Transforming Africa’s Financial Markets – Daily Star

The economic potential of Africa is enormous, but to fully tap into it, the continent faces a significant need for investment. With an annual infrastructure financing gap of around $100 billion and a climate finance deficit projected at $213.4 billion through 2030, the urgency for capital is evident.

Moreover, fulfilling the UN Sustainable Development Goals by 2030 is estimated to require $1.3 trillion each year — which constitutes 42% of Africa’s GDP. These figures clearly indicate that Africa requires substantial capital to foster transformation, development, and ultimately, economic expansion.

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Yet, despite these hurdles, Africa’s resilience is noteworthy. Economic forecasts suggest real GDP growth will increase to 3.7% in 2024 and 4.3% in 2025, continuing to exceed global averages. This resilience presents new opportunities for investors and highlights the region’s potential for high returns, especially as international investors look for assets in emerging markets.

While Africa’s insurance markets, valued at $87.4 billion in 2023 and projected to grow to $153.9 billion by 2032 according to the IMARC Group, create substantial capital pools, these resources must be directed toward concrete investments. But how can we align the rising need for capital with the assets available for investment?

The solution lies in the creation and availability of investable assets.

Africa’s stock markets remain relatively small, yet as the continent evolves, we anticipate increased issuances from both corporations and governments, particularly within debt markets. Furthermore, as African governments move towards privatizing state-owned enterprises, the equity market is likely to experience significant listings and corresponding growth. However, this growth in listed markets will not be enough to absorb the influx of both domestic and foreign capital.

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

Unlocking assets through tokenisation

A major opportunity to close this gap lies in the implementation of Distributed Ledger Technology (DLT) and tokenisation. Tokenisation involves creating digital tokens on a blockchain platform that represent various types of assets—financial (bonds, equities), tangible (real estate, commodities), or intangible (digital art, intellectual property). By digitizing these assets, we can introduce them to the market, providing liquidity and extending access to both local and international investors.

Consider the transformative potential of tokenised infrastructure investments in Africa—tradable, liquid assets capable of fostering development. Whether in real estate, infrastructure, or commodities, tokenisation enables these assets to be traded and settled more efficiently. Analysts estimate that by 2030, between $4 trillion and $5 trillion worth of tokenised digital securities could be issued globally, showcasing the significant opportunity within this market.

The need for market harmonisation

However, it is crucial to understand that asset creation is just one facet of the equation. For Africa’s capital markets to flourish, they need to operate in a straightforward and efficient manner. Presently, many African markets, particularly those outside South Africa, are fragmented and operate with varying technologies, regulations, and frameworks, which complicate and increase the cost of investing. To compete on the global stage, we must harmonize our markets, aligning regulations and infrastructure to establish a cohesive, unified system.

The question we should pose is: why must we all invest in separate technologies and infrastructures when collaboration is possible? By consolidating our infrastructure and adopting top-tier systems, we can share costs, enhance consistency, and ensure that African markets remain competitive globally.

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The future of Africa’s capital markets hinges on collaboration, harmonisation, and the adoption of new technologies that will facilitate the realisation of our continent’s full potential.

The moment is ripe for Africa to rethink its market-building strategies. We must unite, leverage our collective strengths, and capitalize on the opportunities that lie ahead. Africa’s growth narrative is just beginning, and with the appropriate strategies in place, we can ensure it attains its full potential.

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

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