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Stock Exchange in Nigeria & Ghana To deepen West African Capital Markets

Stock Exchange in Nigeria: The economy of Nigeria – the most populous country in Africa, with more than 200 million inhabitants – was transformed post-independence with the adoption of an International Monetary Fund (IMF) programme in 1986, which kick-started economic liberalisation.

The repeal of indigenization decrees and stock exchange controls, as well as privatisation of public corporations, induced a wave of stock market listings in the 1990s. Policy initiatives such as pension reforms, consolidation of the banking sector and the creation of a debt management office produced large domestic institutional savings pools.

Despite these advancements, the Nigerian Stock Exchange (NSE) market remains small, with a market cap/GDP ratio of just 9%. Its 169 stocks are concentrated in three sectors: banking (33% of market cap), materials (32%), and consumer goods (27%). But these sectors together account for less than 10% of economic activity.

One reason for the poor economic representation of the NSE is the informal nature of key sectors of the economy, such as agriculture (21% of GDP), construction and real estate, and trade.

In a bid to restore confidence and solve the problem of thin domestic capital pools, the NSE has partnered with the London Stock Exchange (LSEG) to allow dual listing of Nigerian-based entities on the LSEG. The recent listing of two telecommunications giants in Nigeria and a growing enthusiasm among pension providers for equities are signs that the NSE may soon be punching its weight.

Ghana mines a new future as finance sector dominates trades

Ghana, which has less than a fifth of the population of Nigeria, is endowed with precious metals—gold, in particular—and hydrocarbons. Unsurprisingly then, the dominant sector on the Ghana Stock Exchange (GSE) is mining (69%), but financials is also sizeable at 21% and is the fastest-growing sector in terms of listings. The finance sector dominates trading activity, too.

Capital markets in Ghana, in common with some other developing markets, are plagued with problems with disclosure, a dearth of listings, low financial knowledge, the small size of issuances, and low trade volumes.

Initiatives to address these issues include the launch of the Ghana Alternative Market for smaller companies, permission for derivatives trading, and in 2018, the creation of the Ghana Commodity Exchange. Longer-standing incentives include zero capital gains tax on Ghana Stock Exchange securities and Ghana’s promotion of West African capital market integration.

The Ghana Fixed Income Market (GFIM) is larger than its equity equivalent with listed debt of USD$14.7 billion (about £11.1bn) (compared with USD$10.9 billion of listed equity on the Ghana Stock Exchange.

Fund management is growing with a developing middle class and offers mainly vanilla equity and debt strategies. Recent legal changes now allow the marketing of non-traditional asset classes, too.

To bolster investment, the Ghana stock exchange is leveraging technology to give investors access to better information and to improve financial literacy.

Credit Source: City AM

Stock Exchanges in Nigeria and Ghana aim to deepen West African capital markets

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