1. Regulatory requirements to enable strong LCBMs 9th Forum on African Public Debt Management and Bond Markets Tamsin Freemantle 15 June 2015

2. Contents
Why develop strong LCBM’s
Regulation
Factors that influence growth
“macro”
“micro”
What should we be doing?

3. Why Develop Strong LCBM’s?
Protect the economy from exogenous shocks
Provide robust and stable domestic market for regular government and SOE borrowing
Reasonable costs
Longer tenures
Assist with fiscal stability and discipline
Create yield curves to enable domestic source of capital for corporates
Original sin – so exciting!

4. Rule or directive made or maintained by an authority
Regulation
Regulation
Rule or directive made or maintained by an authority
National regulation
Market participants can influence policy but regulation or laws made by Parliament
Pension Fund Regulation
Industry level regulation
Market participants have much more direct involvement in industry level regulation
Market regulation ie listings requirements
Most important thing is that it needs to be appropriate – problem now is that each country is at a different stage of development but we are all to a greater or lesser degree globally connected – if we want to play on that stage then we need to acknowledge this.

5. Some Factors That Influence Growth - Macro
Size of the economy
Interest rates
Size of the banking sector
Government issuance
Tenure and coupon type
Fiscal balances
Government and corporate needs

6. Some Factors That Influence Growth - Micro
Pricing
Ease of access
Diversity of instruments available
Market infrastructure
Price discovery (liquidity)
Clearing and settlement
Skilled participants
Information and data reliability

7. Markets at a glance

8. GDP Growth Constant Prices
Source: AFMI

9. Increases in inflation are not great for investors – in most of these countries there has been an increase and in many of them, also very volatile so difficult for issuers to know what the actual costs will be in the long term
Source: AFMI

10. Local Currency Debt Outstanding % of GDP
April 2015 paper (Kathrin Berensman) over 90% of local outstanding debt is government issued which indicates shallowness of LCBM’s in SSA
Source: AFMI

11. Total External Debt Outstanding % of GDP
Increase in local
Ivory Coast 300%
Ghana 500%
Kenya 600%
SA 0%
Increase in external
Botswana 100%
Mauritius 130%
Uganda 125%
Zambia 300%
Source: AFMI

12. Tenures of Outstanding Bonds 2012
10 years +
Bostwana
Kenya
Mauritius
Nigeria
South Africa
Uganda
Zambia
5 – 10 Years
Ivory Coast
1 – 5 years
Ghana
Source: AFMI

13. Current Account Balances
Only Nigeria and Zambia moved from a negative to a positive current account balance so in terms of this we all need to borrow – the eurobond issues have been unkind to Zambia and Ghana though (esp exchange rate risk) and they are negotiating with the IMF for loans to enable them to cover coupon payments
Source: AFMI

14. State of Play
Improved issuance in LCBM by value
Improved length of issuance
Institutions strengthened but can improve more
Fiscal discipline – use of Eurobond proceeds in Zambia
Corporate bond markets still nascent
Secondary markets illiquid
Need more skills
Many of the markets are growing and now need secondary measures to enable growth

15. What Should We Be Doing? Regulation
Working with government and regulators on policy changes
Pension Fund regulation
Local government issuance
Opening market to foreign investors
Looking at processes for listing debt instruments
Requirements and approvals and ongoing regulation
Looking at pricing of debt instruments
High pricing makes local markets unattractive
Liquidity drivers
Are market makers the answer?
Pension fund participation in the market has increased but more to be done – the regulations around pension fund participation can be restrictive – look at amendments to Pencom law in Nigeria on qualifying investments
Foreign investment
Ghana – 30% in 2013
SA – 40%
Nigeria 20%

16. Non-Regulatory Solutions
Work together
Systems
Clearing and settlement
Expensive and adds to cost of local issues - can we not work together on technology?
Market Information and data reliability
Can we not work together to ensure accuracy?
Talent development
Skills and capacity
Can we not work together on upskilling and cross skilling?

17. Conclusion
The function of the market at core is to provide a platform for investors to invest and issuers to raise capital
Government or corporate
DCM plays a key role in macro economy of countries and regions
Key is not to have enabling regulation but to not have disabling regulation