Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges

IMF Working Papers, August 1, 2007

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This paper examines the economic importance of stock markets in Africa.
It discusses policy options for promoting the development of the stock market in Africa.
The results of the paper show that the stock markets have contributed to the financing of the growth of large corporations in certain African countries.
An econometric investigation of the impact of stock markets on growth in selected African countries, however, finds inconclusive evidence even though stock market value traded seem to be positively and significantly associated with growth.
African stock exchanges now face the challenge of integration and need better technical and institutional development to address the problem of low liquidity.

Stock markets have contributed to financing growth of large corporations in certain African countries.
Econometric investigation: inconclusive evidence on the impact of stock markets on growth in selected African countries.
Stock market value traded: described as positively and significantly associated with growth.
Low liquidity is identified as a significant problem for African stock exchanges.

Integration of African stock exchanges is a central challenge.
Preconditions for successful regional approaches include:
- the harmonization of legislations such as bankruptcy and accounting laws
- a liberalized trade regime
Technical and institutional development needs highlighted:
- Robust electronic trading systems
- Central depository systems

Further domestic financial liberalization, including:
- steps to improve the legal and accounting framework
- improvements in private sector credit evaluation capabilities
- enhanced public sector regulatory oversight
Emphasis on technical infrastructure and institutional capacity to address low liquidity and support integration.