Capital markets in Africa experienced a slow year due to uncertainty

12 March 2020 2 min. read
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Elections in two of Africa’s biggest economies combined with trends across the globe have resulted in a slow year for the equity markets on the continent, according to new analysis put together by PwC. The debt capital markets (DCM) remained steady in their activity from previous years.

PwC reports that equity capital markets (ECM) across the globe slowed last year, driven by the uncertainty from trade wars and dissolving trade agreements. In Africa, this uncertainty was accentuated by elections in South Africa and Nigeria in 2019, both of which are among Africa's largest economies.

South Africa’s woes were made worse by reports of financial fraud and corruption in the country. Africa’s capital markets registered 9 initial public offerings (IPOs) last year, worth a total of $1.2 billion. Overall ECM activity registered a sharp decline, however. The dip is not unprecedented, as the capital markets across Africa have had to contend with significant turbulence in recent years.

Snapshot of African capital markets

A dip in oil and commodity prices from a few years ago sent a number of commodity-dependent markets in the region into a nosedive, although the markets have since recovered from those woes. According to PwC, the current dip is also likely to test the markets’ resilience.

“With a busy political agenda scheduled for 2020, both in Africa and around the globe and the economic impact of emerging public health concerns, we expect the low level of capital markets activity to continue, even as some of the key drivers of global uncertainty over the past few years, such as risks associated with Brexit and the US-China trade war seem to have become, at least for the moment, slightly less uncertain,” said the PwC report.

Not all is gloom and doom, however. PwC argues that a range of innovative products have burst on to the scene in capital markets across Africa, as have other promising trends such as sponsor-backed IPOs and the advent of state-owned enterprises in capital markets. The markets also appear to be making strides towards sustainability.

“The introduction of green bond frameworks in Nigeria and Kenya has led to the issuance of the first local currency bonds with specified ecological targets in both countries in 2019,” said PwC. Debt markets, meanwhile, remained stable across the region. Non-local currency debt fell by 28% in terms of value across Africa, but increased by 22% in terms of volume between 2018 and 2019.