Can investors access Africa’s growth simply by investing in its stock markets?

A recent report, called ‘Bright Africa,’ by South African-based firm RisCura Fundamentals looks at the various investment opportunities for those seeking returns from Africa’s growth story.

“While Africa represents only 4% of global GDP on a purchasing power parity basis, its rate of change and the absolute level of growth in several African economies is proving attractive to investors with a long-term view of the role of Africa in the global economy,” stated Rory Ord, head of RisCura Fundamentals.

The report assesses the quality of Africa’s stock markets for investors and argues that broad exposure to African growth cannot be fully accessed without considering private equity.

“The most common way for institutional investors to access equity exposure in a region is through local listed markets. Ideally, investors in listed equity look for markets with high liquidity, many listed companies and high standards of governance,” explained the report. “In many African markets, not all of these criteria can be met.”

There are 22 African exchanges spanning the continent of 54 different countries, but only 17 exchanges are operational. In addition, only four are registered with the World Federation of Exchanges (WFE). These are South Africa, Egypt, Mauritius and Morocco.

According to the report, there is a marked difference in the quality of African exchanges when analysed using factors such as data availability, number of listed companies, value traded and WFE membership.

“South Africa’s Johannesburg Stock Exchange (JSE) is far ahead of the other exchanges in all categories, while Egypt is clearly second placed based on listings and volume traded,” continued the report. “Mauritius, Nigeria, Kenya and Tunisia have reasonable activity on their exchanges, but the remaining exchanges have a low numbers of listings and volume of trade.”

One of the routes available for investors looking to access Africa’s growth is to invest in listed equity markets.

“However, since these markets are relatively young, have relatively low levels of trading and few listings, investors should consider whether this route will result in the required exposure to African growth prospects,” added the report.

The four major stock exchanges in African countries have been analysed alongside the question: can investors access Africa’s growth simply by investing in its stock markets? To answer this question, the report looks at the coverage of sectors in Africa’s listed markets in relation to the contribution these sectors make towards the country’s GDP.

South Africa: According to the report, the sectors that make up the South Africa’s GDP are reasonably well represented on the JSE, “indicating that an investor could access the general economy of South Africa fairly well through the stock market”.

However, the report added that the largest imbalance is seen in the over-representation of resources on the JSE when compared to the sector’s smaller contribution to South Africa’s GDP.

Egypt: Africa’s second largest stock exchange has an obvious distortion in the over-representation of financials on the exchange compared to the sector’s contribution to GDP.

Kenya: In this market, the distortion between a sector’s contribution to GDP and its representation on the stock market is more obvious. Financials, and banks in particular, dominate the Kenyan stock market composition at over 40%. Yet, as the report states, this sector is only a small component of the Kenyan economy.

Nigeria: “Nigeria is a particularly interesting case, as the stock market bears very little resemblance to the actual economy,” continued the analysis.

Like Kenya, the Nigerian stock market has an over-representation of financials on the exchange compared to the contribution this sector makes towards the Nigerian GDP. In addition, although the energy sector makes up roughly 40% of the country’s GDP, the sector is barely represented on the listed market.

“Perhaps most interestingly, it is difficult for investors to gain exposure to the growth in Nigerian discretionary spending through the stock exchange as there is very low representation of this sector that is now a significant part of the country’s GDP,” added the report.


While these four major exchanges do show a proportional disparity between the sectors represented on exchanges, versus those contributing to GDP, the report stresses that this is even more pronounced in countries with smaller stock exchanges.

“Investing in listed equity may well be a part of an investment strategy for Africa, but this analysis demonstrates that an investor may not gain full exposure to the continent’s growth through this channel alone,” explained the report. “Investors should consider supplementary routes to gain a more complete exposure to African growth.”