Joburg's starving brokers

As the JSE reaches 100,000 points, it is worth remembering its fragile beginnings

‘Business in the Johannesburg Stock Exchange is so dull’, reported The Port Elizabeth Telegraph on the 19th of December 1889, two years after its opening, ‘that the large army of brokers are in the habit of whiling away time in the building by singing part songs’.

Almost 140 years later, the Johannesburg Stock Exchange (JSE) is anything but dull. Last month, it surpassed 100,000 points, a historic milestone, even though few outside the financial pages noticed. It was a moment that revealed much, not only about the JSE but about stock markets more generally. What was once seen as a leisurely gathering of bored brokers has become Africa’s largest, most dynamic stock exchange, a sophisticated marketplace central to the continent’s economic landscape.

The Johannesburg Stock Exchange today is home to more than 120 listed companies, with a combined market capitalisation of over R20 trillion. As Africa’s oldest and largest stock exchange, it has evolved dramatically from its modest beginnings in the goldfields of Johannesburg, established just one year after the discovery of gold in 1886. Today, the JSE ranks among the top 20 largest exchanges in the world by market capitalisation and continues to attract significant international interest.

But why should we care about stock markets like the JSE? Economic theory suggests compelling reasons: stock markets mobilise savings into productive investments, allocate capital efficiently, enable diversification and risk-sharing, and impose discipline on corporate managers. Influential research confirms these benefits, demonstrating how liquid stock markets encourage more individuals and institutions to invest their savings by allowing them to diversify risks, and showing strong empirical evidence linking market liquidity – the ease of trading stocks – to long-term economic growth. From this perspective, stock exchanges do far more than simply reflect economic conditions; they actively drive growth.

Yet, despite the clear theoretical advantages, the real-world relationship between stock markets and economic prosperity remains uncertain. Economists have long debated whether exchanges genuinely drive economic development or whether they merely reflect the underlying health of an economy. Robert Lucas, a Nobel laureate, famously expressed scepticism about overstating the role of financial markets in promoting growth, pointing out that causal relationships are notoriously challenging to establish.

A recent academic paper by Antonio Afonso and Max Reimers, published in the Journal of Comparative Economics, offers valuable new insights. They examined the economic impact of stock exchanges introduced across Africa, revealing nuanced results. Initially, these markets appeared transformative. GDP per capita rose sharply – by as much as 40% within five years – yet the effect faded considerably after this initial period, forming an inverse U-shaped curve. In other words, African stock markets provided an early economic boost, but their longer-term contribution was less clear.

This finding recalls the tensions present at the JSE’s inception, particularly between Johannesburg and Cape Town. A contemporary account captured this vividly, highlighting local rivalries:

At the opening of the Johannesburg Stock Exchange the other day (where Mr Sauer, by the way, said that we in Cape Town with our accustomed slowness, had not been able to establish a Stock Exchange), the various speakers had much to say upon the marvellous progress and solidarity of Johannesburg—its houses and offices, its well-laid-out streets, its many newspapers, and its other signs of early maturity as a city; but none of these things convey to our mind so forcible an impression of advance as auctioneer’s advertisement of the sale of building over some miles from Johannesburg.

Cape Town, despite its economic promise and established merchant class, never created a stock exchange of any substance.¹ But Pretoria did – and yet it failed spectacularly. As historian Mariusz Lukasiewicz writes in a previous post on Our Long Walk, in February 1889, President Paul Kruger officially opened the South African Share and Claim Exchange in Pretoria, confidently predicting the city would become ‘the financial centre of this country’. Despite such grand ambitions and official backing, Pretoria’s exchange never flourished; it closed quietly by March 1891, overshadowed entirely by Johannesburg’s rapid rise. Clearly, merely establishing a stock exchange was not enough: Pretoria lacked the scale, connections, and momentum necessary to sustain a vibrant market.

Johannesburg succeeded precisely because it attracted colourful characters and encouraged widespread participation, as vividly recounted by Edward Kennedy, a broker newly arrived from London in June 1889. Shocked by the informality he observed, Kennedy described brokers in Johannesburg wearing "all kinds of head-gear except the chimney-pot" and trading stocks in riding breeches and top-boots, bearing hunting crops. This informal but dynamic atmosphere proved critical, facilitating a rapid expansion of membership and trading volumes. What if Cape Town had fostered similar entrepreneurial spirit and established its own exchange? Might it have experienced sustained economic dynamism, reshaping South Africa’s economic geography? Or would it, like Pretoria, have faded away? We will never know.

Today, stock markets face several challenges that complicate their role in economic growth. Despite the JSE’s recent milestone, the number of listed companies on the exchange is significantly lower than two decades ago. Increased regulatory burdens and compliance costs have discouraged smaller firms from going public, leading them instead toward alternative funding sources like venture capital and private equity. Additionally, many businesses today – think of tech startups – require far less upfront capital than traditional ventures, such as mining operations, making public listings less appealing. The global trend of firms remaining private longer, evident in South Africa as well, also reflects broader concerns over the perceived short-termism of public markets, where pressures to deliver quarterly earnings can conflict with long-term business strategies.

Ant Lester of WillisTowersWatson highlighted these shifts clearly:

Today they are less commonly used to raise capital; rather this is provided by venture capital and private equity. Firms are remaining private for much longer, but eventually they list as the founders need to liquidity to reduce their exposure and to have a market price for the firm.

Yet, despite these headwinds, new technologies are reshaping how stock markets connect savers and investors. Digital platforms such as South Africa’s EasyEquities allow individuals with limited resources to access stock markets easily and cheaply. Lester underscored the significance of this transformation:

It is possible for the ordinary person to buy the index at a very low cost, and this is a very good solution as very few investment managers beat the index net of fees.

Technology-driven democratisation could fundamentally alter the role of stock markets in South Africa. Historically, capital markets have entrenched inequality, reinforcing existing power structures by limiting opportunities to those with substantial initial wealth. But platforms like EasyEquities promise something different: wider participation in market gains, enabling ordinary South Africans to invest incrementally in the nation’s largest companies. If successfully scaled, such innovations might well address the country’s persistent inequality by broadening wealth accumulation beyond the traditional elite.

This optimistic vision comes with a crucial qualification: technology alone is not a magic wand. Platforms like EasyEquities have indeed democratised access to financial markets, but without effective regulation and widespread financial literacy, they won't reshape South Africa’s structural inequalities. Moreover, EasyEquities now competes for attention with other, riskier financial alternatives – such as cryptocurrencies and online sports betting – that offer short-term thrills but seldom deliver sustained financial prosperity.

Still, despite these modern distractions, the JSE’s remarkable journey offers genuine reason for optimism. After all, things could be, and once were, far worse. Complaining about singing brokers, the Port Elizabeth Telegraph journalist noted wryly in 1889 that:

A facetious contemporary states that serious thoughts are entertained of turning the Exchange into a music and lecture hall, and appealing to the Lord Mayor of London to start a Mansion House fund for the indigent and starving brokers of Johannesburg.

Today, almost 140 years later, the Telegraph journalist might sing a different tune. The JSE has created wealth beyond anything imaginable at the time. If it continues harnessing technology to link savers with investors, making the financial circle more inclusive, it will likely continue generating prosperity well into the next 140 years.

This is an edited and translated version of my monthly column, Agterstories, on Litnet. To support more writing like this, consider becoming a paid member. The image was created using Midjourney v7.

1. Edit: The original version suggested that Cape Town never had an exchange, but that failed to account for the exchange in the first decade of the twentieth century. Thanks for the valuable feedback by one of the commentators!