Learn how technology is driving stock market participation in East Africa. Explore the impact of digital innovations on investment opportunities and financial inclusion in the region.
KAMPALA, UGANDA | NOW THEN DIGITAL — Stock market participation in East Africa is essential to the region’s economic growth and individuals’ and families’ wealth creation. Fortunately, the trade environment in East Africa is doing well.
Data from the Africa Trade Index indicates that Uganda has the best trade-enabling environment among other East African member states. Uganda outperformed countries such as Kenya and Tanzania due to improved import and export growth prospects, ease of access to credit, and government support for trading activities.
Additionally, Ethiopia’s Ministry of Finance, Ethiopian Investment Holdings, and FSD Africa recently signed a cooperation agreement to establish the Ethiopian Securities Exchange (ESX). Once established, the ESX will become the 30th stock exchange on the continent. This will help open the economy and launch a securities exchange that can help attract new investment from the private sector.
Aside from government support, it’s also important to recognize the importance of technological innovations that help promote stock market participation in the region. Below, we’ll look at some of the ways technology has done this in countries across East Africa:
Stock index trading
One of the ways technology plays a significant role in boosting stock market participation is by making trading more accessible. Today, global brokerage platforms allow new and old investors access to indices trading, offering exposure to highly-traded global indices so traders can safely and reliably diversify their portfolios.
Thanks to online trading and mobile applications, practices like index trading can be more accessible for potentially newer traders. With hundreds and thousands of stocks from large to small-cap companies available, traders can make use of trading platforms to speculate on price movements of various indexes without having to buy the underlying asset.
Similarly, the continued development of fintech and investment platforms in Nigeria has allowed more local investors to access global markets by providing real-time access to dollar-denominated assets on the platform. Further investment in fintech platforms in the region will give Africans and their asset managers easy, fast, and secure access to global investment options to earn real returns.
Other fintech companies and consumer-facing platforms in the region can also share API solutions to make features even more accessible regardless of the fintech provider. When governments and private companies are able to work together to develop and innovate the fintech sector, more people will be able to access and participate in the stock market.
In a previous post, we highlighted Africa’s mobile money industry. Data indicates that mobile money transactions in the region hit $836.5 billion (USh3 quadrillion) in 2022 — a 22% annual increase.
This surge in transaction value, registered accounts, and deployments far exceeds industry expectations. Throughout Africa, East Africa reported the highest transaction value of $491.8 billion (USh1.7 quadrillion).
The development of mobile money in the region boosts accessibility to financial services, letting more people participate in the stock market, especially in areas with limited banking infrastructure.
Mobile money can also offer a simple and secure way to accommodate stock market transactions, making it easier for investors to buy and sell on the go — without access to traditional financial institutions.
Finally, another key innovation in technology that can really boost stock market participation in East Africa is the integration of automation technology. Automated trading is not an entirely new concept in the region. In 2020, the East African stock market automation project went live.
In 2022, a new automated system was launched by the Stock Exchange of Mauritius.
It was designed to attract more international order-flows and enhance liquidity while allowing for the launching of new products, including futures and options on foreign underlying. Further embracing of automation in East Africa can help current and newer investors enhance their trading strategy and practices to boost wealth creation.
The various digital technologies being developed are crucial to further innovation in East Africa’s fintech sector. As digital technologies such as mobiles and smartphones become more accessible to investors in the region, stock market participation will also improve.
The same holds true for technologies such as mobile money and automation, which can also enhance financial literacy and inclusion for new investors to familiarize themselves with the stock market.
As we continue to see joint efforts and initiatives from the government and private entities, it will be interesting to see the future of stock market participation and its impact on East Africa’s economy.
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