1. Regional Snapshot of Government Bond Markets in Africa and Challenges of developing active bond markets Mauritius, December11, 2003 Sunil Benimadhu The Stock Exchange of Mauritius

2. Presentation Outline Statistical overview of the evolution of capital markets in Africa, with a particular focus on Government Bond Markets Prerequisites to the development of an active market for Government securities Potential benefits of an active market to Sub-Saharan African economies

3. Capital markets environment in Africa has undergone a major change in recent years due to: Implementation of structural adjustment programmes Pursuit of market oriented policies by African Leaders

4. Statistical Data on African Stock Markets(Ex South Africa) 198819972002 No of stock exchanges61419 Market capitalisation of African Stock Market (US$Billion) 5.54966 Value traded(US$Billion) 0.168.66.5 No of listed companies78811801760

5. Indicators of stock market development(1997-2002 mean values, End of period) CountriesNo of Listed CosMCAP/GDP (%) TVT/MCAP (%) Botswana1520.815.25 Ghana2213.303.23 Mauritius40387 Zimbabwe6971.9516.48 Kenya2313.804.23 Egypt98029.4623.85 Thailand42230.7884.82 Brazil47128.7055.14 Turkey28832.35148.95 Poland20515.6337.73 Malaysia778135.5448.48

6. Size of Bond markets Wide disparity in size of markets in the region Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001

7. Size of the market Most countries in the region rely on external debt Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001

8. Size of the market Reliance on external debt still widespread Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001- 2003

9. Domestic GS composition Limited non-marketable GS Non-marketable securities consist of : Tanzania – Government stocks ;Ghana – Tema Oil Refinery bonds (stocks not included) ; South Africa – Former Homeland Bonds ; Nigeria T-bonds

10. Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001 Domestic marketable GS T-bills are dominant

11. Domestic GS composition Fixed rate securities dominant in EAP and MENA Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 2001-2003. LAC T-bill breakdown unavailable.

12. Domestic GS by tenor Short term securities dominant Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001

13. Domestic GS by tenor Longer term securities most common in EAP Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001- 2003

14. Summary-Secondary market Banks are dominant holders of GS, as well as public sector. Securities to retail investors issued in Botswana, planned in South Africa & Nigeria Secondary market liquidity still shallow Repo markets are active in most countries

15. Investor Base Banks are the primary holders of GS in the region Note: Kenya includes government stocks (mainly held by “Other”), Swaziland – Other holders are primarily institutional investors

16. Investor Base Direct and indirect requirements to hold GS are commonplace Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 - 2003

17. Prerequisites for the development of an active Government debt market Broadening the investor base Developing active money markets Developing benchmarks Mark to market practice Broadening the range of instruments Market transparency Clearing and Settlement System Existence of a trading culture and of traders well- versed in fixed-income trading techniques

18. Potential benefits Benefits to the investor Micro-economic & Sectoral Benefits Macro-economic benefits

19. Benefits to the investor Broadening of the range of instruments available Liquidity of instruments Ability to trade instruments in an efficient and transparent manner Switching opportunities available depending on investor’s rating of different instruments Efficient Price discovery mechanism

20. Micro Economic & Sectoral Benefits Improve financial intermediation and promote competition and development of related products & Services Change financial system from a primarily bank oriented to a multi -layered system where capital markets can complement bank financing Facilitate emergence of corporate bond market Reduce cost of funds for companies

21. Macro-economic Benefits Strengthen the transmission and implementation of monetary policy Enable the use of market based indirect monetary policy Develop a benchmark yield curve which become the guiding reference for other instruments and institutions Set the stage for an effective integration of different subsectors of the economy Reduction of debt-service costs for government

22. Thank you