Political Economy Factors: The Political Logic of Stock Markets

If there are potentially strong economic reasons for encouraging stock markets in poor countries, there are even greater political ones. Even though many African leaders and officials use technocratic language to justify policy decisions, there are several compelling non-economic factors that seem to be the primary driving force behind this trend. The first of these is a change in the global economic environment, namely the outbreak of “emerging markets fever.” By the late 1980s, financial markets were increasingly looking for new frontiers and making huge sums of capital available to high-risk markets that had previously been outside their radar. At the same time, political leaders in many developing countries sought to take advantage of this new opportunity. Perhaps most importantly, setting up a stock market was increasingly seen as a powerful – and in some cases, crucial – symbol of a country’s ascendancy into the global economy. For many African governments, which may lack domestic or international credibility, a stock market could be held up as a sign of legitimacy, a reaffirmation among the community of nations, a critical signpost in the evolution from a marginalized Banana Republic to a Real Country worthy of investment – and respect.