A study by two assistant professors at the American University in Cairo (AUC) has suggested that a 10% increase in crypto market capitalization causes the market value of โAfrican micro-entitiesโ to drop by 0.76%.
Crypto Market Growth Hurts Less Competitive Sectors
According to the results of a study conducted by Mina Sami and Wael Abdallah, every time the cryptocurrency market capitalization grows by 10%, there is a corresponding 0.76% drop in the market value of African micro-entities.
The study's findings also suggested that companies in less competitive sectors are "more likely to be hurt by the expansion of the cryptocurrency market." For example, the two authors conclude in their report that the cryptocurrency market has "a considerable effect on Africa's energy, financial, industrial, and consumer services sectors."
In contrast, the real estate and information technology sectors are less affected by the growth of the crypto market, the authors said. Meanwhile, the authors said their study has highlighted the importance of having "internal strategies and strong expertise." These attributes are vital for African companies that must now compete with cryptocurrencies.
Although the authors, who are also assistant professors at AUC, have acknowledged the steps taken by countries to counter the growth of the cryptocurrency market, they nonetheless argue that such steps in fact "failed to protect their national companies." According to the authors, this failure calls for government interventions that "improve financial market competitiveness in Africa."
Boosting the Competitiveness of the Securities Markets
To achieve this goal, the study says governments should first "raise the competitiveness of their stock markets." In their article, the authors then list three requirements that must be met to improve the competitiveness of the stock markets. The first two requirements are listed below:
This requires (1) Driving innovations and improving regulations in this traditional financial market to compete with the cryptocurrency market. (2) Governments should encourage the diversity of populations in Africa. The stock market capitalization in Africa is considerably large; however, it suffers from limited stock.
The third requirement listed relates to Africa's financial services and infrastructure challenges. Such challenges, according to the authors, "have become a clear impediment to the development and competitiveness of the stock market."
In addition to improving the competitiveness of stock markets, the authors said companies must also "strengthen their strategies to attract investors." They also suggested that Development Finance Institutions (DFIs) should invest more in countries, industries or business areas that "private investors perceive as costly and risky."
Do you agree with the findings of this study? You can share your thoughts in the comments section below.
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