Africa’s securities markets have seen unprecedented change over the last fifteen years with the rapid growth and development of existing bourses and the establishment of new markets. Despite this growth, very few of these markets and listed stocks have been included in popular investment benchmark indices (such as the Standard amp; Poor’s frontier market range), demonstrating the marginalization of this region in terms of attracting much needed investment capital from worldwide flows. Historically, banking has dominated the economies of many of the countries within Africa, with stock markets only playing a sizeable and active role in financing in South Africa and Egypt. However, the role this has played in development finance has been limited by severe credit rationing from incomplete credit markets. Ironically, development is hindered not by a lack of funds within the banking sectors but rather an excess of liquidity caused by a lack of investment-grade opportunities in which banks are able to invest accumulated savings. Domestic investment is further hindered by the low savings rates in many countries, where investors prefer to invest in physical commodities or livestock in line with traditional beliefs, as well as uncertainty over the ability of savings to retain value due to macroeconomic mismanagement and instability.
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- Equity Market Integration and the Implications for Foreign Investment in Africa
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