Challenges Facing The African Capital Markets

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Challenges Facing The African Capital Markets
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• Introduction

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• This paper discuses the challenges facing
  the African Stock Markets and is presented as a
  response to the cordial request of UNECA in Addis
  Ababa -

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• - as a contribution to the African Capital
  Markets development workshop held n Cairo from
  March 30th to April 1st 2004, in association with
  Cairo and Casablanca Stock Markets.

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• Potential opportunities in African countries
  economies

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• Natural resources, vast expanse of land,
  plentiful water resources are ingredients of good
  investment in the tourism industry. Raw materials
  and other local factors ensure that African
  countries are appropriate for investment.

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• The Role of
• Stock Markets
• in economic development

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• The essential and vital role played by the
  countries stock markets are that they represent
  the mirror through which the whole economy can be
  judged and considered as an effective means to
  attract local and foreign capital that contribute
  in the true required economic change.

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• It has become apparent to the world that
  paving the way towards development, welfare, and
  better standards of living requires good
  management of the economy and modernization of
  the capital markets.

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• These days witness the greatest and fastest
  changes in capital markets since World War 2.
• As these markets enjoy more freedom in
  managing different financial dealings and moving
  at a fast pace to their objective of capital
  inflows across international and national borders
  without restrictions.

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• This no doubt explains the role of bourses
  in activation of the development process. As the
  existence of effective primary markets that
  reflect a positive response to investment in
  securities

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• represent an essential factor for attraction
  of capital, and the availability of secondary
  markets where stocks are traded within complete
  requirements of transparency that avail a
  suitable climate for bourses to play its role of
  gathering savings and directing them towards
  investment.

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• The banking system in most African countries
  has not realized its objectives of providing the
  necessary funds for productive investment, which
  lead the African governments to concentrate on
  foreign aid and loans as a basic means to finance
  local development programs. This resulted in more
  regression caused by high costs of debt services.

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• Within these economic situation, and the
  proportional shortage in tools of finance, the
  role African securities markets as one of the
  means for collection of financial resources in
  various investment aspects.

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• Importance of stock markets becomes apparent
  when moving from public sector to market
  mechanism economies. This privatization process
  is occurring in many African countries.

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• African Stock Markets

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• The African stock markets vary greatly in
  their method of establishment, their intellectual
  methodologies, level of growth, financial tools,
  laws and regulations that govern their trading
  and performance.

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• However, there are some common and similar
  factors between these markets. These factors
  include weak performance, low rates of return,
  limited local trading, state ownership of
  majority of shares, and weakness of brokerage
  companies.

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• Laws of stock markets in numerous African
  countries are completely related to some other
  interest rates fluctuations and rates of return
  on bank deposits. Given this, laws and
  regulations should facilitate financial dealings
  an d provide necessary protection for dealers,

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• more development is required for the system of
  stocks trading by introduction of advanced
  technologies and make accessible to dealers to
  activate supply and demand with simplified
  administrative and legal procedures related to
  transactions contracts, clearance and ownership
  transfers.

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• In conclusion, it is recommended that
  connection of African stock markets will
  facilitate flow of capital. This required
  refining political, economic aspects in African
  countries, and adoption of economic reform
  policies.

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• In addition to unification of terms and
  procedures of listings, trading and clearing,
  given a unified information and transparency
  systems.

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• The investment climate is influenced by a wide
  range of political, economic, and security
  factors in addition to laws such as the Companies
  Registration Act and Investment Encouragement
  Act. These reflect the degree of settlement that
  positively or negatively affect the overall
  production process.

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• In spite these observations, some stock
  markets witness extensive improvement so as to be
  classified emerging markets by the
  international and regional financial
  institutions, these include Egypt, Tunisia,
  South Africa, and to some extent Sudan and Kenya.
  It is worth noting that many African countries
  remain without stock markets.

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• Aspects of African Stock Markets Reform

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• The monetary, fiscal policies, and systems
  that govern the economic activity have a direct
  influence on performance of the stock markets,
  this includes

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• The suggestions

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• The prevailing economic reform in many African
  countries is based on three major dimensions that
  include economic liberalization, privatization
  and encouragement of investment.

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• Liberalization of the economy is related to
  overcoming social and economic inflationary
  impact.

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• Liberalization of the economy is related to
  overcoming social and economic inflationary
  impact.

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• Investment encouragement requires political
  settlement and designing specified objectives.

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• African governments should resolve their
  chronic problems related to credit deficit facing
  these governments by providing the appropriate
  infrastructure and development that realize these
  suitable circumstances for investment.

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• The third recommendation is that African
  stock market development should be related to the
  development of African economies and to
  development of financial and banking sectors in
  particular. And for these markets to be effective
  and start enhancing stock trading we need

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• improved banking sector
• advanced communication systems
• high level of accounting and auditing services
• flexible legislative systems
• trained staff in securities markets

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• Khartoum Stock Exchange
• (KSE)

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• Information has become the essential factor in
  the decision making process of an investor, and a
  necessary condition for success of stock markets.

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• Therefore KSEs major concern was to avail
  information on trading activity, its volume,
  number of contracts, stock prices, and all
  information concerning public companies, changes
  in their executive management and in their board
  of directors plus information on audited and
  closed accounts.

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• This information is relayed in periodical
  reports (daily, weekly, monthly, quarterly, and
  annually). These reports are widely accessible
  published in daily newspapers, KSEs newsletter,
  economic news (television) and through the
  website.

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• KSE
• Data Base

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• KSE joined the data base of the Arabic
  Monetary Fund, which provide information on
  Arabic stock markets. KSE feed that database with
  weekly and monthly reports.

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• In this respect we recommend establishment of
  a Data Base for the African stock markets, to be
  managed under the umbrella of UNECA, and we
  believe that establishing such base is essential
  in obtaining the accurate and authenticated
  information from its real sources. And in this
  matter benefit may be taken from the experience
  of the Arabic Monetary Fund.

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• KSE Index

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• Market index
• represent a comprehensive standard of market
  movement reflecting the general trend of stock
  prices and used as a reference for the investor
  in securities. Market indices are usually used as
  indicators for market performance.

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• Listing of Sudanese Telecommunications
  
• Company (Sudatel)
• In Abu Dhabi Stock Market

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• KSE international reach can be seen through
  the listing of Sudatel in the Abu Dhabi stock
  exchange.
• Coordination between KSEs management,
  Sudatel executives and the stock exchange in
  question.

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• Regular trading is carried in Abu Dhabis
  exchange, due to the current flexible regulations
  and procedures. Transfer of ownership is also a
  smooth process.

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• KSE invites other African stock exchanges to
  replicate the collaboration between Abu Dhabi and
  itself, ensuring that dealing will be carried
  from all over the world.

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• Finally, KSE is currently commissioning a
  major monetary awareness campaign. Recipients
  include but limited to students, housewives,
  banks, trade associations, large state owned
  institutions (the latter are actively being
  privatized) including the controversial
  suggestion (football clubs).

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• More privatized companies ensures more
  trading, more government backed borrowing
  instruments and an overall healthier economy.

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• KSE is ready to avail and duplicate its
  experience to African stock markets.