1 African Capital Markets and the Global Partnership for Development Abdoulie Janneh UN Under Secretary-General and Executive Secretary of ECA UN Regional Commissions Side Event on the Role of Regional Cooperation and Global Partnerships in Financing for Development

2 Outline of Presentation Background Background Case for capital market integration Case for capital market integration Approaches to integrating markets Approaches to integrating markets Initiatives to integrate African Capital markets Initiatives to integrate African Capital markets Conditions for successful integration of capital markets Conditions for successful integration of capital markets Role of global partnerships Role of global partnerships Concluding remarks. Concluding remarks.

3 I. Background One of the key challenges facing Africa is how to mobilize adequate financial resources for development One of the key challenges facing Africa is how to mobilize adequate financial resources for development The long-run sustainable solution is to boost domestic savings. However, Africa has had very low savings ratios and has difficulties reversing this trend. The long-run sustainable solution is to boost domestic savings. However, Africa has had very low savings ratios and has difficulties reversing this trend. A recent survey of African policymakers conducted by ECA suggests that the factors inhibiting mobilization of savings include: weak financial infrastructure; poor governance; corruption; macroeconomic instability and an ineffective monetary policy. A recent survey of African policymakers conducted by ECA suggests that the factors inhibiting mobilization of savings include: weak financial infrastructure; poor governance; corruption; macroeconomic instability and an ineffective monetary policy.

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

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

6 Capital markets can play an important role in mobilizing private resources to augment Africas low domestic savings Capital markets can play an important role in mobilizing private resources to augment Africas low domestic savings African countries have taken measures to facilitate establishment of stock exchanges. Consequently, the number of stock exchanges increased from 10 in early 1990s to 23 in African countries have taken measures to facilitate establishment of stock exchanges. Consequently, the number of stock exchanges increased from 10 in early 1990s to 23 in But capital markets in the region are still characterized by: low market capitalization; limited range of investment products; very few listings; low liquidity; lack of transparency and access to information; inadequate trading infrastructure; and high transaction costs. But capital markets in the region are still characterized by: low market capitalization; limited range of investment products; very few listings; low liquidity; lack of transparency and access to information; inadequate trading infrastructure; and high transaction costs.

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

8 II. The Case for Capital Market Integration Reduced transaction costs Reduced transaction costs More diversified investment portfolio for investors More diversified investment portfolio for investors More liquid and broader securities market More 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 transaction costs Cheaper financing alternatives given lower transaction costs More efficient allocation of capital as savings can flow more easily and cheaply to investment opportunities. More efficient allocation of capital as savings can flow more easily and cheaply to investment opportunities.

9 III. Approaches to integration of markets Regional integration of capital markets could occur at the operational or regulatory level. Regional integration of capital markets could occur at the operational or regulatory level. Operational integration can take various forms: Operational integration can take various forms: Existing markets maintaining their status as distinct national markets but with various levels of interaction between markets Existing markets maintaining their status as distinct national markets but with various levels of interaction between markets Adoption of common market infrastructure Adoption of common market infrastructure Creation of a single market to replace existing national markets Creation of a single market to replace existing national markets Regulatory integration involves harmonization of rules and standards. In extreme cases, it also involves adoption of a single set of rules to replace existing domestic rules Regulatory integration involves harmonization of rules and standards. In extreme cases, it also involves adoption of a single set of rules to replace existing domestic rules

10 IV. Some Initiatives to integrate Capital Markets Establishment of the Bourse Regional de Valeurs Mobilieres (BRVM) in Abidjan, Cote dIvoire, for French- Speaking West African Countries Establishment of the Bourse Regional de Valeurs Mobilieres (BRVM) in Abidjan, Cote dIvoire, for French- Speaking West African Countries In Southern Africa, measures are being put in place to link SADC exchanges trading and settlement systems to the Johanesburg Stock Exchange (JSE) In Southern Africa, measures are being put in place to link SADC exchanges trading and settlement systems to the Johanesburg Stock Exchange (JSE) In East Africa, plans are at an advanced stage to merge stock markets in Kenya, Tanzania and Uganda In East Africa, plans are at an advanced stage to merge stock markets in Kenya, Tanzania and Uganda The Johanesburg Stock Exchange has concluded a memorandum of understanding with the Nigerian Stock Exchange which would facilitate transfer of technology and cross-listing. The Johanesburg Stock Exchange has concluded a memorandum of understanding with the Nigerian Stock Exchange which would facilitate transfer of technology and cross-listing.

11 V. Conditions for integration of Capital Markets Successful integration of capital markets requires a range of necessary conditions: Successful integration of capital markets requires a range of necessary conditions: Effective legal, regulatory and supervisory mechanisms and standards at the national level and subsequently, the harmonization of these policies and frameworks; Effective legal, regulatory and supervisory mechanisms and standards at the national level and subsequently, the harmonization 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 will Investor confidence and political will

12 VI. Role of Global Partnerships Global economic cooperation has an important role to play in the quest for regional integration of African capital markets. Global economic cooperation has an important role to play in the quest for regional integration of African capital markets. The international community could provide assistance in the area of Information and Communication Technology to reduce transaction costs and facilitate flow of information on investment opportunities The international community could provide assistance in the area of Information and Communication Technology to reduce transaction costs and facilitate flow of information on investment opportunities Forging partnerships with markets in advanced countries will also allow African countries to learn from the rich experiences of these markets Forging partnerships with markets in advanced countries will also allow African countries to learn from the rich experiences of these markets Technical assistance is required from advanced countries in areas such as harmonization of rules and standards, currency convertibility, information disclosure, and clearing, payments and settlement systems. Technical assistance is required from advanced countries in areas such as harmonization of rules and standards, currency convertibility, information disclosure, and clearing, payments and settlement systems. ODA can also play an important role in providing other forms of market infrastructure. ODA can also play an important role in providing other forms of market infrastructure.

13 VII. Concluding remarks Capital markets can play a crucial role in mobilizing resources for development in Africa. Capital markets can play a crucial role in mobilizing resources for development in Africa. Existing stock exchanges have had limited impact in mobilizing savings in the region Existing stock exchanges have had limited impact in mobilizing savings in the region Regional integration can address some of the constraints to effective capital market development in the region. Regional integration can address some of the constraints to effective capital market development in the region. But regional integration of capital markets requires international assistance to improve trading infrastructure, improve access to information, and develop capacity to manage and run these exchanges successfully. But regional integration of capital markets requires international assistance to improve trading infrastructure, improve access to information, and develop capacity to manage and run these exchanges successfully.

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