Over the past three years, Africa has witnessed slowing activity in its capital markets as major economies on the continent face fiscal challenges due to growing debt levels and slow economic growth, a recent report by PricewaterhouseCoopers (PwC) Nigeria shows.
Last year’s equity capital market value was the lowest seen over the past decade, with the volume of deals lower only in 2012 according to the 2019 African Capital Markets Watch, a study that reviewed the performance of the continent’s capital markets between 2010 and the first quarter of 2020.
Initial Public Offerings by African companies on both African and international exchanges last year also fell to its lowest level over the past ten years, recording a decline of 47 percent compared to 2018 activity.
Further Offers by listed companies in 2019 also declined significantly in terms of transaction volume and value, by 25 percent and 44 percent, respectively, compared to 2018 levels. Last year saw the lowest FO proceeds raised on African exchanges in the past ten years with $3.5 billion from 59 transactions.
African economies now face the unprecedented challenge of the COVID-19 pandemic that has severely impacted global financial markets, say Andrew Nevin, PwC Nigeria’s Chief Economist and Alice Tomdio, the firm’s Africa Capital Markets Director, who presented the data at a webinar co-hosted by the Making Finance Work for Africa (MFW4A) partnership and PwC Nigeria.
“A state of uncertainty seems to have become the ‘new normal’, and we expect some degree of volatility and caution to continue to affect Africa’s capital markets activity in 2020,” said Andrew Del Boccio, PwC Africa Capital Markets leader. “This sentiment is also reflected in PwC’s annual 2019 Global CEO Survey, in which African CEOs noted their expectations for a slowdown in economic growth as well as their top concerns.”
Across the continent, capital markets have been hard hit with a decrease in trading volume and a flight in foreign portfolio investment since the beginning of the pandemic. But on the bright side, there has been an increase in activity from domestic investors, which has helped keep markets active.
Increased engagement of local investors in the current environment is a positive sign and developing a deep pool of domestic investors is essential for African capital markets to play their full role in supporting the post-COVID economic recovery, experts say.
“Consistent with prior years, we expect governments across the African continent to continue to implement strategies towards building robust capital markets,” PwC said in its outlook for Africa’s capital markets, citing Ethiopia’s plan to launch a local stock market during this year, and Angola’s roadmap to privatize its state-owned companies by 2022. The consultancy also expects to see other announced privatizations in Nigeria, Malawi, and Ghana.
“Despite the lackluster activity in 2019, we saw significant progress in various capital markets initiatives during the year, including the drive for sustainable finance through the issuance of social, green and infrastructure bonds in South Africa, Kenya, and Nigeria. Together with a move towards more local currency and blended financing, we expect this trend to continue, and to unlock new sources of capital for African issuers,” Tomdio said.
