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Major African stock markets performed terribly in 2022, with billions of dollars of investor wealth wiped out, largely as foreign investors flee emerging markets in search of safer havens.
In the first half of 2022, Ghana and Egypt were the worst performing markets in Africa, with returns of -32%. Kenya was the third worst, at -30%, wiping off $6.5 billion of investor funds. Nine of the continent’s ten largest stock markets recorded negative returns, including stock exchanges in South Africa, Morocco, Botswana, Mauritius and Tanzania. At 21%, the Nigeria stock exchange was the only one of the ten to post a positive return.
Declining macroeconomic conditions, including rising inflation and weakening currencies, have also contributed to the race to the bottom seen in many African countries. The Kenyan shilling, for example, hit an all-time low against the dollar last October. As of Oct. 18, the Ghanaian cedi was the worst performing currency in the world this year, according to a report by Bloomberg.
Adding to this mix low disposable income and the erosion of purchasing power due to the high cost of living, it is not difficult to see why market participation among retail investors in Africa remains low. In Kenya, dormant trading accounts currently account for 97% of all registered accounts.
Other factors behind the weakness in retail investing include the addition of very few new listings in recent years, new trading-related fees, and a lack of knowledge of the capital markets and how they work. For Kenya, the correction of the Nairobi Securities Exchange (NSE) has become crucial, as the state, choked 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 pledge to empower small and medium-sized businesses and low-income people, has announced a push towards mass retail adoption in Kenya. He argued that, with greater accessibility to capital markets, trading could replace gambling as a popular multibillion-dollar activity in Kenya and generate much-needed cash for the government.
Startups are attempting to increase their participation in African capital markets as well, 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 own journeys of investment.
💡The opportunity: African countries need capital markets to generate more wealth, but participation by retail investors 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 the capital markets, trading fees can be high and several markets in Africa are not yet integrated.
🗺️ The roadmap: Startups that allow easy access to tools for trade, education and financial literacy can foster greater participation in African capital markets.
💰 Stakeholders: Startups, private companies, capital markets, regulators, governments, lenders and investors.
From the figures
9: The number of major African stock exchanges, among the 10 largest, 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 in which the last initial public offering (IPO) at the NSE occurred
97%: Share of trading accounts in Kenya considered dormant, not traded for at least 24 months
9.2%: Kenya’s annual rate of inflation in September, after rising for the seventh consecutive month to the highest level since June 2017
Headquarters: Nairobi, Kenya
Founder: Joel Macharia
Founded by Joel Macharia in Kenya in 2014, Abacus is a multi-asset class online broker. Through partnerships with regulated financial service providers, it gives local and global investors access to stocks, bonds, mutual funds and mutual funds, as well as market data, all accessible from a single account.
Abacus allows investments starting at Kes 200 ($1.67). Soon after founding the company, Macharia noticed that uptake remained low. He discovered a gap in trust, as well as a gap in knowledge, that prompted 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 ‘gamified’ learning tools and enhanced financial advisory services. Abacus offers clients comprehensive personal financial planning, covering everything from debt relief to insurance, education and living expenses.
This allows Abacus to match individuals to investments in different baskets, such as safety portfolios consisting of low-risk money market funds, treasuries and emergency funds; income portfolios, with recipients such as rental properties; lifestyle portfolios, oriented towards goals such as saving for the car; growth portfolios; and speculative portfolios, which could include land or even cryptocurrencies.
This shift was accelerated by the pandemic, as Abacus noticed clients were liquidating their assets after losing their jobs or a significant portion of their incomes.
“Activity on our platform tends to follow what is happening in the economy. when [people] we have money, we see more investment, and when it’s down we have more people retiring,” Macharia told Quartz.
In addition to consultancy fees and transaction fees, Abacus also counts education as one of its revenue streams, with an introductory course on its online academy costing Kes 4000 ($33.30). It also offers beginners learning the basics of investing in a hands-on trading account, as well as news, company profiles and explanations for investment jargon.
The company is keen to create 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
🧑🏾🏫On the role of education to improve market participation:
“Education was one of the things we experimented with. We focus more on habits and how we can create learning habits, implement them and draw lessons from that. We are building not only online courses, but also gamified virtual trading tools and budgets.”
📋On policies needed to increase participation in capital markets:
“’We need policies that raise disposable income and increase access to credit for firms…because that creates opportunities for firms to spread risk across capital markets. We must also facilitate the regulation of this distribution of risk, facilitating the listing of companies”.
😠 What market regulators should do about (instead of introducing new taxes):
“We need to have a lot more in the way of investor education and investment to make the new IPOs that are looking more attractive… What we are seeing right now is a trend towards rent-seeking because the market is doing well badly, in an effort to increase their revenue.
More offers on the capital markets at 👀
According to STAXa Ghanaian startup enabling investors to access markets outside their country, launched in September 2022 and at the same time announced a $1.6 million pre-seed funding round from private investors and venture capital firms, including LoftyInc Capital, Orbit54 and STEMeIn.
Bambooa Nigerian startup that allows investors to buy and sell U.S. stocks raised $15 million in Series A funding in February 2022. Bamboo plans to expand into other countries, including Ghana and Kenya.
Chaka, a Nigerian startup, has announced a $1.5 million pre-seed round in 2021 to expand its digital investment menu for individuals and businesses. Chaka offers access to local and foreign titles.
More from Quartz
🤔 Retail trading apps in Nigeria are facing a defining moment
📱 Africans want their apps to do more for them
😺 Why 2022 could be a boom year for Nigerian retail investment apps
😱 Nigeria is punishing loaner apps that misuse user data
💥 Africa’s largest telco and how it intends to woo Gen Z users
🏦 African credit unions are tapping into fintech for growth
🔀 Because the digital payments landscape in Africa is still very fragmented
🤔 A new African payment is a boost to independence from the dollar
This brief was prepared while listening to Deja Vu from Mr. Right, Ajay, Da vaji and K Splash. 🇰🇪 . Have a good week!
—Martin KN Siele, Nairobi-based Quartz contributor
One 🍃 thing
Seventeen countries surveyed in this year’s Absa Africa Financial Markets Index, an analysis of market infrastructures across different countries, have policies focused on sustainability, five more than in 2021.