In Africa today, local capital markets, domestic institutions and favourable demographics are converging, thus contributing to the growth prospects across the continent, according to Standard Bank
“Large parts of Africa are rapidly approaching a market standard where risk is increasingly less of a factor,” said Charl Bruyns, head, investor services for Standard Bank.
Pension fund reforms, new settlement systems and exchanges, coupled with increased financial inclusion have created the market and capital conditions to leverage domestic investment and growth. The result is that less vigorous flows of global capital to the continent following the financial crisis have, to a large extent, been offset by increased domestic saving and investments.
While Africa will continue to need to import global capital for generations to come, today, this is no longer the continent’s only option.
“Many African countries are approaching the ‘golden standard’ at which legislation, market size and technology-enabled domestic efficiencies come together to produce reasonably predictable investment and growth outcomes,” explained Bruyns.
Africa is increasingly driving is own growth agenda. Technology has been, and will continue to be, an important element in creating the domestic conditions – and ability – to leverage capital and drive growth. Disruptive technology in less developed environments has the potential to leapfrog large, manual, paper-based systems – directly to mobile and other mediums. Countries without legacy financial services architecture, like Zimbabwe for example, were able to migrate from T+5 trade clearing to T+3 in two months. The same migration in South Africa, with a large and established financial services architecture, took three years.
Technology is also broadening Africa’s tax base and making revenue collection more efficient. In other words, it’s not only private capital that stands to gain. “With more cash in the system, including state coffers, the ability of African governments to actively plan and constructively implement their own development agendas increases,” said Bruyns.
According to Standard bank, apart from technology, policy and legislation also play significant role in reducing risk in Africa. “The potential for legislation to disrupt risk can, overnight, change the fortunes of countries when properly deployed,” noted Bruyns. “When perceptions of risk decline it becomes easier and cheaper to drive and sustain growth as well as manage shocks since markets can use their own resources to adapt to change,” said Bruyns.
Legislation that deepens domestic market resilience has equipped many countries in Africa to manage shocks better. The experience of those African countries that have crafted legislation that mobilises domestic capital for growth – even in turbulent times, “hold powerful lessons for legislators seeking to manage Africa’s traditional capital and liquidity challenges,” said Bruyns.
Certainly, outcomes in East African countries where legislators have sought to free currencies, diversify production, liberalise markets and promote cross-border integration through rational multi-sector infrastructure development stand in stark contrast to regions where legislation has failed to aggregate local resources for growth, or free global capital to invest. In time, as more African markets demonstrate their ability to marshal domestic capital effectively they will achieve investment grade status and feature in the strategies of developed world pensions funds.
The lesson emerging from contemporary Africa is that by creating the domestic legislative and market conditions and deploying the technology to leverage local capital and savings, “African economies are poised – for the first time in history – to take charge of their own development dynamics,” commented Bruyns.
