How to make African capital markets more lucrative — Quartz Africa Member Brief — Quartz

Hi Quartz Africa members,

Africa’s biggest stock markets have performed horribly in 2022 as billions of dollars of investor wealth have been wiped out, largely thanks to foreign investors fleeing emerging markets for safer shores.

In the first half of 2022, Ghana and Egypt were tied underperforming markets in Africa, with yields of -32%. Kenya was the third worst, returning -30%, wiping out $6.5 billion in investor funds. Nine of the continent’s ten largest stock markets posted negative returns, including stock exchanges in South Africa, Morocco, Botswana, Mauritius and Tanzania. At 21%, the Nigerian stock market is the only one of the ten to post a positive return.

Deteriorating macroeconomic conditions, including rising inflation and weakening currencies, have also contributed to the downward trend seen in many African countries. The Kenyan shilling, for example, reached a historic low against the dollar this October. As of October 18, the Ghana cedi was the worst performing currency worldwide this year, according to a Bloomberg report.

To this mix, add low disposable income and eroded purchasing power due to the high cost of living, and it’s not hard to see why market participation among retail investors in Africa remains low. In Kenya, dormant trading accounts currently represent 97% of all registered accounts.

Other factors behind the weakness in retail investment include the addition of very few new listings in recent years, new transaction fees, and limited knowledge of financial markets and how they work. For Kenya, fixing the Nairobi Securities Exchange (NSE) has become crucial as the state, suffocated by increasingly expensive external debt repayments, now wants to ease the pressure by listing up to 10 “mature” public companies.

President William Ruto, elected in August on a promise to empower small and medium-sized businesses and low-income people, has announced a drive to massively embrace retail in Kenya. He argued that with greater accessibility to capital markets, trading could replace betting as a multi-billion dollar business in Kenyaand generate much-needed cash for the government.

Startups are also trying to increase their participation in African capital markets, creating digital tools that make trading in different asset classes more accessible and providing education that enables people to improve their financial knowledge and start their career. investment journey.


💡The Opportunity: African countries need capital markets to generate more wealth, but retail investor participation remains low and markets are dominated by foreign investors.

🤔 The challenge: Many people in Africa are not equipped with the specific tools or knowledge to participate effectively in capital markets, transaction costs can be high and the different markets in Africa are not yet integrated.

🗺️The roadmap: Startups enabling easy access to trading, education and financial literacy tools can boost participation in African capital markets.

💰Stakeholders: Startups, private companies, capital markets, regulators, governments, financiers and investors.

By the numbers

9: The number of major African stock exchanges, out of the top 10, that posted negative returns in the first half of 2022

$6.5 billion: Nairobi Securities Exchange (NSE) losses in the first half of 2022

2015 : The year of the last initial public offering (IPO) took place at the NSE

97%: Share of trading accounts in Kenya considered inactive, having not traded for at least 24 months

9.2%: Kenya’s annual inflation rate in September, after rising for the seventh consecutive month to the highest level since June 2017

Case study

Startup: Abacus

Headquarters: Nairobi, Kenya

Founder: Joel Macharia

Founded by Joel Macharia in Kenya in 2014, Abacus is a multi-asset online brokerage agent. Through partnerships with regulated financial service providers, it offers local and global investors access to stocks, bonds, mutual funds, and mutual funds, as well as market data, all accessible from only one account.

Abacus allows investments from 200 Kes ($1.67). Shortly after founding the company, Macharia noticed that adoption remained low. He discovered a lack of confidence, as well as a lack of knowledge, which caused him to rethink his strategy.

Instead of simply offering access to multiple investments through a single account, Abacus has taken a more holistic approach, incorporating enhanced ‘gamified’ learning tools and financial advisory services. Abacus offers customers comprehensive personal finance planning, covering everything from debt reduction to insurance, education and living expenses.

This allows Abacus to match people with investments in different baskets, such as safety wallets made up of low-risk money market funds, treasury bills, and emergency funds; income portfolios, with income such as rental properties; lifestyle portfolios, geared towards goals such as saving for a car; growth portfolios; and speculative wallets, which can include land or even cryptocurrencies.

This shift was accelerated by the pandemic, when Abacus noticed clients were liquidating their assets after losing their jobs or a significant portion of their income.

“Activity on our platform tends to follow what is happening in the economy. When [people] have money, we see more investment, and when it’s down, we have more people pulling out,” Macharia told Quartz.

Along with advisory fees and transaction fees, Abacus also counts education as one of its sources of income, with an introductory course on its online academy costing Kes 4,000 ($33.30). It also offers newbies to learn the ropes of investing in a practice trading account, in addition to news, company profiles, and explanations of investment lingo.

The company wants to develop more financial services products, including financial management software for businesses, and hopes to expand into new markets on the continent, including South Africa.

In conversation with

Image copyright: Abacus

Joel Macharia – Founder, Abacus

🧑🏾‍🏫On the role of education in improving market participation:

“Education is one of the things we have experienced. We focus more on habits and how we can create habits of learning, implementing and learning from them. We create not only online courses, but also fun virtual trading and budgeting tools.

📋On the policies needed to increase participation in capital markets:

“’We need policies that increase disposable income and improve access to credit for businesses…because this creates opportunities for businesses to spread risk through capital markets. We must also relax the regulation of this risk distribution by facilitating the listing of companies.

😠On what market regulators should do (instead of introducing new fees):

“We need a lot more in terms of investor education and investments to make the new IPOs they’re considering more attractive… What we’re seeing right now is a search trend income because the market is performing poorly, in order to increase their own income.

More Capital Markets deals at 👀

SecondSTAXa Ghanaian startup that enables investors to access markets outside their own country, launched in September 2022, and announced at the same time a $1.6 million pre-seed round of financing from private investors and venture capitalists, including LoftyInc Capital, Orbit54 and STEMeIn.

Bambooa Nigerian startup that allows investors to buy and sell US stocks, raised $15 million in a Series A funding in February 2022. Bamboo wants to expand into other countries, including Ghana and Kenya.

Shakaa Nigerian startup, announced a $1.5 million pre-seed round in 2021 to expand its menu of digital investments for individuals and businesses. Chaka offers access to local and foreign stocks.

More Quartz

🤔 Retail apps in Nigeria are facing a watershed moment

📱 Africans want their apps to do more for them

😺 Why 2022 Could Be A Boom Year For Nigerian Retail Investment Apps

😱 Nigeria punishes lending apps that misuse user data

💥 Africa’s largest telecom operator and how it plans to appeal to Gen Z users

🏦 African credit unions harness fintech for growth

🔀 Why the digital payments landscape in Africa is still very fragmented

🤔 A new African payment is a push for independence from the dollar

This dissertation was prepared by listening Déjà vu by Mr. Right, Ajay, Da vaji and K Splash. 🇰🇪 . Have an amazing week!

—Martin KN Siele, Nairobi-based Quartz contributor

A 🍃 thing

Seventeen countries surveyed in this year’s Absa Africa Financial Markets Indexan analysis of market infrastructures in different countries, have sustainability-oriented policies, five more than in 2021.

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