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Developing African Capital Markets

Written by: World Economic Forum

Article Overview: In his introductory remarks, moderator John Hanson, Managing Editor, Business & Financial Times, Ghana, noted that African development needed capital, yet capital is very scarce. The answer is for the continent to develop well functioning capital markets. There has been some progress, but not enough, due to many barriers.

Developing African Capital Markets

12.06.2003

Africa Economic Summit 2003

In his introductory remarks, moderator John Hanson, Managing Editor, Business & Financial Times, Ghana, noted that African development needed capital, yet capital is very scarce. The answer is for the continent to develop well functioning capital markets. There has been some progress, but not enough, due to many barriers.

Expanding on the theme, Ronald T. Gault, Managing Director, J.P. Morgan Bank, South Africa listed some of the barriers to the growth of capital markets in Africa. These include a lack of sound fiscal management and unstable national governments. Part of the solution lies in greater transparency, a clear understanding of issues, and an ability to articulate these to foreign investors. International ratings too are very important.

Tom Plaistowe, Portfolio Manager, Development Assets, Old Mutual Asset Managers, South Africa, said that the market is the issue. Many African countries lack such a market, which under other circumstances would reflect a desire to invest. Additionally, there is little or no long term savings industry which is essential for long term markets to emerge. Consequently, many investors see African markets as liquid markets only.

Nicolas Biekpe, Head, Africa Centre for Investment Analysis, Stellenbosch University, South Africa, opened the report back session observing that the biggest barrier to the development of African capital markets is the information gap. Other barriers include discriminatory laws against foreign investors, poor or absent enforcement of legal requirements, problems of scale, and weak physical and electronic infrastructures.

Gault, adding to his previous comments, emphasized the need for sound governance and transparency. Investors need "clear rules for the game". Procedural steps in the local market must be clearly understood by all involved. It is critical to have a strong focus on economies of scale, perhaps with the consolidation of smaller exchanges. Issues like these are best acted on by the NEPAD.

Plaistowe noted that there are many opportunities in Africa, but a lack of the right type of capital. There is a need to redirect the banking focus towards having a long term asset base. This however, demands security of tenure and ownership. Africans tend to save outside Africa. This trend could profitably be reversed.

Adam Horowitz, Chief Executive Officer, Merrill Lynch, South Africa, proposed a collection of solutions. International banks should not impose a global platform onto African markets. A pan African exchange is required, taking further the existing lead of the Johannesburg Stock Exchange in this regard. The development of an African capital market would benefit from the inclusion of strategists and stakeholders in the design.

Papa M. Ndiaye, Director, Emerging Markets Partnership, USA produced a "not enough" list, including macro support, liquidity, size, product and information.

Solutions, summarized from closing observations from the floor, included among others promotion of quality information, liberalization of the existing capital markets, proactive development of local business assisted by the transfer of knowledge.

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Article Tags: africa centre, african capital markets, african markets, bank south africa, development assets, discriminatory laws, economic summit, electronic infrastructures, foreign investors, information gap, john hanson, liquid markets, managing director j, morgan bank, national governments, procedural steps, sound fiscal management, sound governance, term markets, university south africa



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