How to make African capital markets more profitable – Quartz Africa Member Brief – Quartz

Hi Quartz Africa members,

Africa’s largest stock market has performed strongly in 2022 with billions of dollars of investor wealth wiped out, thanks largely to foreign investors fleeing emerging markets for safer shores.

In the first half of 2022, Ghana and Egypt are tied as worst performing market in Africa, with returns – 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 have produced negative results, including exchanges in South Africa, Morocco, Botswana, Mauritius, and Tanzania. At 21%, the Nigerian stock exchange was the only one of the ten to post positive results.

Deteriorating macro-economic conditions, including rising inflation and weak currencies, have also contributed to the bears witnessed in many African countries. The Kenyan shilling, for example, hit an all-time low against the dollar This October. Until October 10, 18, the Ghanaian Cedi was the highest worst performing currency in the world 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 is not difficult to see why market participation among retail investors in Africa remains low. In Kenya, dormant trading accounts now represent 97% all registered accounts.

Other factors behind weak retail investment include the addition of very few new listings in recent years, costs related to new trades, and scanty knowledge of capital markets and how they work. For Kenya, fixing the Nairobi Securities Exchange (NSE) has become important, as the country, strained by increasingly expensive external debt payments, 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 businesses and low-income earners, announced a drive towards mass adoption of retail trade in Kenya. He said that, with greater access to capital markets, trading could replace betting as popular multi-billion-dollar activity in Kenyaand generate much-needed money for the government.

Startups seek to increase their participation in the African capital market as well, by building digital tools that make trading in different asset classes more accessible, and offering education that allows people to improve their financial literacy and start their investment journey.

Cheat sheet

💡Opportunities: African countries need capital markets to generate more wealth, but participation among retail investors remains low, and the market is dominated by foreign investors.

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

🗺️Road map: Startups enabling easy access to tools for trading, education, and financial literacy can lead to increased participation in African capital markets.

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

By numbers

9: The number of major African stock exchanges, of the 10 largest, which posted negative results in the first half of 2022.

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

2015: Last year the initial public offering (IPO) took place in the NSE

97%: Part of the trading account in Kenya is considered dormant, after not being 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 studies

start: Abacus

HQ: Nairobi, Kenya

Founder: Joel Macharia

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

Abacus allows investments to start as low as Kes 200 ($1.67). Soon after setting up the company, Macharia noticed that uptake remained low. He found a trust gap, as well as a knowledge gap, which led him to rethink his strategy.

Instead of simply offering access to several investments through a single account, Abacus adopted a more holistic approach, incorporating enhanced “gamified” learning tools and financial advisory services. Abacus offers clients comprehensive personal financial planning, including everything from debt reduction to insurance, education and living expenses.

This allows Abacus to match people to investments in different baskets, such as a security portfolio consisting of low-risk money market funds, treasury bills, and emergency funds; income portfolios, with earners such as rental properties; a lifestyle, goal-oriented portfolio such as saving a car; growing portfolios; and speculative portfolios, which may include land or even crypto.

This shift has been accelerated by the pandemic, as Abacus has observed clients liquidate their assets after losing their jobs or a significant portion of their income.

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

Besides advisory fees and transaction fees, Abacus also counts education as one of its revenue streams, with an introductory course in its online academy costing Kes 4000 ($33.30). It also offers beginners to learn the ropes of investing practice trading accounts, in addition to news, company profiles, and explanations for investment jargon.

The company is eager to build more financial service products, including financial management software for businesses, and hopes to expand to new markets in the continent, including South Africa.

In conversation with

Image copyright: Abacus

Joel Macharia – Founder, Abacus

🧑🏾‍🏫On the role of education to increase market participation:

“Education is one of the things we have experimented with. We are more focused on habits, and how we can create habits of learning, doing, and taking lessons from it. We are not only building online courses, but also virtual trading tools and budgeting tools.

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

“‘We need a policy that increases disposable income and increases access to credit for businesses … because it creates opportunities for businesses to spread risk through the capital market. We also need to facilitate the regulation of this risk distribution by facilitating the listing of companies.

😠What the market regulator should do (instead of introducing new fees):

“We need to have more in terms of investor education and investment in making new IPOs that they see more attractive … What we see now is a trend towards rent-to-rent because the market is performing poorly, in an effort to raise its own revenues.

More capital markets offer 👀

SecondSTAXA Ghanaian startup that allows investors to access markets outside their own country, launched in September 2022, and at the same time announced $1.6 million pre-seed funding round from private investors and venture capital firms, including LoftyInc Capital, Orbit54, and STEMeIn.

bambooNigerian startup that allows investors to buy and sell US stocks, raised $15 million in series A funding in February 2022. Awi wants to expand to other countries, including Ghana and Kenya.

Chakaa Nigerian startup, announced one $1.5 million pre-seed round in 2021 to expand the digital investment menu for individuals and businesses. Chaka offers access to local and foreign stocks.

More than Quartz

🤔 The application of retail trade in Nigeria is facing a definite time

📱 Africans want the app to do more for them

😺 Could 2022 be a boom year for Nigerian retail investment applications

😱 Nigeria punishes loan apps that abuse user data

💥 Africa’s biggest telco and how it plans to appeal to Gen Z users

🏦 African credit unions are tapping into fintech for growth

🔀 Why Africa’s digital payments landscape is still so fragile

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

This member’s summary is prepared while listening Déjà vu by Mr. Right, Ajay, Da vaji and K Splash. 🇰🇪 . Have an amazing week!

-Martin KN Siele, Nairobi-based Quartz contributor

One 🍃

Seventeen countries surveyed in This year’s Absa Africa Financial Markets Indexanalysis of market infrastructure in different countries, with policies focused on sustainability-five more than 2021.

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