Integration of Capital Markets In Africa: Key Issues and Way Forward

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

2. Lawfields Consulting • Corporate and investment law advisers • Financial Markets advisers • Corporate governance advisers

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

4. Capital Market Integration • Reducing or removing barriers • to cross-border transactions and services • 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.

5. The case for integration • Broader picture of economic growth in Africa and the current financing deficit • Can capital markets play a role in reducing this deficit? • 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?

6. Global Context • Fast-paced mergers, alliances, and consolidation of exchanges • 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 • Examples include • 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) • NASDAQ acquisition of Boston Stock Exchange • LSE acquisition of the Borsa Italiana • Failed takeover attempts • Stock exchanges gradually building up equity stakes in other exchanges

7. The African Context • Currently 22 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 • Upcoming exchanges in Sierra Leone, The Gambia?

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

9. ………but market forces appear to be pushing forward towards increased integration • 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

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 • North African exchanges and alliances with Middle East markets • SADC 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) • ECOWAS initiative • OUEMOA bloc has a single market – BRVM, and single regulator • WAMZ bloc has 2 formal exchanges and some OTC markets • 2 blocs are currently working on an integration model

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

12. Moving Forward-II • The process should be market-driven • supported by appropriate policies, systems, and rules • 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

13. Moving Forward-III • 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 • by improved market surveillance, investigative and enforcement systems • improved cooperation with other financial services regulators (insurance, banking, pensions) • Deal with other impediments e.g. • Payment systems • ICT and Infrastructure • Currency convertibility • Exchange control restrictions • Accounting and audit standards • Corporate governance standards

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

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

16. …………..in the end • Integration of African capital markets must result in • 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 to a decent portfolio of instruments for financial planning towards a better life for the average African • Ultimately, higher growth rates, and better livelihoods.

17. …………..else we would have failed!

18. Thank You!!