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African Capital Markets and the Global African Capital Markets and the Global Partnership for DevelopmentPartnership for Development

Abdoulie JannehAbdoulie JannehUN Under Secretary-General and UN Under Secretary-General and

Executive Secretary of ECAExecutive Secretary of ECA

UN Regional Commission’s Side Event on the Role of Regional Cooperation and Global Partnerships in

Financing for Development

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Outline of PresentationOutline of Presentation

BackgroundBackground Case for capital market integrationCase for capital market integration Approaches to integrating marketsApproaches to integrating markets Initiatives to integrate African Capital marketsInitiatives to integrate African Capital markets Conditions for successful integration of Conditions for successful integration of

capital marketscapital markets Role of global partnershipsRole of global partnerships Concluding remarks.Concluding remarks.

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I. BackgroundI. Background

One of the key challenges facing Africa is how to mobilize One of the key challenges facing Africa is how to mobilize adequate financial resources for developmentadequate financial resources for development

The long-run sustainable solution is to boost domestic The long-run sustainable solution is to boost domestic savings. However, Africa has had very low savings ratios savings. However, Africa has had very low savings ratios and has difficulties reversing this trend.and has difficulties reversing this trend.

A recent survey of African policymakers conducted by ECA A recent survey of African policymakers conducted by ECA suggests that the factors inhibiting mobilization of savings suggests that the factors inhibiting mobilization of savings include: weak financial infrastructure; poor governance; include: weak financial infrastructure; poor governance; corruption; macroeconomic instability and an ineffective corruption; macroeconomic instability and an ineffective monetary policy.monetary policy.

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Others12.8%

Weak infrastructure30.8%

Corruption12.8%

Governance issues26.9%

Macroeconomic Instability

10.3%

Monetary Policy 6.4%

Obstacles to the mobilization of domestic resourcesObstacles to the mobilization of domestic resources(% of Survey Respondents)(% of Survey Respondents)

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Africa has made progress in attracting Africa has made progress in attracting private capital flowsprivate capital flows but still receives far less than other developing regionsbut still receives far less than other developing regions

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Capital markets can play an important role in Capital markets can play an important role in mobilizing private resources to augment Africa’s mobilizing private resources to augment Africa’s low domestic savingslow domestic savings

African countries have taken measures to African countries have taken measures to facilitate establishment of stock exchanges. facilitate establishment of stock exchanges. Consequently, the number of stock exchanges Consequently, the number of stock exchanges increased from 10 in early 1990s to 23 in 2008.increased from 10 in early 1990s to 23 in 2008.

But capital markets in the region are still But capital markets in the region are still characterized by: low market capitalization; characterized by: low market capitalization; limited range of investment products; very few limited range of investment products; very few listings; low liquidity; lack of transparency and listings; low liquidity; lack of transparency and access to information; inadequate trading access to information; inadequate trading infrastructure; and high transaction costs.infrastructure; and high transaction costs.

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Obstacles to use of capital markets for savings mobilization Obstacles to use of capital markets for savings mobilization (% of survey respondents)(% of survey respondents)

Limited Investment Instruments

25.6%

Weak Capital Market

Infrastructure23.2%

Poor Legal and Regulatory Framework

5.6%

High Market Risk4.0%

Corruption and Governance

8.8%

Macroeconomic Instability

8.0%

Lack of access to information

15.2%

Low Expected Returns9.6%

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II. The Case for Capital Market IntegrationII. The Case for Capital Market Integration

Reduced transaction costsReduced transaction costs More diversified investment portfolio for investorsMore diversified investment portfolio for investors More liquid and broader securities marketMore liquid and broader securities market Better access by firms to long-term funding Better access by firms to long-term funding Cheaper financing alternatives given lower Cheaper financing alternatives given lower

transaction costs transaction costs More efficient allocation of capital as savings can More efficient allocation of capital as savings can

flow more easily and cheaply to investment flow more easily and cheaply to investment opportunities.opportunities.

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III. Approaches to integration of marketsIII. Approaches to integration of markets

Regional integration of capital markets could occur at the Regional integration of capital markets could occur at the operational or regulatory level.operational or regulatory level.

