188





71 781

 3 104





43 544

 9 662

1 051




29 683

 10 203





29 667

 2 948





11 084

 1 185




It is worth noting that the most developed stock market in terms of volume is Anglophone, a factor warranting further discussion.  

Critical Drivers of Stock Market Development  

If the determination of the growth of an economy depends on the efficiency of the stock exchange markets, then it is the decisions of policy makers and private sector initiatives that will further impact this development. Public policies promoting a market economy can provide a favourable environment for stock market growth and development, and most importantly, improve people’s living conditions.  

The critical drivers of stock market development are that allow the deluding affects that are a consequence of supply and demand of the listed shares, ensuring the efficiency, liquidity and safety of the African stock markets. Smaller markets on the other hand, tend not to meet three essential criteria, frequently applied in comparative analyses, without presenting any structural risks. The three criteria are as follows:    

  • Level of primary market activity and the associated market capitalisation;
  • Stock market index trends’ impact on market capitalisation; and
  • Reasonable and predictable transaction costs in the secondary market.

However, market comparison analysis needs to be applied beyond volumetric factors, and should include criteria such as economic usefulness and/or the quality of service provisions. For example, when comparing the market activities in Ghana and the WAEMU – often cited as modern examples for developing Anglophone and Francophone markets - the following qualitative criteria must be incorporated in the analysis:  

  • Spread of Market capitalisation: 80% of Ghana’s market capitalisation is based on only 3 companies, compared to 15 in BRVM, therefore increasing the vulnerability of the GSE to only a few firms;
  • The impact of the market on the underlying economy: The decision-making organs of the three largest listed companies in Ghana are not based in Ghana. These companies are also listed on international exchanges[1]. This arrangement further increases the Ghanaian market’s vulnerability.
  • Representativeness of the economy: WAEMU’s stock market falls short of reflecting and thus representing the sub-regional economies of which it is comprised, in terms of geography (31 out of 37 listed companies are Ivorian), size (the average company size on the market is approximately 150 billion FCFA (USD300 million) however the economic fabric is comprised of companies that are much smaller), and sector (no mining company is currently listed). Ghana’s economy is better represented on Accra’s stock market than on WAEMU’s, which is comprised of companies covering an array of business segments and varying company sizes[2];
  • Market liquidity: Generally, the more liquid a market and the more shares that are distributed to private investors, the less volatile the market and the less susceptible it is to external shocks. In this regard, private investors should be preferred during the issue of new securities as well as on the secondary market. Additionally, to increase the allocation of shares to private investors, it is important to have regulations facilitating the lowering of the nominal value of shares.

Beyond the qualitative and volumetric analyses, should stock market efficiency not be the main concern for policy makers? Should the stock exchange be used as an institutional device or as a policy driver for economic growth?  

Establishing a stock market enables for example:

  • International issuers to increase their investments in a country; ·     
  • Manufacturing companies and non-financial commercial companies to increase their long-term funds at low costs and without currency risk;
  • Governments to access capital by privatisation;
  • Governments to diversify and expand financing opportunities without the currency risk faced when borrowing in foreign currencies.

African countries are increasingly issuing bonds on international and regional financial markets. A few notable examples:

  • Senegal issued a bond on the WAEMU’s BRVM in 2012, raising the equivalent of USD 175 million over 7 years at 6.7%;
  • Rwanda chose to issue its first bond in early 2013. The transaction worth USD 400 million over 10 years on the international markets at 6.625%.

In the face of limited fiscal resources and declining foreign aid, the reponses of Senegal and Rwanda could not have been more different:

  • By issuing a bond on the regional financial market, while opening it to the international markets, Senegal raised funds and revitalized its markets. In addition, there is no currency risk and annual coupons payments will lead to a 54% supply to resident accounts, having a driving effect on the national economy;
  • By issuing on the international markets, Rwanda secured a better rate than it would have obtained on the domestic markets, which would have amounted to nearly 20% of its national budget. However, this strategy is not without currency risks as it obliges the Rwandese government to settle nearly all coupons abroad without having a dynamic impact on its financial markets.

