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Financial Market Development and the Microstructure of Corporate Bond Markets in Africa: A Survey

Author

Listed:
  • Wycliffe Oluoch
  • Kalu Ojah

    (University of the Witwatersrand, South Africa)

Abstract

Using a mix of newly assembled survey and secondary datasets on Africa, we examine financial market development from the perspective of the microstructure of corporate bond markets, and its efficiency effects on cost of debt, over the period 2000— 2020. We find that Africa’s bond markets have modern trading infrastructures like automated-trading systems and electronic execution-clearance systems. Their trading sessions are continuous, alongside pre-opening call and back-end post-closing call sessions. Contrary to costly issuance processes favoring private placement, most bond offerings in Africa are publicly issued and exchange-listed. Curiously, issuers are slow to embrace contract features such as sinking funds, call/put provisions, and inflation indexing, which are designed to enhance bond attractiveness by automatically hedging some of investors’ risk exposures. Importantly, market microstructure improves bond market efficiency and the concomitant cost of debt in Africa. Going forward, low awareness of bond markets, market illiquidity, low listings, and small investor base are crucial factors governments and bourses should address to advance the growth and efficacy of corporate bond markets in Africa.

Suggested Citation

  • Wycliffe Oluoch & Kalu Ojah, 2024. "Financial Market Development and the Microstructure of Corporate Bond Markets in Africa: A Survey," The African Finance Journal, Africagrowth Institute, vol. 26(1), pages 1-33.
    • Handle: RePEc:afj:journl:v:26:y:2024:i:1:p:1-33
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    More about this item

    Keywords

    Corporate bond market; Market microstructure; Financial market development; Africa;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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