Transforming Capital Markets in Africa

Africa’s economic potential is vast, but realizing it requires significant investment. With an annual infrastructure financing deficit estimated at approximately $100 billion and a projected climate finance shortfall of $213.4 billion by 2030, the need for capital is pressing.

Additionally, achieving the UN Sustainable Development Goals by 2030 is projected to necessitate $1.3 trillion annually, which makes up 42% of Africa’s GDP. These statistics clearly demonstrate that Africa needs considerable financial resources to facilitate transformation, growth, and, ultimately, economic progress.

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Despite these challenges, Africa’s resilience is remarkable. Economic projections indicate that real GDP growth is expected to rise to 3.7% in 2024 and 4.3% in 2025, consistently outperforming global averages. This resilience creates fresh opportunities for investors and underscores the region’s potential for significant returns, especially as global investors seek assets in emerging markets.

Africa’s insurance market, valued at $87.4 billion in 2023 and projected to reach $153.9 billion by 2032, as reported by the IMARC Group, offers substantial capital pools. However, these resources must be effectively directed towards tangible investments. How can we synchronize the growing capital demand with the available investment assets?

The answer lies in creating and making investable assets available.

While Africa’s stock markets are comparatively small, we anticipate a surge in issuances from both private and public sectors, especially in debt markets, as the continent progresses. As more African governments privatize state-owned enterprises, we expect to see significant listings and growth in the equity market. However, this expansion in listed markets will not be sufficient to accommodate the flood of domestic and foreign capital.

A significant portion of Africa’s assets exists in non-traditional or private markets, presenting substantial opportunities for both investors and asset owners to gain access to these markets.

Unlocking assets through tokenization

A major opportunity to bridge this gap lies in the adoption of Distributed Ledger Technology (DLT) and tokenization. Tokenization entails creating digital tokens on a blockchain that represent various asset types—financial (bonds, equities), tangible (real estate, commodities), or intangible (digital art, intellectual property). By digitizing these assets, we can introduce them to the market, thus enhancing liquidity and broadening access for both local and international investors.

Imagine the transformative potential of tokenized infrastructure investments in Africa—tradable, liquid assets that can propel development. In sectors such as real estate, infrastructure, or commodities, tokenization allows these assets to be traded and settled more efficiently. Analysts predict that by 2030, globally, between $4 trillion and $5 trillion worth of tokenized digital securities could be issued, highlighting the considerable opportunities within this market.

The need for market harmonization

However, it is important to recognize that creating assets is just one part of the equation. For Africa’s capital markets to thrive, they must function in a clear and effective manner. Currently, many African markets, especially outside of South Africa, are fragmented and operate with diverse technologies, regulations, and frameworks, complicating and raising the costs of investing. To compete on the global stage, we need to harmonize our markets, aligning regulatory measures and infrastructure to form a cohesive, unified system.

The question we should ask is: why should we all invest in separate technologies and infrastructures when collaboration is an option? By consolidating our infrastructure and implementing top-tier systems, we can share expenses, improve consistency, and ensure that African markets remain globally competitive.

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The future of Africa’s capital markets depends on collaboration, harmonization, and the adoption of innovative technologies that will help unlock our continent’s full potential.

The time is ripe for Africa to rethink its strategies for market development. We must come together, leverage our shared strengths, and seize the opportunities on the horizon. Africa’s growth story is just beginning, and with the right strategies in place, we can ensure it reaches its fullest potential.

Rajesh Ramsundhar is the group head of Investor Services, Transaction Banking, Corporate and Investment Banking at Standard Bank.

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