Many African companies have reported a big increase in profits for the first half. This is a fact, however, that international investors are largely ignoring. Why is this and what can be done to improve the visibility of African stocks internationally?
Capital News Africa: From the Trading Floor – Week 37-2022
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In a time marked by disrupted supply chains, geopolitical tension and war in eastern Europe, Africa is proving to be a haven of economic stability. A good example of this are the first-half results for listed African companies in the sub-Saharan region. According to an analysis from African Financials, 74 companies from the region increased profit during the period by an average of 17% to an impressive USD 4.6 billion (EUR 4.56 billion).
In east Africa and the island of Mauritius in particular, corporate profits were up an average of 24%. This includes increases among listed Kenya companies (17%) and those in Nigeria (20%). Uncertainty over the presidential election in Kenya last August may have weighed on corporate profits there. In Nigeria, the oil price surge during the first half boosted companies listed on Lagos’ stock exchange. The analysis also showed that earnings from sub-Saharan companies listed internationally but not on African exchanges rose an average of 22% in the first half to USD 526 million (EUR 521 million).
Unfortunately, the improved profitability of the sub-Saharan companies did not necessarily lead to increases in their share prices. “There seems to be a low correlation between earnings growth and share price performance. It appears that most companies are not getting their message through to investors,” noted African Financials.
With that observation, the financial website has pointed to one of the biggest weaknesses of African capital markets. The important message that Africa is weathering the current global economic crises rather well is one that is not being heard by international investors.
Instead, European and North American media tend to focus on the political tension that could lead to another big food shortage or debt crisis in Africa. We don’t deny that Africa’s economy is fragile and would have a hard time overcoming a possible crisis caused by the conflict in the Ukraine. As foodstuffs already account for a very big share of household expenditure in Africa, many families would be hit hard by higher prices on them. It is therefore correct that the European and North American media report on this risk.
But it is also correct that in those African countries that do not depend on wheat as an essential foodstuff, no crisis has emerged. In fact, the surge in inflation and the danger of a recession in several developed countries have not negatively impacted on economic growth in Africa. So far, the continent has shown itself to be very stable indeed.
But again, why is the world not paying attention? Why haven’t international investors raised their exposure to Africa? The situation shows us that financial markets are not nearly as efficient as liberal economic theory would have you believe. For it is also true that the reservations harboured by international investors against Africa are so great that they simply ignore any good news from the continent.
Africa has an image problem. It is still difficult to get solid news about what is happening on its capital markets. This is because they are grossly undercovered both by the economic press in Africa and outside of the continent. The latter includes such reputable financial newspapers like the “Wall Street Journal” and the “Financial Times.”
This is unfortunate, as first-half earnings of sub-Saharan companies reflect that more attention should be paid in the West to Africa’s capital markets. We at Capital News Africa will do our part to change this. But it’s also clear that Africa’s governments must do more to promote their capital markets in the international sphere. In this regard, Morocco’s financial centre initiative could serve as a model.