Deep and resilient markets enable businesses to access the capital needed to expand and innovate and fosters accountability and investor confidence. Local bond markets help reduce dependence on external debt and mitigate foreign currency risks, while corporate debt markets provide companies with stable funding sources that complement traditional bank lending. Developing and strengthening capital markets is therefore essential for mobilising long-term financing to fund Africa’s growth priorities and reduce vulnerabilities to external shocks.
African capital markets
The development of vibrant and well-functioning domestic capital markets has become a priority for many African economies. This reflects a growing need to mobilise private finance to meet important economic development objectives, including lifting and diversifying funding for business investment, financing infrastructure, and supporting the climate transition and digital transformation. Strengthening regulatory financial frameworks, corporate governance, and market infrastructure is essential to unlock the full potential of Africa’s capital markets and ensure they contribute effectively to development objectives and economic resilience.
Key links
Key messages
As long-term institutional investors, insurance companies and pension funds play a vital role in providing households with investment opportunities, thereby supporting economic growth, financial stability and resilience against external shocks. Improving the design, regulation, supervision and risk management of insurance and asset-backed pension systems will help foster sustainable development across the region.
Strong corporate governance frameworks that promote sound practices of corporations is a foundation of market integrity, transparency, and accountability. This helps boost investor confidence, attract private investment, enable companies to access financing, and ensure that both private and public sector entities contribute to Africa’s economic development. The G20/OECD Principles of Corporate Governance and the OECD Guidelines on Corporate Governance of State-Owned Enterprises help policymakers worldwide evaluate and improve the legal, regulatory and institutional framework for corporate governance.
Digital finance and fintech innovations are transforming capital markets in Africa by broadening access to financial services and enabling greater participation of SMEs, retail investors, and underserved populations. By leveraging digital platforms, capital markets can increase efficiency, transparency and inclusivity, connecting African investors and enterprises to both domestic and global capital flows.
Financing Africa’s low-carbon transition requires the development of corporate bond markets, stronger regional capital market integration, greater foreign investment, and scaled-up international climate finance to enable energy sector companies to make the necessary investments. Sustainable finance instruments, such as green, social and sustainability bonds can help African economies mobilise resources for climate adaptation and inclusive development.
Context
Capital markets in Africa are generally less developed than in other regions
African companies account for only 1% of the total value of equity raised globally since 2000. Capital market activity is highly concentrated, with South Africa, Morocco and Egypt accounting for 80% of total market capitalisation, and trading activity is generally low. Weaknesses in the corporate governance of listed companies and of state-owned enterprises limit their contribution to capital markets. Digital financial services have expanded financial inclusion but more investment in digital technology would increase their impact on capital market activity.
Sovereign and corporate debt markets are underdeveloped
Africa accounts for only 1% of global sovereign bonds, lower than its 3% share of global GDP. Combined with large refinancing needs, this is straining the fiscal capacity of many countries. Corporate debt is also low and accounts for just 5% of total EM corporate debt, with activity highly concentrated in a few countries. Both sovereigns and corporates are exposed to significant foreign currency risk as a large part of their debt is denominated in foreign currencies. 80% of rated African countries are classified as high or very high risk.
The small size of institutional investors limits the investor base
Insurance companies and pension funds play a limited role as institutional investors in most African countries. Insurance penetration, at 3.5% of GDP, is half the global average, and pension fund assets are also smaller, equivalent to 23% of GDP compared to 34%. The limited size of their assets and considerable allocation to government assets prevent them from contributing as stable providers of capital to the real economy. For pension funds, low incomes and high levels of informal employment present additional constraints.
