The frantic search for corporate financing in African stock markets, between strategy and constraints

The African continent has attracted a lot of foreign investment (corporate financing ) in recent years. As the continent that was less impacted by the 2008 crisis, Africa continues to attract more and more foreign investors from diverse backgrounds (China, Russia, America, etc.) and the most coveted sectors are technology, industry and energy.

This attraction is not only due to the wealth abounding on this continent, but above all to the fact that several reforms have been undertaken by various emerging and developing countries, such as: the revision of the investment code, the prudent economic and financial management of governments, the harmonization of regional regulations, efforts to close the infrastructure and energy gap with a view to attracting foreign investment as much as possible.

This trend was also reflected in the financial market climate and the number of IPOs (initial public offerings) for the development or growth of a company. At a time when banks and other financial services (microfinance) on the continent are deigning to meet the demands of companies for their financing needs, a trend has been observed since 2010 to be listed on African stock exchanges.

corporate financing

It is clear that this is not a shift from bank financing to raising funds in a financial market, but rather for some companies it is an attempt to diversify the means of financing. However, banks and financial markets alike have the same difficulties in having enough liquidity to meet the demands of these companies.

It is important to note that according to a report by the American firm McKinsey, the number of Africans with a bank account increased from 170 million to about 300 million between 2012 and 2017, so the number tripled in 5 years.

The large share of banking services, the low level of savings invested in stock exchanges and the lack of liquidity and the normalisation of financial markets must be the subject of in-depth analysis by the financial actors in these regions, as this constitutes a constraint for companies and other agents in need of financing.

Several analysts of the Financial Economics Review have shown that companies must carefully study their initial public offering in these stock exchanges to avoid premature failure at the earliest stages of listing, as it is easy to note that some conditions are not appropriate for large companies in sectors where the need for financing is high (energy, technology, pharmaceuticals, etc.), but this does not mean that a listing should not be considered on any African stock exchange, unlike the Johannesburg Stock Exchange which seems to provide the necessary conditions for good listing of companies and for their development.

Although the sometimes unstable political climate in this area can also be a downside to a listing project to raise funds.

An initial public offering is made by a company in order to seek financing outside the banks. This alternative is used because the company is confident in the financing capacity of the service it is targeting. So, when African financial markets lack liquidity, this can be seen as the primary cause of deterrence.

Thus, in my opinion, the campaign to make the stock markets liquid must involve both market participants and the State, given that for the latter the liquidity of the financial markets is favourable to it in the sense that it will enable it to launch bond issues and finance its major public projects.

The cultural realities of the continent show that people prefer to keep their money in their homes or participate in traditional banks called “Tontines“, which is an agreement between several people pooling goods or capital with the particularity that the sums paid, their products or movable or immovable property will be purchased with the help of capital and this for the benefit of everyone, therefore in turn.

To be able to get their hands on this granary or popular savings, financial markets must conduct communication campaigns as do retail banks, which we do not often see in these countries. Because most people are unaware of the existence of scholarships.

To attract this savings from the “informal sector“, it is therefore necessary to go through intensive financial education, which is a path towards financial inclusion.
In addition, there is a development of trust, as some bankers would be seen by Africans as “thieves”, which means that they do not trust the services they offer.

However, these solutions are by no means exhaustive because, as some analysts have pointed out, there is really a complexity and countless obstacles that have not yet been taken into account in creating favourable conditions for companies to be listed on these African stock exchanges and in taking charge of companies’ and governments’ liquidity research.

Meissa LO

Meissa LO


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