Over the past few decades, world stock markets have surged, with emerging market countries accounting for a large amount of this boom. Although most emerging markets are in Latin America and Asia, recent years have seen a number of new stock markets in African countries. These include Ghana, Malawi, Swaziland, Uganda, Zambia and an anticipated entry of Rwanda.

Such developments are helping to promote the culture of saving and boosting investments.  As Africa strives to keep pace with changes and challenges being exhibited by other markets, the biggest question is defining “emerging markets” in Africa as compared to those in more developed regions.

An emerging market can be defined as that which is found in a developing country and is advancing in size, activity or sophistication. Past performance in African markets have delivered superior returns and provided an avenue for further diversification of global portfolios. In addition, they are attractively valued, represent huge market places and are underweighted in global portfolios.

These markets however experience constraints such as inadequate liquidity, restrictive legislation on banking system, restrictive regulations on investment of pension assets and heavy reliance on privatization as a source of capital growth. Africa has made great strides, despite the constraints, considering that South Africa was considered as an emerging market while the rest were not due to their small capitalization. A lot has however changed. As demonstrated below, returns have augmented over time.

Compare these returns to two global leaders and the returns may not be anything to go by.

Although the west has shunned African markets for a long time, Africa’s stock markets appear set for faster growth now that privatization of state owned firms has taken full gear. In Kenya for example, the government partly relinquished control over firms recently. Price earning multiples have fallen from three figures to single figures as proper stock exchanges are being formed. Such an improvement provides opportunities for foreign investors to invest in Africa.

A commentator observes that investors outside Africa can get into African markets through buying international conglomerates with African operations. For example, British firms can invest through companies like Barclays whose operations are immense in Africa while the American counterparts can use companies like the American Investment Group (AIG).

Where corporate governance becomes an issue, foreign investors can assume major ownership in the firms they manage. In doing so, they will not only control the management, but also benefit from inside information about business operations in that particular country. This works to the advantage of the organization in question as well as the common shareholders.

Whereas the west may gain a lot by investing in the African markets, there are the underlying challenges that are more in line with the government policy and democracy issues. If that alone could be worked upon, Africa’s full potential could thrive.