Abuja — Achievement of stable macro-economic environments, provision of incentives for participants, and liberalisation of trade, investment and exchange controls are some of the imperatives for successful capital markets in Africa, an official of the International Finance Corporation said here Friday.
"There is also a need to create collective investment instruments--such as pension funds and insurance companies --to channel resources from Africa's rural dwellers," Mengistu Alemayehu, Principal Investment Officer of the IFC, said at the conference on African capital markets. The rural dweller, he said, make up 80 percent of the populace, "and if you don't bring them to participate, in the long run you will not have meaningful markets."
The IFC is an arm of the World Bank, with responsibility for investing in private sector development projects.
Alemayehu, was speaking on "Regionalisation in Emerging Markets: Lessons for Africa." Regionalisation, Alemayehu said, will offer a platform for the privatisation of large corporations in Africa. Many African countries are currently privatising state-owned enterprises, but there are worries sometimes that the local capital market may be unable to absorb the volume of shares being sold by the state in large corporations.
Regionalisation will also enable African stock markets overcome the constraints imposed on them by their small sizes, says Alemayehu.
Development of capital markets in Africa also require countries to live within their means-- balancing their budgets-- and getting inflation under control, Alemayehu continued.
And, says Alemayehu, current economic instability caused by macro-economic imbalances in some African countries has given the wrong signal to corporations, which now use the capital markets as a source for short-term funds.
"The capital market works well when things are stable," Alemayehu said, noting that companies go to the market to shop for working capital.
Alemayehu said the IFC would love to develop capital markets in member countries, but said the countries "should get their monetary policies right."
"Getting the macro-economic fundamentals right and prudential monetary policy are very important," Alemayehu said.
Additionally, in Alemayehu's view, African stock markets should also create on-going strategic alliances with developed capital markets, a measure which he said "helps not only to keep abreast with new technology and financial innovations, but also to generate ongoing interest for foreign investors."
Currently, the Johannesburg Stock Exchange in South Africa accounts for about 90 percent of the total market capitalisation of stock markets in Africa, according to Jim Mbaru, Chairman of the African Stock Exchanges Association, organisers of the conference.
The Nigerian Stock Exchange, considered the next largest capitalised market after South Africa, currently has a capitalisation value of about US$4 billion.
Mike Ashong, a participant from Ghana, told Allafrica that high interest rates in the money market in that country have led to a down-turn in the capital market.
"The market is suffering from the effects of dwindling foreign exchange earnings," Ashong said in an interview. With low earnings from exports--the main export commodities are gold and cocoa--whose prices have fallen on the international market--government has resorted to borrowing from the public.
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The high interest rates--on government treasury bills--now provide attractive investment alternatives to the investors.
The 10-year-old Ghana Stock Exchange (will be exactly 10 next in November) returned 60 percent in 1998, and in 1994 was adjudged the best index performing market among the emerging markets.
Alemayehu said African stock markets should also create on-going strategic alliance with developed capital markets, a measure which he said "helps not only to keep abreast with new technology and financial innovations, but also to generate ongoing interest for foreign investors."
According to figures quoted by Alemayehum, the combined market capitalisation of 11 stock markets in Sub-Saharan Africa --excluding South Africa--is about US$7, "or about less than 1% of the market capitalisation of all emerging markets."
