Capital markets in North Africa have a long history but have been marginal to the region's development, concludes a new brief published by the African Development Bank entitled "Capital Market Development in North Africa: Current Status and Future Potential".
For the private sector to expand and flourish, there is strong evidence that the ability to raise equity finance is indispensable. However this investigation reveals the limited breadth and depth of the North African markets. Markets in sovereign and corporate bonds complement equity financing, but these are also underdeveloped in North Africa.
The study finds that legal and regulatory provision is, for the most part, adequate; but there has been an absence of confidence by both domestic and foreign investors. Transparency and corruption perceptions have been unhelpful, as have the bureaucratic obstacles to doing business. Nevertheless, market performance is encouraging despite the negative impact of the global financial crisis and the Arab Spring.
There is reason to be optimistic about future stock prices as markets have started to recover. Alternative markets with lower listing requirements for medium and small sized businesses already exist. A policy priority should be to get these markets working effectively, as smaller businesses can contribute substantially to the employment generation the region so badly needs.
If priority is to be given to capital market development, corporate and transaction tax issues should be reviewed. Currency convertibility and controls over capital movements are also matters for consideration. Much of the policy debate in North Africa has focused on foreign direct investment rather than portfolio investment flows. There is a strong case for the debate to be widened.