The African Development Bank held a two day Workshop covering the Capital Markets in Africa, responding to the private sector and issues affecting the growth in this market as well as providing solutions. This Workshop was presented by leading figures in the finance world of Africa, including N. Justin Chinyanta of Loita Capital Partners International Ltd and had a hugely successful participation from both the government and private sector.

The definition of African capital markets was later on clarified by Justin Chinyanta but bears mentioning now:- as three classes of countries, namely (1) non stock market countries (2) countries with stock markets, but which are closed to foreigners and (3) countries with open stock markets. The market products within are a) equities b) money market instruments and c) private instruments with countries in category (3) i.e. open markets, also having an emphasis on regionality. Mr Chinyanta went on further to define the investors in these markets which can be grouped into domestic and international with the domestic investor including pension fund institutions; insurance companies; banks; co-operative societies but notably very few high net-worth individuals. Mr Chinyanta noted that the foreign investors comprise the usual international institutional players, primarily fund managers with most of the play being in South Africa.

Trevor A. Manuel, Minister of Finance, Republic of South Africa opened the workshops with comments covering the development of capital markets by above all driving the growth and reducing vulnerabilities. Mr Manuel stressed the importance of this area of work for the sustainability of economic growth and development and the reduction in exposure to financial risks. Mr Manual indicated that priorities need to be set in order for Africa to ensure that financial services to governments, firms and households are done in the most sustained, cost-effective way and given appropriate regulatory considerations. These well-developed financial and capital markets would reduce the cost of borrowing by the private and public sectors, making the short-run borrowing strategy more cost effective and easier to finance over the long-term. Mr Manual went on to state that much of Africa’s growth potential remains locked away, because we have been unable to develop rapidly enough and extensively enough the needed infrastructure links, particularly in transport and communications. Mr Manuel cited that a large part of this problem is simply that investors have inadequate knowledge of local opportunities, do not have a good understanding of how local and cross-border markets work, and therefore tend to invest in obvious and already saturated markets.

Assistant Secretary Walter H. Kansteiner of the US State Department then continued to cover the policies required to promote the development of the capital markets. Mr Kansteiner reiterated that the most serious impediment of Africa’s development has been due to the underdeveloped capital markets and the continent’s limited access to international financial markets. In the Africa Bureau at State, Mr Kansteiner has identified the “strengthening of private sector approaches to generating economic growth in Africa through expanded trade and investment…” as one of the Bureau’s top priorities – a priority that is shared throughout the Administration, beginning with President Bush. However, Mr Kansteiner further clarified that this would be successful with the successful implementation of various policies covering:- Improved Domestic Governance; Stable and Transparent Macroeconomic Policies; Strengthening the Regulatory Framework; Financial Sector Development; Infrastructure and Human Resource Development; Africa’s Stock Markets and Privatisation – all these policies being essential for the attraction of Foreign Direct Investment.

Mr Robert B. Gray, Chairman of Debt Financing & Advisory Group, HSBC Bank plc, then covered the topic whilst sharing some lessons taken Asia by the HSBC group. HSBC’s strength in Asia has been with the development of the bond markets, working within an environment in Asia where the level of over-investment in a number of sectors is the problem as opposed to Africa where the problem remains the under-investment not over-investment.

Dr Ahmed Bahgat, Vice President, Finance of African Development Bank presented Multilateral Development Banks and their role with the promotion of domestic capital markets in Africa. Dr Bahgat reaffirmed that the Bank was adopting a development strategy, which should effectively promote accelerated, sustainable growth with equity and poverty reduction as its central goal whilst facilitating and mobilising the flow of external and domestic resources, public and private, promote investment, and providing technical assistance and policy advice to RMCs. Dr Baghat confirmed that although the Bank’s issuance activities in African currencies have so far been restricted to the offshore South African Rand market, the ADB are investigating issuance activities in other countries where these benefits may be better felt and that with the introduction of local currency financing solutions in infrastructure projects will strengthen their viability.

The workshop continued on a constructive approach to fostering the development of efficient capital markets on a regional or national model with the presentation of Mr Charles Konan Banny, Governor of the Central Bank of West African States.

Mr Charles Banny covered the origins and the rationale, the ensuing experiences and the pitfalls of a regional financial market, namely the “L’Union monétaire Ouest-Africaine”. Mr Banny summed up, that the regional financial market of the UEMOA is an original experience. Far from excluding outsiders, this initiative is open to other member States in the West African region, particularly with a view to the advent of a single monetary zone for the Economic Community of West African States (ECOWAS), which is expected to become a reality following the successful conclusion of a macroeconomic convergence process.

Mr Tom Lawless, CEO Bond Exchange of the South Africa Stock Exchange, discussed the operational aspects of developing capital markets. Mr Lawless’ driving point was to not reinvent the wheel with respect to making use of other electronic settlement systems already in operation in the country or the region and that the economies of scale should be recognized. Mr Lawless impressed that the long terms costs and the implementation time frames and the lost opportunities of the converse are far too high to be considered as a viable choice. These systems need big volumes to be cost effective and the overall message was to be realistic.

The driving query to all remains “What matters to investors in Africa Capital Markets?” which when taken into consideration and dealt with provides the primary source of the development of the Capital Markets in Africa.

Mr N. Justin Chinyanta, CEO Loita Capital Partners International Ltd, provided these critical elements for efficient capital markets in Africa, responding to the investors criteria during his presentation.

The existence of market makers which bring together willing buyers and willing sellers, i.e. stockbrokers, discount houses, special client services of banks; products which take into account liquidity surges and troughs (most done on programme basis); macroeconomic stability (exchange rates, interest rates, government fiscal discipline); well-trained investment managers and treasurers, with clear approval structures and public education forums/training initiatives are all factors requiring attention to create an efficient market. Clear regulatory guidelines or, in the absence of instrument-specific guidelines, public-private sector cooperation in their establishment; recognition of time-sensitive nature of debt and equity issuance; efficient and rapid disbursement of information (by banks, financial houses, government entities); rapid listing procedures and instrument registry; incentives to list (LuSE incentive scheme); transparent market prices and practices; pro-active asset managers and stock exchange managers and a capital markets authority as central regulator and coordinator for the introduction of new instruments also require excellence in order to provide a conducive environment for the potential investor, Mr Chinyanta summarized.

Finally, Mr Martin Essenburg, Global Head of Asset Securitisation and Head of Fixed Income Africa, Middle East & South Asia covered the Role Of Investment
Banks in Promoting Bonds.

Mr Essenburg covered the issuers, the investors, the regulators and the credit enhancers of the Bond market stressing that the importance of the bond market lay in making debt investment capital accessible for intermediate and/or long term; in diversifying and dis-intermediate bank lending; in providing an alternative investment strategy for institutional investors and in promoting economic stability.