Enabling Investment through Standardisation
Investor flows into Africa have been healthy, but as with other emerging markets, the continent is facing challenges ahead. Recent uncertainty linked mainly to U.S. tariffs is one of the main challenges.
Speaking at The Network Forum’s (TNF) Africa Meeting, Sam Dahya, Head: Investor Services Custody and Investment Administration at Standard Bank Corporate and Investment Banking (CIB), outlined how achieving market-wide standardisation and harnessing digitalisation to deliver operational efficiencies will be critical to Africa’s growth and resilience moving forward.
Africa captures market share
Investors over the last few years have become increasingly bullish on Africa.
According to World to Africa survey study by The Value Exchange, in partnership with Standard Bank, 63% of allocators said they invested in Africa in 2024, up from 57% in 2021.
Together with significant cross-border investment flows, Africa is also seeing a surge in allocations from North America and the Middle East, and from mid-sized asset managers and asset owners, hungry for better yields and risk diversification.
However, the threat of the volatility introduced by US tariffs will almost certainly force a lot of global investors to scale back their emerging and frontier market exposures.
Standardisation will support Africa’s growth
Standardisation is playing a crucial role in driving foreign investment towards Africa, whilst at the same time also shielding the continent against some of the looming macro headwinds.
“From a custody perspective, there are significant opportunities for standardisation in Africa. Many of the continent’s markets, particularly outside of South Africa, operate with diverse technologies, regulations, and frameworks, which can make investing complex and costly. Standardisation initiatives can help harmonise these markets by aligning regulations and infrastructure to create a cohesive, unified system, thereby facilitating operational efficiencies,” says Dahya.
Progress is happening.
“Regional integration across Africa, embodied by regional bodies like the Economic Community of West African States (ECOWAS), the East Africa Community (EAC), and the Southern African Development Community (SADC), are designed to promote better economic integration and harmonised legal and regulatory frameworks. They have brought numerous strategic benefits, namely making it easier for foreign investors to access local markets,” said one network manager, speaking at TNF.
According to Dahya, regional stock exchange connectivity initiatives, including the Africa Exchanges Linkage Project (AELP), are also helping markets attract much needed liquidity.
“AELP, which comprises of the Exchanges of the BVRM, Morocco, Egypt, South Africa, Kenya, Nairobi, Mauritius, Botswana and Ghana, creates a framework to support easier cross-border investing, capital markets access, and Initial Public Offerings (IPOs). Under the sponsored access model, an investor in one participatory AELP market can open up a brokerage account in another AELP market and then begin trading on that country’s exchange,” added Dahya.
As with many other parts of the world, a handful of African economies are shortening their trade settlement cycles, a move which will help shore up liquidity. For example, Zimbabwe will migrate from T+3 to T+2 later this month, while Nigeria’s CSCS, having initially considered the idea of going straight from T+3 to T+1, is instead moving to T+2, following constructive feedback from global custodians.
Meanwhile, some African markets are beginning to connect to Swift, the international payments system, generating operational efficiencies and creating a platform for seamless cross-border transactions.
However, there are areas in need of improvement and deliberate drive for integration between the participants/settling Banks and CSD, Central Banks from a securities perspective. This is fundamental to support seamless transition when changing settlement cycles
Linkages between the different Central Securities Depositories (CSDs) across Africa have yet to be developed, account opening processes are still far from standardised, while a few markets still have dual account structures in place. Without greater levels of post-trade harmonisation, liquidity will continue to be an issue across the region.
Operational efficiencies as an enabler
Digitalisation is turning Africa into an increasingly attractive investment destination.
“By focusing on digital transformation, we can create a cutting-edge custodial ecosystem. Through innovation, custodians can improve efficiency, reduce costs, and enhance service quality through standardisation throughout the region. This can unlock further efficiency benefits, boost transparency, and client satisfaction. By rolling out new operating models and platforms, providers will be able to scale, reduce bottlenecks, automate previously manual processes and support client customisation,” added Dahya.
This comes as several banks and CSDs in Africa are in the process of updating their technology stacks, with many of them busy incorporating API connectivity, digitalising corporate actions or developing e-voting capabilities.
Looking to the future
African markets have made extraordinary in-roads delivering on standardisation and digital transformation, although it is still a work in progress.
These efforts must continue, if African markets are to keep growing and weather the impact of global volatility.