East African stockmarkets ‘most expensive in Africa’

Wednesday October 03 2018

East African countries are running the most expensive stockmarkets on the continent, a development blamed for the drop in trading volumes and the reduction in investor appetite.

A new survey by global financial and investment advisor RisCura shows that Tanzania has the most expensive stockmarket on the entire continent due to high brokerage fees, clearing and settlement fees, and other charges.

It is followed closely by Uganda, Rwanda, Zimbabwe, BRVM (West African stock exchange) Botswana, Zambia, Kenya, Nigeria and Mauritius.

Cheaper stockmarkets are attractive to investors. The cost of trading shares on African exchanges is considerably higher than in developed markets, with a significant portion of trading costs being made up of brokerage commissions.

The report shows that the lion’s share of the total cost of investing in a share in Africa is taken up by stockbrokers, who are now struggling to cover their operating costs due to reduced trading volumes. Other fees go towards settlement and clearing of transactions, among other statutory charges.

According to the report, African countries have far too few stockbrokers, making it difficult for investors to switch to more affordable competitors.


“The low volume of trades on these exchanges means that brokers charge more on each trade to cover their costs,” says the report.

In Tanzania, fees take up about 2.2 per cent of the total transaction cost of investing in a share, with brokerage fees accounting for 1.5 per cent.

According to the report, Bright Africa 2018, which was released in August, Mozambique has the lowest cost of trading in shares, followed by South Africa, Seychelles, Egypt and Tunisia. In Mozambique, fees make up just 0.3 per cent of the transaction.

Tanzania has 28 listed companies on the Dar es Salaam Stock Exchange. Activity on the bourse has been sluggish, attributed to reduced corporate earnings by listed firms and declining participation by foreign investors, who contribute about 80 per cent of the market’s liquidity.

The Tanzania All Share Index shed one per cent month-on-month to close at 2,270.3 units in August, down from 2,293.3 units in July, according to a report by Cytonn Investments. The Tanzania Share Index shed 2.1 per cent to close the month at 4,140.9 units during the same period.

In South Africa, a substantial portion of other fees mostly represent Securities Transfer Tax, which is not charged in many developed markets.


According to the report, Africa’s stock exchanges save for the Johannesburg Stock Exchange, remain illiquid, with very few shares changing hands on any given day.

The Egyptian Exchange currently has the second highest daily turnover across the African exchanges after JSE, with a total of $72 million traded daily, compared with the JSE’s $1.8 billion.

The next most liquid exchange by turnover for 2018 is the Casablanca Stock Exchange (CBSE) at $17 million, followed by the Nigerian Stock Exchange (NGSE) at $15 million. This represents less than one per cent of the trading on the JSE.

The NGSE showed a 71 per cent increase in daily turnover during 2018, due to an increase in turnover across its 10 largest companies, all of which are in the financial sector, the RisCura report shows.

The financial sector has on average the highest daily turnover value across the African exchanges and continues to account for most of the market capitalisation.

According to the report, the lack of liquidity on African exchanges is caused by the relatively fewer listed-company shares that are available for active trading — commonly referred to as free float.

The free float represents the proportion of listed companies’ shares that are available for active trading and excludes any directors’ holdings, shares with lock-in periods, and those otherwise held without the intention of trading pursuant to a regulatory or commercial purpose.

According to the report, listed equity performance over the past five years, based on US dollar returns of the major African markets, showed marked variations.

From 2014 to mid-2016, African stockmarkets failed to grow, largely due to declining commodity prices and a flight to safety by global investors.

In 2015, the region saw the lowest recorded growth rate since 1998, while the last quarter of 2016 heralded the start of the African equity recovery.

Africa has not followed global trends in the significant expansion of the listed information technology sector, although it contributes significantly to private equity activities.

According to the report, total private equity transaction activity in Africa has increased by seven per cent from 2016 to 2017, with South Africa making up a large proportion of PE activity in the current year.

However, South Africa’s private equity concentration has been significantly diluted from 50 per cent in 2009 to 31 per cent in 2017, due to a shift in investor focus away from South Africa to the rest of the continent, driven by sluggish GDP growth, political uncertainty and increasing unemployment in the South African economy.

Kenya, on the other hand continues to dominate the East African PE investment landscape because of the country’s large and diversified economy, pro-business government policies and relatively low dependence on extractive commodities.