Africa Forex Industry Explained
One of the most significant challenges for the Africa FX Industry is the fact that there are 41 currencies located on the continent. These are currencies that are hardly traded on the global market and posses no volatility whatsoever. This has created a real obstacle that’s creating concerns for the World Bank and the continent as a whole. However, the Forex Industry is bridging the gap for local currencies in Africa by using modern technologies that create enhanced liquidity on currencies.
The Head of Global Markets at Crown Agents Bank & World Bank Executive Committee Member, David Bee, commented on the Forex Industry in Africa by saying: “In turn, innovative compliance solutions, new FX trading technology, and sector expertise can begin to offset the disadvantages of an illiquid currency market. It ultimately will help to ensure quick and efficient access to local funds across the African continent.”
The two jurisdictions thriving in Africa is Nigeria and South Africa; their economies are home to the largest FX Markets in the continent. Additionally, these jurisdictions are the oldest in the continent and are a favourite destination for brokers. This is the result of the geographic location of these countries, their liberal political views and expansive economies. The Financial Services Conduct Authority supports the movement of Foreign Forex Exchange in the continent, which has allowed for the market to grow dramatically in a few years.
The South African FSCA
The Financial Services Conduct is an independent agency associated with the South African Government. They act as the country’s regulator on all non-banking financial firms. This watchdog has helped brokers establish themselves in South Africa and obtain high profile investors on a worldwide scale. In comparison to the European Securities and Markets Authority or the Financial Conduct Authority, the FSCA has lower regulation requirements from brokers. This means lower operating costs and higher revenues, which has seen an influx of brokers come to the country as a result.
Christoforos Panayiotou, the Regional Manager at Tickmills Africa Branch publically stated: “Africa’s region is maybe at the moment the most potential area for FX brokers to seek for more clients not only for low average trading capital but also for big investors and high profile traders. I can say that the FX industry is becoming one of the most popular industries in the financial sector of the Africa region. In South Africa for example, the Bank for International Settlements showed that the retail FX had a volume of $14 billion exchanged in 2013 and $21 billion in 2016, with figures to be expected higher in the next couple of years.”
The ESMA is Thriving Africa’s FX Market
Without knowing it, the European Securities and Markets Authority is thriving the FX industry in Africa. Their implementation of new product measures, leverage restrictions on CFDs, cryptocurrencies and Forex Instruments has seen countless brokers move over to Africa for trading. Additionally, numerous retail clients have moved from Europe and entered the South African trading space. The more relaxed regulations guarantee’s higher leverage and profit for brokers/retail clients.
Panayiotou continued his public statement on Africa’s market by saying: “With the implementation of ESMA’s new measures, more brokers are looking to move and develop business in regions that are not affected by those measures. Africa Region and especially South Africa is a desirable destination for those brokers. Africa region is a very potential market due to various reasons such as population, interest to trade Forex and financial freedom through Forex trading, as local people call it.”
Forex Trading demand on metals growing in Africa
Even though there are 41 different currencies in Africa, the brokers are operating in the continent flock towards the significant currency pairs. These pairs include the EUR/USD, EUR/GBP and EUR/RAN. These currencies are traded primarily on metals that are popular in the region. Furthermore, due to the influx of brokers and retail clients, new trading hubs are growing in Africa. New brokers are opening shop in Kenya and Tanzania. The potential for all countries in South Africa and Africa as a whole to operate trading hubs is growing exponentially.
Mr Panayiotou commented on the growth of Forex trading in Kenya & Tanzania by saying, “Africa’s biggest strength in terms of FX industry is the population and the desire and interest for Forex trading, especially among young people. Main countries have an average population of 55 million people (SA 60 million, Kenya 52 million, and Tanzania 57 million) along with Nigeria with almost a population of 190 million people, make the market enormous.”
Regulation is Africa’s Biggest Obstacle
Although Africa is showing a great deal of promise in terms of Forex and Foreign Exchange Trading, the one this that faces in the way of the market space is future regulation. Governing bodies worldwide are imploring the FSCA to increase control on trading. There is some hope for these regulators, as Kenya’s Capital Market Authority is creating new regulations that will give them better monitoring over the Kenyan Forex Market.
As demands continue to increase, the need for stronger regulation will become a reality. These stronger laws will guarantee that dishonest broker and retail clients will be weeded out from the honest brokers/clients.
Christoforos Panayiotou concluded his public statement by saying, “Finally many brokers are moving towards Africa market due to the new ESMA’s regulations. Having more brokers targeting Africa market will result in more aggressive marketing campaigns, which will make FX even more known and popular among African people.”