Not at all, as the coronavirus is hitting the African continent. But capital markets withstand the blow quite well. They are a cornerstone for development in Africa.
All African stock exchange were facing severe losses in April 2020, in local currency, in EUR, and in USD: minus 25% for Morocco, minus 20% for Nigeria, minus 20% for Kenya, minus 23% for Egypt, minus 16% for the West African exchange BVRM, and the biggest and most mature equity market in Africa, South Africa, reported a 33% loss (all figures in USD terms).
Is this really a surprise? How can stock markets go up if African governments decide a lockdown of the economy and a daily curfew from 6 o’clock in the evening to the morning to fight the spread of coronavirus?
In our view, African equity markets have resisted quite well to the shock. Take the Egyptian market: Sure, the valuation of housing companies such as Heliopolis went down by 80%, but other stocks showed an impressively strong performance. Ismailia National Food Industries went up by 277%, Modern Waterproofing by 163%, and Arab Engineering Industries by nearly 100%.
Many shares are doing quite well
It is not a surprise that at Lagos stock exchange, the shares of Skyway Aviation felt by 65% as airports around the world are facing a slowdown up to 90-95% of their usual activity. At the same time, the share price of Ekocorp, a Nigerian provider of hospital and medical care services, rose more than 40%. Union Diagnostic & Clinical Services, a Nigerian medical diagnostic and healthcare company, also saw the value of their shares going up by more than 40%.
At Nairobi stock exchange, the shares of Kenya Airways felt by 56% which is not so bad compared to European airlines such as Lufthansa. But at the same time, B.O.C. Kenya shares rose 22%. B.O.C. is an East African leading supplier of industrial, medical and special gases owned by German gas specialist Linde.
These examples show that African capital markets have become less dependent on privatised companies from the energy, telecom or banking sectors. And they prove how African capital markets have diversified offering today a large choice of interesting titles. And there is another good news for you: The losses were slowing down since end of April 2020.
Mobilizing domestic savings
The resistance of African financial markets should encourage decision makers on the continent to further develop capital markets. Mobilizing domestic savings and wealth will have a major impact on the development of welfare in Africa. We know, this truth is hard to admit for representatives of some aid organizations and charity-oriented foundations active in Africa. But it will be a tremendous step forward if the continent develops instruments that will better drain domestic savings to African entrepreneurs and investment projects.
Millions of Africans will benefit from the development of pension schemes that will enable elder people to have a decent end of their life. The capital that will be collected through pension funds will help financing much-needed infrastructure projects on the continent. Building-up the capital markets will also help African entrepreneurs to launch their IPO on a domestic capital market and speed up their development.
Gaining financial sovereignty
Becoming less dependent from European or US fund investors and international financial institutions will not only help to develop the African economy, it will also make the proud of Africans to stand on their own economic and financial feet.
There is one truth in finance: “Who pays, buys”. As long as Africans suffer from underdeveloped capital markets, international investors, foreign funds, international institutions, and huge donor organizations will decide what will be built in Africa, how it will be built, and how Africans will have to pay for it.
Building up capital markets means gaining financial sovereignty for the African continent.