Operational integration can take various forms:Operational integration can take various forms: Existing markets maintaining their status as distinct national Existing markets maintaining their status as distinct national

markets but with various levels of interaction between marketsmarkets but with various levels of interaction between markets Adoption of common market infrastructureAdoption of common market infrastructure Creation of a single market to replace existing national marketsCreation of a single market to replace existing national markets

Regulatory integration involves harmonization of rules and Regulatory integration involves harmonization of rules and standards. In extreme cases, it also involves adoption of a standards. In extreme cases, it also involves adoption of a single set of rules to replace existing domestic rulessingle set of rules to replace existing domestic rules

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IV. Some Initiatives to integrate Capital IV. Some Initiatives to integrate Capital MarketsMarkets

Establishment of the Establishment of the Bourse Regional de Valeurs Bourse Regional de Valeurs MobilieresMobilieres (BRVM) in Abidjan, Cote d’Ivoire, for French- (BRVM) in Abidjan, Cote d’Ivoire, for French-Speaking West African CountriesSpeaking West African Countries

In Southern Africa, measures are being put in place to link In Southern Africa, measures are being put in place to link SADC exchanges trading and settlement systems to the SADC exchanges trading and settlement systems to the Johanesburg Stock Exchange (JSE)Johanesburg Stock Exchange (JSE)

In East Africa, plans are at an advanced stage to merge In East Africa, plans are at an advanced stage to merge stock markets in Kenya, Tanzania and Ugandastock markets in Kenya, Tanzania and Uganda

The Johanesburg Stock Exchange has concluded a The Johanesburg Stock Exchange has concluded a memorandum of understanding with the Nigerian Stock memorandum of understanding with the Nigerian Stock Exchange which would facilitate transfer of technology and Exchange which would facilitate transfer of technology and cross-listing.cross-listing.

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V. Conditions for integration of Capital V. Conditions for integration of Capital MarketsMarkets

Successful integration of capital markets requires a range Successful integration of capital markets requires a range of necessary conditions:of necessary conditions:

Effective legal, regulatory and supervisory mechanisms and Effective legal, regulatory and supervisory mechanisms and standards at the national level and subsequently, the harmonization standards at the national level and subsequently, the harmonization of these policies and frameworks;of these policies and frameworks;

Strong regional institutions;Strong regional institutions;

Supporting infrastructure and access to ICTs;Supporting infrastructure and access to ICTs;

Macroeconomic stability;Macroeconomic stability;

Adequate capacity at all levels; Adequate capacity at all levels;

Investor confidence and political willInvestor confidence and political will

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VI. Role of Global PartnershipsVI. Role of Global Partnerships

Global economic cooperation has an important role to play in the quest Global economic cooperation has an important role to play in the quest for regional integration of African capital markets.for regional integration of African capital markets.

The international community could provide assistance in the area of The international community could provide assistance in the area of Information and Communication Technology to reduce transaction Information and Communication Technology to reduce transaction costs and facilitate flow of information on investment opportunitiescosts and facilitate flow of information on investment opportunities

Forging partnerships with markets in advanced countries will also allow Forging partnerships with markets in advanced countries will also allow African countries to learn from the rich experiences of these marketsAfrican countries to learn from the rich experiences of these markets

Technical assistance is required from advanced countries in areas such Technical assistance is required from advanced countries in areas such as harmonization of rules and standards, currency convertibility, as harmonization of rules and standards, currency convertibility, information disclosure, and clearing, payments and settlement systems.information disclosure, and clearing, payments and settlement systems.

ODA can also play an important role in providing other forms of market ODA can also play an important role in providing other forms of market infrastructure. infrastructure.

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VII. Concluding remarksVII. Concluding remarks

Capital markets can play a crucial role in mobilizing Capital markets can play a crucial role in mobilizing resources for development in Africa.resources for development in Africa.

Existing stock exchanges have had limited impact in Existing stock exchanges have had limited impact in mobilizing savings in the regionmobilizing savings in the region

Regional integration can address some of the constraints to Regional integration can address some of the constraints to effective capital market development in the region.effective capital market development in the region.

But regional integration of capital markets requires But regional integration of capital markets requires international assistance to improve trading infrastructure, international assistance to improve trading infrastructure, improve access to information, and develop capacity to improve access to information, and develop capacity to manage and run these exchanges successfully.manage and run these exchanges successfully.

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THANK YOUTHANK YOU