What is behind the evolution of the capital markets in South Africa and Namibia?

When diamonds and gold were found in South Africa in the late 1800s, the economy was transformed. Subsequently, a large amount of world money was invested.

The country developed a well-developed industrial base in the years following World War II and experienced extremely volatile growth rates, including several years when it was among the highest in the world.

South Africa, on the other hand, has experienced persistent economic difficulties since the late 1970s, due to its apartheid policy, which has prompted many countries to suspend foreign investment and apply tougher trade restrictions on the continent. against him.

Namibia has been ranked among the lower middle-income countries with a gross domestic product (GDP) per capita slightly above the average for countries in sub-Saharan Africa.

However, the summary is misleading. Only a quarter of all Namibians and a sixth of black Namibians have a decent income; up to two thirds of the population live in abject poverty with insufficient access to public services. Due to a declining productive industry, a shortage of social capital and serious problems in the global market for base metals and uranium oxide, economic development remains a challenge.

Moreover, unless foreign aid investments quickly turn into large real inflows and there is external private investment in mining, manufacturing and fishing, the only segment of GDP that has grown steadily in the 1980s would decline.

South Africa

The South African Reserve Bank, which is the sole issuing authority for the rand, the national currency, has a well-developed financial structure. It is responsible for formulating and implementing monetary policy, as well as managing foreign exchange transactions.

There are several licensed banking institutions, many of which focus on commercial banking, as well as merchant, deposit and investment banking, to name a few.

The Development Bank of Southern Africa, for example, is a quasi-governmental organization that promotes development programs. The banking market is dominated by private pension and provident funds, as well as more than two dozen insurers. The Johannesburg Stock Exchange is the center of an active capital market.

South Africa, Africa’s second-largest economy after Nigeria, has a much higher GDP than its sub-Saharan neighbors. The Johannesburg Stock Exchange (JSE), which is 132 years old and has a market capitalization of over $ 1,000 billion, is Africa’s largest stock exchange.

The JSE is a comprehensive, state-of-the-art exchange that offers comprehensive electronic trading, clearing and settlement of stocks, stocks and interest rate securities, as well as financial, asset and and foreign exchange in South Africa.

On the JSE, there are around 350 listed companies, with industrials being the largest group, led by energy companies such as mining and oil companies.

The JSE, on the other hand, faces strong headwinds. After decades with little competition, the JSE is now being tested by smaller competitors such as ZAR X, a low-cost model launched in 2016 to provide access to stocks to low-income people.

Since then, new entrants have entered the ring, including A2X, 4AX and Equity Express Securities Exchange, which focuses on the economic empowerment of blacks. The market is currently focused on the newly implemented “twin peaks” regulatory model, which responds to weak financial sector policies and insufficient regulatory oversight.

It aims to promote consumer confidence and stimulate capital formation, as was the case in Australia, where the concept got its start.

Namibia Profile

The majority of the banking activity is managed by two commercial banks, the First National Bank of Southern Africa and the Standard Bank Namibia (both branches of South African parent companies). After independence, the land, infrastructure and development banks were reorganized. In the mid-1990s, the Central Bank of Namibia introduced the Namibian dollar as an independent currency to replace the South African rand.

The Namibia Stock Exchange (NSX) currently has 50 listed companies. Namibia has the second lowest population density of any sovereign nation, with just 2.6 million people.

The NSX was formed in 1904 to help fund the country’s diamond rush. The rush was over by 1910, and the exchange was suddenly closed. NSX only reopened in 1992, 82 years later, with seed funding from 36 Namibian companies.

Despite the fact that agriculture and tourism are important parts of the economy, other industries dominate the stock market. In fact, three industries account for half of NSX listings: banking (four companies), mining (seven companies), and finance (three companies).

It was only recently that the debt was issued and listed. Namibia had virtually no public debt until 2011. In fact, the country had one of the lowest debt-to-GDP ratios in the world, at just 16% of GDP. International rating agencies downgraded the country to an underinvestment rating in 2017 due to the dramatic increase in public debt.

Namibian state-owned and private companies have issued bonds worth over NAD 33 billion (around £ 1.73 billion) on the NSX. As traditional sources of finance dry up, more Namibian companies are expected to issue bonds in the immediate future. Due to the economic crisis, banks’ balance sheets and loan-to-deposit ratios have been strained and they are less likely to lend to businesses.

The withdrawal from traditional finance prompts small businesses to raise funds from their balance sheets, government-guaranteed or guaranteed debt securities, or stock offerings on the local stock exchange.

The report

From a breakfast in New York in 1937 to a vast array of 170,000 members and 157 companies in 2019, the Investment Club has grown into the world’s largest investment organization, dedicated to leading the investment profession at the international scale for the ultimate good of society.

The early colonial days saw the establishment of several African exchanges. After the diamond and gold rush, South Africa led the way, followed by Zimbabwe, Egypt and Namibia (then a German colony) – all before 1905. Some companies have not survived the commodities boom, but most are thriving despite being significantly diversified and modernized.

Nigeria in the 1960s; Botswana, Mauritius and Ghana in 1989; Namibia after its independence from South Africa in the 1990s.

Others, especially East African exchanges, are relatively new and are rapidly gaining popularity. All of these examples show how regulation, business technology and FinTech enable more market players to participate in finance and invest more fairly, faster and at lower cost.

The African Securities Exchanges Association contributed to the thesis of the CFA Institute Research Foundation (ASEA).

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