- Over the years, the continent’s FX market has been growing exponentially largely driven by the increased access to mobile devices and internet connections across the region
- While retail forex trading in Africa may only represent a small segment of the global currency markets (approximately 5.5) the continent has registered substantial growth over the past few years
- African investment in the stock market was reserved for a particular set of elite people, viewed as an investment tool for those who had enough wealth to afford to buy huge sums of shares and hire stockbrokers
Over the past decade, fintech in Africa has been triumphing over traditional structures and changing how financial services are delivered across the continent.
This has made it possible for about 95 million people (57% of Africa’s population) to access affordable financial products and services despite them not necessarily having a traditional bank account.
Mobile payment solutions being offered across the continent are increasing access to money at lower fees.
Data by GSMA shows that in 2020, there were 548 million registered mobile money users in sub-Saharan Africa, a number that is expected to increase rapidly over the next few years.
The total number of separate mobile money transactions in sub-Saharan Africa amounted to 27.4 billion, almost 15% higher than the previous year’s transactions- with a total value of US$490 billion, up 23% compared to 2019.
With increased access to mobile money solutions, Fintech startups across the continent are able to create different digital payment tools that offer lower costs, faster transaction times, and broader coverage.
In Africa, many fintech startups are helping to close the gaps in numerous sectors, including healthcare, agriculture, energy, transportation, e-commerce, and mobile money services.
With Africa currently being the world’s second-fastest-growing and profitable payments/banking market, the continent’s fintech sector is expected to continue attracting investors looking to capitalize on the increasing growth opportunities.
The Covid-19 pandemic has also fast-tracked Africa’s e-commerce scene and as a result, accelerated the digitalisation of African banking and financial services.
Africa’s FX market
Looking back two decades ago, African investment in the stock market was reserved for a particular set of elite people. It was viewed as an investment tool for those who had enough wealth to afford to buy huge sums of shares and hire stockbrokers.
However, over the years, the continent’s FX market has been growing exponentially. This has largely been made possible by the increased access to mobile devices and internet connections across the region.
While retail forex trading in Africa may only represent a small segment of the global currency markets (approximately 5.5) the continent has registered substantial growth over the past few years.
To put this into perspective, South Africa has about 190,000 traders, coming close to Nigeria’s 200,000 forex traders. Kenya comes at a distant third with about 50,000 forex traders. The rest of the traders in Africa make up about 750 000, bringing the total to 1.3 million traders. Data by The Tokenist shows.
This is a substantial number of traders given there are approximately 10 million forex traders in the world today. 23. Of those 10 million, 3.2 million are in Asia, and 1.5 million each in Europe and North America.
Additionally, South African traders’ average customer monthly deposit is $742.04, while Nigeria is second with $514.42 worth of monthly deposits. Kenyan traders deposit about $363.56 monthly.
According to the Bank of International Settlements Survey of foreign exchange and OTC markets, in 2019, South Africa’s forex daily trading volume, including spot and CFDs, was about US$2.21 billion. The total turnover for all fx instruments was US$21 billion. Nigeria’s daily volume was $314 million while Kenya’s forex volume was just $192.66 million per day.
Other countries where Forex trading is gaining ground across the continent are Egypt, Angola, Namibia, and Tanzania.
FX regulations across Africa
Despite the continent’s promising forex market, the majority of African countries do not have regulations in place to govern forex trading.
Apart from a few countries like Kenya and South Africa are at the forefront of creating a regulated space for both local and foreign investors, others are yet to pick up the pace and follow suit.
For instance, Nigeria, Africa’s second-largest economy has no foreign exchange regulations in place.
While no African country has imposed a complete ban on forex trading, there are a few restrictions from some governments.
Some of these restrictions are on the maximum trading amount and the maximum amount you can have in your Forex account, forex trading with non-licensed Forex brokers is prohibited and you can only trade Forex for yourself and not for anyone else.
These restrictions are imposed to prevent fraudulent and scam activities.
Additionally, forex trading is not usually welcomed in countries governed by strict sharia laws. These include countries like Algeria, Benin, Burkina Faso, and Egypt among others.
Fintech’s role in the growth of Africa’s FX market.
With over 548 million registered mobile money users in sub-Saharan Africa, increased internet access, and readily available mobile money solutions, the FX market has become accessible to the majority of Africans.
The availability of mobile money payment solutions has seen an increase in the creation of fintech startups created solely to cater to Africans interested in trying their hand at trading in both local and international FX markets.
Firms including Exness, XM.com, Avatrade, CM Trading, Tickmill and Chipper Cash among others all reported a significant growth in trading in 2020. A testament to the growing trading culture driven by fintech across the continent.
“Many notable forex brokers have already witnessed a trading market ripe and ready to be penetrated and featuring near-endless possibilities for traders ranging from beginners, intermediaries, and expert traders,” Louis Schoeman from Forexsuggest.com – a global forex analysis platform based in Africa said.
“There are numerous major forex brokers that have obtained the necessary regulation from a top-tier authority to offer their services to African forex traders.”
Increased trading in Africa has also been driven by the fact that users can buy a portion of their preferred company shares at reasonably low rates, going as low as US$10.
Although there has been significant growth in the number of fintechs offering these services, a lot of Africans are falling prey to scammers.
“The amount of Forex scams in African countries is on the high side, and it has resulted in grave losses for the victims. By going with a well-licensed broker, this risk is almost eliminated, and you can trade more assuredly,” trading site Fxempire noted.
With the increasing sensitisation of Africans on the Forex market as well as new products in the market, investment in Africa’s FX market is set for rapid growth moving forward. This is as more African countries, work to streamline policies that promote more trading across the continent.