1. 1 Integration of Capital Markets In Africa: Key Issues and Way Forward 11 th ASEA Conference ACCRA 29-30 October 2007 Elsie Addo Awadzi Lawfields Consulting

2. 2 Corporate and investment law advisers Corporate and investment law advisers Financial Markets advisers Financial Markets advisers Corporate governance advisers Corporate governance advisers

3. 3 Outline The Case for Integration The Case for Integration Global Context Global Context African Context African Context Current Approaches in Africa Current Approaches in Africa Moving Forward Moving Forward

4. 4 Capital Market Integration Reducing or removing barriers Reducing or removing barriers to cross-border transactions and services to cross-border transactions and services to broaden the market for long-term capital beyond the limits of domestic markets to broaden the market for long-term capital beyond the limits of domestic markets Barriers include operational, policy, legal, regulatory, as well as physical or infrastructure impediments. Barriers include operational, policy, legal, regulatory, as well as physical or infrastructure impediments.

5. 5 The case for integration Broader picture of economic growth in Africa and the current financing deficit Broader picture of economic growth in Africa and the current financing deficit Can capital markets play a role in reducing this deficit? Can capital markets play a role in reducing this deficit? What state should our capital markets be in to deliver the goods? What state should our capital markets be in to deliver the goods? Will integration of capital markets in Africa deliver appropriate financing options for Africa’s growth agenda? Will integration of capital markets in Africa deliver appropriate financing options for Africa’s growth agenda?

6. 6 Global Context Fast-paced mergers, alliances, and consolidation of exchanges Fast-paced mergers, alliances, and consolidation of exchanges Objective of creating stronger and more competitive exchanges and opening up cross-Atlantic markets Objective of creating stronger and more competitive exchanges and opening up cross-Atlantic markets Models differ with varying degrees of operational and regulatory integration and harmonisation Models differ with varying degrees of operational and regulatory integration and harmonisation Examples include Examples include OMX Exchanges – operates in the Nordic region OMX Exchanges – operates in the Nordic region Euronext N.V. - a Pan-European exchange with subsidiaries in Amsterdam, Brussels, Paris, Portugal and London (London International Financial Futures and Options Exchange) Euronext N.V. - a Pan-European exchange with subsidiaries in Amsterdam, Brussels, Paris, Portugal and London (London International Financial Futures and Options Exchange) NASDAQ acquisition of Boston Stock Exchange NASDAQ acquisition of Boston Stock Exchange LSE acquisition of the Borsa Italiana LSE acquisition of the Borsa Italiana Failed takeover attempts Failed takeover attempts Stock exchanges gradually building up equity stakes in other exchanges Stock exchanges gradually building up equity stakes in other exchanges

7. 7 The African Context Currently 22 stock exchanges Currently 22 stock exchanges including upstarts such as Douala Stock Exchange, the BVMAC in Gabon, Cape Verde, Libya, and Sudan Stock Exchanges including upstarts such as Douala Stock Exchange, the BVMAC in Gabon, Cape Verde, Libya, and Sudan Stock Exchanges Nascent OTC markets in certain countries Nascent OTC markets in certain countries Upcoming exchanges in Sierra Leone, The Gambia? Upcoming exchanges in Sierra Leone, The Gambia?

8. 8 …Barriers Abound Multiple currencies and currency convertibility issues Multiple currencies and currency convertibility issues Infrastructure, communications issues Infrastructure, communications issues Technology and transaction settlement delays Technology and transaction settlement delays Legal barriers such as differences and inflexibilities in legal systems Legal barriers such as differences and inflexibilities in legal systems weak or non-existent cross-border dispute resolution mechanisms weak or non-existent cross-border dispute resolution mechanisms Different fiscal regimes Different fiscal regimes Varying levels of capital and current account restrictions Varying levels of capital and current account restrictions Regulatory barriers such as: Regulatory barriers such as: Different market rules (listings, disclosures, trading, clearing and settlement systems and rules, capital adequacy requirements) Different market rules (listings, disclosures, trading, clearing and settlement systems and rules, capital adequacy requirements) Different accounting, audit standards, and corporate governance standards Different accounting, audit standards, and corporate governance standards

9. 9 ………but market forces appear to be pushing forward towards increased integration increased cross-border activities of broker-dealers, fund managers, private equity funds increased cross-border activities of broker-dealers, fund managers, private equity funds cross-listings within economic blocs – ECOWAS, East Africa, Southern Africa, etc, and outside economic blocs cross-listings within economic blocs – ECOWAS, East Africa, Southern Africa, etc, and outside economic blocs

