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Nigeria and other Africa stock market immature – IMF

by Business News Report

By Omoh Gabriel
The International Monetary Fund, IMF has described capital market in Africa as immature that are not capable of helping companies raise required capital for their operation. In its 2006 regional economic outlook for sub Sahara Africa released in Singapore on Friday, the Fund said “Stock markets in Africa remain immature”. The report further said “Except in South Africa and Zimbawe, average market capitalisation is about 27 per cent of GDP, it is as low as 1.4 per cent in Uganda”. In the case of Nigeria there are only 207 companies listed on the exchange while South Africa has 403. Egypt the only IMF listed emerging market in Africa has 962 companies listed on its Exchange. This the IMF said is in contrast with emerging markets like Malaysia, which has a capitalisation ratio of about 161 per cent of GDP. The report said that market liquidity is low, turn over ratio are a as little as 0.02 per cent. Low liquidity it said implies greater difficulty in supporting a local market with its own trading system, market analysis, and brokers, because of the low business volume.
The report further said “Economic growth in sub-Saharan Africa is expected to remain robust, despite high oil prices. Thanks mainly to the prudent macroeconomic policies of countries in the region, inflation
remains under control.
These were among the main findings of the fall 2006 issue of the sub-Saharan Africa Regional

Economic Outlook, which the International Monetary Fund released today. Abdoulaye Bio-
Tchané, Director of the IMF’s African Department, highlighted the report’s main findings:
“Real GDP in sub-Saharan Africa is projected to grow by 4.8 percent in 2006. Although below
the rate of 5.6 percent in 2005—largely because of a temporary slowdown in oil production in
oil-exporting countries like Equatorial Guinea, Chad, and Nigeria and a moderation of growth in
South Africa to more sustainable levels—this growth performance demonstrates the growing
robustness of economic growth in sub-Saharan Africa.
“Growth in oil-importing countries as a whole is expected to decline to 4.5 percent from
5 percent in 2005, though 17 of these countries—about the same number as in 2005—are
expected to experience growth of 5 percent or more. In many oil importing countries, the impact
of persistently high petroleum prices has been mitigated by rising export prices for nonfuel
commodities and by growing domestic investment.
“Looking ahead to 2007, GDP growth for the region as a whole is projected to rise to about 6
percent. Growth in oil-exporting countries as a group could accelerate to 10 percent, mainly
because oil production is rising in Angola and Equatorial Guinea. Growth in oil-importing
countries should remain steady at 4.6 percent. Inflation for the region (excluding Zimbabwe) is
projected to fall further, to 6 percent.
“There are downside risks to this favorable picture, however. Export demand could be lower if
activity in the rest of the world slows from the impact of global imbalances and tighter monetary
policies. Growth and inflation could also be adversely affected by further increases in oil prices
and a larger-than-expected fall in nonfuel commodity prices. And there are still political risks in
a number of countries in the region.
“Our analysis of the impact of higher oil prices reveals some policy challenges for African
governments. Since 2003, governments in most countries in the region have passed a relatively
large portion of higher oil prices through to domestic retail prices. Rising oil prices have thus cut
into the real income of the poorest population groups. Addressing this impact will be difficult for
policy makers where there are no effective safety nets for the poor.
”Many countries are using indirect instruments to shield the poor, such as subsidizing kerosene
(given its importance in the lives of the poor) and public transportation, and reducing or
eliminating charges for public services like health and education, subject to the overall fiscal
constraints. According to our analysis of eight countries in sub-Saharan Africa, oil and other fuel
price increases in 2003-05 may have lowered real GDP by 0.2 to 1.0 percent, depending on
national production and trade. Fortunately, in some of these countries, such as Botswana,
Mozambique, South Africa and Zambia, the impact on GDP of higher fuel prices was more than
offset by rising prices for nonfuel commodities.
“Finally, oil-producing countries need to strengthen their fiscal institutions to enhance revenue
transparency and their public financial management systems.
“The IMF has so far provided debt relief to 14 countries in sub-Saharan Africa under the
Multilateral Debt Relief Initiative (MDRI). These countries are using the resources released from
debt service to boost poverty-reducing investment. However, economic performance will have to
improve significantly if the region is to attain many of the Millennium Development Goals
(MDGs). In particular, countries in the region will need to accelerate annual GDP growth to at
least 7 percent to attain the poverty MDG.
“The scaling-up of aid promised by the international community at the Gleneagles Summit a year
ago has yet to materialize, but private capital inflows are rising in some countries as surging
commodity prices and debt relief make the region a more attractive place to invest. Still,
countries in sub-Saharan Africa will have to do much more to lower the costs of doing business
if private sector activity is to flourish.”

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