The CEO of SecondStax, a startup in the capital markets, Eugene Tawiah, highlighted the revolutionary potential of more integrated capital markets in Africa in a recent interview with Nairametrics. Tawiah, a capital markets expert from Ghana, outlined several significant advantages that could result from deeper integration, such as better portfolio balancing for investors, lower borrowing costs for governments, more accessible access to long-term capital for small African businesses, and easier fundraising for established companies.
Tawiah highlighted the existing reliance on domestic and foreign bond markets as a significant financial burden and specifically emphasized the potential for African governments to borrow from one another at a more favourable cost of capital. He proposed that the integration of capital markets could result in lower interest rates, making borrowing between African countries more affordable.
Tawiah addressed the macroeconomic imbalances that African economies face and emphasized how interconnected capital markets might provide a more diverse investment environment. Investors can distribute their holdings across several jurisdictions using a single capital market, improving risk management and relieving pressure.
The main obstacle to cross-border trade in Africa has been the difference in exchange rates. Tawiah offered creative answers to this problem, like doing away with the requirement for third-currency settlement systems.
He clarified that to avoid depending on third currencies like the US dollar, cross-border capital market traders implement strategies that allow for direct currency exchange. Tawiah talked about how the Pan-African Payment and Settlement System (PAPSS) is an essential component of the initiative to lessen Africa’s reliance on the US Dollar for currency conversion.
PAPSS is a crucial option for transactions involving significant amounts, such as bond purchases, because it allows for higher settlement sums. In contrast, existing settlement systems are designed for retail transactions. He underlined that PAPSS and similar platforms would help ease the pressure on the US dollar and possibly free up more foreign cash to be used for essential products and services throughout the continent.
The need for integrated capital markets coincides with the strain that foreign debt places on several African nations, notably Ghana, Egypt, Zambia, and Ethiopia. Debt restructuring agreements and talks with creditors highlight these countries’ economic difficulties. A regional strategy based on integrated capital markets will likely offer a mechanism to change the economy and promote resilience in financial uncertainty.