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Unleashing the Power of the African Stock Exchanges

Days before Facebook became a public company on 18 May, the hype behind the social network giant went into overdrive. The media proclaimed it the biggest ever stock market flotation by an Internet company. Investors salivated over a rare chance to make quick profits. The 900 million plus fans who had turned Facebook into a global giant wondered publicly what was in it for them. For a while, it wasn’t just seasoned investors eyeing the stock; even the public showed momentary interest.

In the event, Facebook’s crowning achievement as a public company was an anticlimax — and even almost turned into a disaster. Yet the flotation showed the twin power of stock markets: an ability to raise capital for business expansion (a massive $16 billion for Facebook), along with a potential to destabilize economies.

With African stock exchanges becoming important sources of investment capital for large corporations, Facebook’s experience has revived debate on whether exchanges are capable of promoting economic growth. Suspicions over their weaknesses are not without basis. The absence of laws regulating trading in derivatives was largely blamed for the 2007 global financial crisis. If such practices could happen on the world’s biggest exchanges, critics ask, how can Africa’s fragile economies withstand the whims of markets?
Positive outlook

As European economies struggle with a debt crisis and sluggish growth expected in the US and elsewhere, investors are eyeing Africa as the next frontier, thanks to a surging economy and positive growth estimates over the next few years. Indeed, Africa “could be on the brink of an economic take-off, much like China was 30 years ago, and India 20 years ago,” says the World Bank.

This year, sub-Saharan Africa’s economy is forecast to expand by 5.9 per cent, ahead of North Africa’s growth of 4.2 per cent, according to the International Monetary Fund (IMF). Seven African countries are expected to be among the 10 fastest-growing economies in the world…

Source: Africa Renewal

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