Attractiveness of African stock markets for foreign investors: An analytical perspective

Celia Becker
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Celia Becker: ENS, South Africa

Journal of Securities Operations & Custody, 2024, vol. 16, issue 4, 385-395

Abstract: Africa appears to be an appealing investment destination, with African stock markets offering foreign investors the gateway to tap into the continent’s potential growth opportunities. Despite the significant growth and development of stock markets on the continent in recent decades, however, there remain some obstacles to overcome. This paper aims to examine the challenges faced by African stock markets which diminish their appeal to foreign investors and assess regional integration as a potential solution. Key takeaways: (1) African stock markets are often inadequately regulated and exhibit limited size, depth and liquidity, compounded by high currency volatility, prohibitive trading costs and macroeconomic and political instability, making them less attractive to foreign investors; (2) policy makers and regulators in developing countries should focus on fostering the development of vibrant and liquid public equity markets that are well regulated by creating a favourable market ecosystem through legislation, tax incentives and other measures to encourage listings; (3) for financial markets to operate effectively, they must exist within a comprehensive supportive framework encompassing legal, economic and political elements and coordinated monetary policies, potentially through currency zones; (4) the regional integration of stock exchanges can facilitate global integration, and some progress has been made in this regard. African stock markets remain weakly integrated, however, and economic integration initiatives are still hampered by low intra-African trade and inadequate infrastructure; (5) while the African Continental Free Trade Area (AfCFTA) lays a solid foundation for economic integration, African countries should allocate additional resources to implement the AfCFTA and ensure increased intra-Africa trade to assist in making its stock markets more attractive to foreign investors and potentially launching a continental exchange in the future.

Keywords: Africa; intra-African trade; liquidity; operational inefficiencies; macroeconomic and political instability; regional integration; regulatory control; stock market; vulnerability extreme events (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2024
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