10. 10 Current Integration Approaches in Africa Efforts have been at the Regional Economic Community (REC) level although there have been discussions of a Pan- African Stock Exchange at the AU level Efforts have been at the Regional Economic Community (REC) level although there have been discussions of a Pan- African Stock Exchange at the AU level North African exchanges and alliances with Middle East markets North African exchanges and alliances with Middle East markets SADC initiative (a lot of work done towards harmonisation of rules) SADC initiative (a lot of work done towards harmonisation of rules) EAC initiative (a lot of work done towards harmonisation of rules) EAC initiative (a lot of work done towards harmonisation of rules) CEMAC initiative (BVMAC and DSE are exploring integration options) CEMAC initiative (BVMAC and DSE are exploring integration options) ECOWAS initiative ECOWAS initiative OUEMOA bloc has a single market – BRVM, and single regulator OUEMOA bloc has a single market – BRVM, and single regulator WAMZ bloc has 2 formal exchanges and some OTC markets WAMZ bloc has 2 formal exchanges and some OTC markets 2 blocs are currently working on an integration model 2 blocs are currently working on an integration model

11. 11 Moving Forward Sub-regional markets? Sub-regional markets? Will they be significant enough to make a difference? Will they be significant enough to make a difference? Regional market? Regional market? if only existing virtually if only existing virtually Clearing house for sub-regional markets and acting as a market of last resort to large issuers and investors? Clearing house for sub-regional markets and acting as a market of last resort to large issuers and investors?

12. 12 Moving Forward-II The process should be market-driven The process should be market-driven supported by appropriate policies, systems, and rules supported by appropriate policies, systems, and rules Must involve clearly defined objectives Must involve clearly defined objectives Must involve concrete steps to remove barriers in order to achieve the desired levels of cross-border mobility of capital and financial services Must involve concrete steps to remove barriers in order to achieve the desired levels of cross-border mobility of capital and financial services

13. 13 Moving Forward-III Keep the regulatory burden on issuers and market operators to a minimum while not sacrificing the legitimate objectives of regulation Keep the regulatory burden on issuers and market operators to a minimum while not sacrificing the legitimate objectives of regulation Improved regulatory capacity to protect investors in an integrated market Improved regulatory capacity to protect investors in an integrated market by improved market surveillance, investigative and enforcement systems by improved market surveillance, investigative and enforcement systems improved cooperation with other financial services regulators (insurance, banking, pensions) improved cooperation with other financial services regulators (insurance, banking, pensions) Deal with other impediments e.g. Deal with other impediments e.g. Payment systems Payment systems ICT and Infrastructure ICT and Infrastructure Currency convertibility Currency convertibility Exchange control restrictions Exchange control restrictions Accounting and audit standards Accounting and audit standards Corporate governance standards Corporate governance standards

14. 14 Moving Forward-IV Build on work currently being done by exchanges and regulators Build on work currently being done by exchanges and regulators Agree common minimum standards for adoption based on international standards Agree common minimum standards for adoption based on international standards IOSCO, etc IOSCO, etc Work on joint training standards and standards of professional conduct for market professionals Work on joint training standards and standards of professional conduct for market professionals Develop investor education programmes and facilities Develop investor education programmes and facilities

15. 15 Implementation Challenges So much work to be done and fast too So much work to be done and fast too..but reforms can the phased out..but reforms can the phased out Resource and capacity constraints Resource and capacity constraints Integration is expensive! Integration is expensive! Ensuing a smooth transition to integrated markets Ensuing a smooth transition to integrated markets Role of bodies like ASEA Role of bodies like ASEA -dissemination of good practices, providing dialogue platforms, etc

16. 16 ………….. in the end Integration of African capital markets must result in Integration of African capital markets must result in efficient allocation of capital across the continent efficient allocation of capital across the continent Increased access by entrepreneurs (small, medium, large), governments, and municipalities to appropriate financing options for productivity Increased access by entrepreneurs (small, medium, large), governments, and municipalities to appropriate financing options for productivity Increased access to a decent portfolio of instruments for financial planning towards a better life for the average African Increased access to a decent portfolio of instruments for financial planning towards a better life for the average African Ultimately, higher growth rates, and better livelihoods. Ultimately, higher growth rates, and better livelihoods.

17. 17 ………….. else we would have failed!

18. 18 Thank You!!