Without analysing the sustainability of public debt in a given country, we suggest that they should focus on elements that are less quantifiable but are nevertheless relevant, such as recycling the induced effects of a bond issue in their economy and consider currency risks. Stock markets can have an impact beyond the securities that are listed, as shown in the examples below:

  • With funds from a bond issue, a government can improve the production and distribution of water and electricity, thus improving its economy and daily life of inhabitants;
  • A situation where a commercial bank finances a company's investment and with a bond issue of similar duration, the company indirectly benefits from this stock market operation. In the absence of stock markets, commercial banks would only finance short term operations thus impeding on economic development;
  • The quality of insurer offer improves thanks to more liquid backing products, the insured indirectly benefit from the stock market.

Analysing these concrete situations shows that African stock markets, even in their early stages of development, are far from being just imitations or reactions to international trends. In less than ten years existence, even the most modest of stock markets in Central Africa issued, a bond amounting to 500 billion XAF. The few public and private listed securities contributed in adjusting the technical provisions framework for the insurance companies in the sub-region.  

African stock markets opportunities  

The prospects for development of African stock markets are real, provided they establish operating rules that are adapted to the cultural, economic and financial reality that surrounds them.  

In addition to national stock markets, some zones set up regional stock markets, in order to support their economic integration. Francophone stock markets are leaders in this regard, enabling wider securities markets for member countries with integrated economic, legal and monetary systems. This model has been applied in different ways:

  • The WAEMU is a world leader in this regard, with a regional stock market bringing together 8 countries for the past fifteen years, built on a national framework that has been active since the mid-70s. Its existence allowed several countries to raise long-term local currency financing without having to pay for a national stock market. Its growth potential remains high;
  • CAEMC faces a very different situation, due to the absence of a stock market tradition, and, paradoxically, to the existence of two stock markets for the past 10 years, one in Douala for Cameroon, the other in Libreville with regional outreach. This situation has hindered the growth of stock market activity in CAEMC; the circumstances surrounding the introduction of the Cameroonian market of the SIAT Gabon to be listed on the Libreville BVMAC is an example of this difficulty;
  • The EAC is characterised by the existence of several stock markets – in Uganda, Tanzania, Kenya, Rwanda – as well as a proposed stock market in Burundi. Several companies are listed on multiple markets in the EAC – 7 out of the 15 companies in Uganda, for example, are Kenyan companies that are also listed in Nairobi.

These examples show that regional stock markets must be based on real economic and financial infrastructure, supported by a long tradition of trade and a strong will to unite. This would thus support the recent trend towards increased economic integration with an adequate and innovative joint financial infrastructure.  

As we have seen, it appears that the Franc zone offers plenty of opportunities, including at the continental level, thus refuting the inability of the francophone countries to develop its financial activities.

Pierre-Yves AUBERT 

[1] Pourquoi les bourses francophones déçoivent? (About francophone stock exchange low performances). Jeune Afrique, 8th March 2013 ; Afrique de l’Ouest : la stratégie de la BRVM en débat (Questioning BRVM, WAEMU regional stock exchange strategy). Jeune Afrique, 21st March 2012. La zone Franc dans un étau, entre blocages culturels et manque de volonté politique (Stock exchange: the Franc zone strangleholded between cultural locks and missing political will). Jeune Afrique, 11th  January 2012.

[2] Source : One half-billion shareholders and counting : Determinants of individual share ownership around the world – P. Grout, W. Megginson, A. Zalewska – Septembre 2009

[3] AfDB Pocketbook 2012 and WFE Database. All figures are in USD.

[4] Tullow Oil Plc based in London is listed on the London Stock Exchange. Anglogold Ashanti Ltd is listed among others in South Africa, in the USA, in London, and in Australia. ETI based in Togo is listed at the BRVM and in Nigeria.

[5]  Middle-sized companies in the printing and fruit juice sectors are being listed.


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