From Cash Handouts to Capital Injections: Stock Markets and the African Diaspora

Contributed by Timothy Kasuka, publisher of United States of Africa Substack.

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In my lifetime, I have only had one conversation with an African about anything relating to Africa’s dozens of stock markets. The other occasions when I have had the pleasure to chat with others about it, have been with non-Africans. It’s difficult to become wealthy if you’re not privy to the vehicles of wealth. Equity markets are perhaps the greatest creators of wealth in history – everyone within the African Diaspora would do better to take heed to, and act on this reality, here’s how.

Oil the gears of the economy through African stock exchanges

Equities (also known as stocks and shares) have become the de facto vehicle for corporate expansion and passive income for ambitious businesses and investors of all shapes and sizes.

Equities (also known as stocks and shares) have become the de facto vehicle for corporate expansion and passive income for ambitious businesses and investors of all shapes and sizes.

In 2023 global equities markets’ value of $109 trillion actually exceeded that of total global GDP for that same year. It’s worth remembering that the companies listed on stock exchanges all over the world only represent a tiny, tiny modicum of all enterprises on the planet, speaking to the potency and ingenuity of flotation and the public limited company.

While stock exchanges have been in existence for over 400 years, it wasn’t really until the 1980’s that they began to typify the corporate world, the world over. Deregulation, deindustrialization, globalization, and waves of privatization across the globe left banking and finance with a boatload of free real estate, waiting to be parked up in equity markets.

For some perspective, total market cap for all publicly traded stocks in the world was $2.5 trillion (or approximately $10 trillion when adjusted for inflation) in 1980, it’s now over $100 trillion.

With the right legal framework and relaxation of capital controls, stock exchanges serve as an excellent vehicle for financing and guiding enterprise growth and development. The African Diaspora can access African stock exchanges, and tap into listed companies as a new, budding source of wealth while also providing a financial springboard for African leaders of industry.

As we speak, Africa is in the midst of an urbanization boom. As more of the population shifts from the countryside into the cities, wage workers with disposable income multiplies. The consequences of such consequential changes are a burgeoning construction industry and elevated consumption levels. 

Anyone who has visited anywhere in Africa, within its urban expanse over the last ten years can attest to the sight of houses, apartments, skyscrapers and malls erected everywhere. Every city and ambitious town has plans for hosting new property developments, tourism centers, luxury hotels and schools and universities. And it’s companies who will have to make all of this happen – more will increasingly look to local stock markets to fund such ventures.

As African economies industrialize and expand into higher value-added activities within services and manufacturing, its stock markets have and will continue to develop to reflect this new reality. Between 1992 and 2018, market capitalization for all of Africa’s stock markets increased tenfold from $113 billion to nearly $1.15 trillion.

Such rapid growth makes sense as you prod further and further into the numbers as well, as a catch-up process is currently at play. African stock exchanges – when taken as a whole – are valued at about $1.6 trillion today. $1 trillion of that value, or over 60%, is swallowed up by one stock exchange alone: South Africa’s JSE (Johannesburg Stock Exchange). The second largest stock exchange in Africa is Morocco’s Casablanca Stock Exchange at $60 billion. The gap between first and second place here is massive, especially when you consider that South Africa only has a population of 60 million. Implying humongous room for growth for all of Africa’s stock exchanges.

The Butterfly Effect: small actions, big economic impacts

The Diaspora can be a part of these breakneck developments. As we have already mentioned, they can plug more capital into these exchanges, supporting their growth while enjoying the fruits of their investment. 

Indeed, once you dive deeper into some of the numbers behind African equity markets, you can’t help but notice the once-in-a-generation opportunity for wealth accumulation available to the global African Diaspora. Valuations are generally on an upward trajectory but they’re still growing from a very low base. Thus, the Diaspora are in a position where it can leverage its considerable financial resources to make a big impact on capital markets back home.

To better illustrate the point, let’s look at the example of Nigeria’s largest stock exchange: the Nigerian Exchange Group (NGX). As of 22nd October 2024, the total market capitalization of its 150 or so listed companies, along with other securities like bonds, ETFs and fixed income securities, is about 59 trillion naira or about $36 billion. A mere fraction of the market cap of South Africa’s trillion dollar JSE. The NGX’s market cap taken as a percentage of Nigeria’s GDP is low at 10 percent, compared to 300 percent of national GDP for the JSE.

Despite having similarly sized economies, South Africa’s Johannesburg Stock Exchange boasts a market cap 30 times that of the Nigerian Exchange Group’s

In spite of the impressive gains the NGX has made over the last year, it clearly seems undercapitalized and neglected. Figures for the value of shares traded on the NGX drive this point home even further. Equity turnover on the NGX for the year of 2019 was $2.5 billion (using the 2019 exchange rate) or nearly a trillion naira. While remittances to Nigeria over the same period were estimated at close to $25 billion. Diverting about 10 percent of this sum into equity investments would have been enough to double equity turnover for the NGX in 2019. 

In a world where this hypothetical scenario played out, such a massive injection of liquidity would have rocked the NGX to its core. Share prices would have witnessed double, triple or even quadruple digit appreciations depending on the company listing in question. The chance for the Nigerian Diaspora to step into the role of a market maker and reap in the benefits is there for the taking. 

Indeed, according to the NGX’s latest financial filings, the company that owns and runs (the NGX Group Plc) it, the firm had a book value of approximately $43 million at the end of 2023. Revenue for 2023 was $12 million. So it would actually be much cheaper for investors within the global Nigerian Diaspora to simply acquire a controlling stake in the exchange. That way they’re in a commanding position to restructure and refine the exchange from the ground up for unprecedented success.

Despite the NGX’s perceived shortcomings, it is still one of Africa’s largest and fastest growing stock exchanges. Smaller exchanges such as the Nairobi Securities Exchange and the Uganda Securities Exchange have book values of $16 million and $2 million, respectively. 

Given the modest size of these exchanges, the opportunity for the Diaspora to make a big splash is immense. By channeling more of their investments and resources into Africa’s capital markets, the global African community can ignite significant growth. The collective support could transform these undercapitalized platforms into vibrant centres of economic activity. This isn’t just about boosting numbers on a balance sheet; it’s about breathing life into the financial heartbeat of the global African Diaspora’s homelands.

Take charge of stock market prominence or become subject to it

As the profile of numerous African stock exchanges go up, their role in efficiently allocating resources throughout different African economies will increase as well. In the future, the health of these exchanges will serve as very important indicators for the shape of a country’s economy. With this having the potential to influence the consumption and investment decisions of individuals, firms, institutional investors and governments alike. Diaspora investment at the early stages would leave the community in a strong position to exert pressure on governments or other institutions they feel happen to be going in the wrong direction.