ASEA CONFERENCE IN ACCRA TOPIC: RECENT DEVELOPMENTS IN AFRICAN CAPITAL MARKETS 28 th – 30 th...

ASEA CONFERENCE IN ACCRA

TOPIC:

RECENT DEVELOPMENTS IN AFRICAN CAPITAL MARKETS

28th – 30th OCTOBER 2007

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PRESENTED BY

JAMES MURIGU

MANAGING DIRECTOR

SUNTRA INVESTMENT BANK LTD(Members of Nairobi Stock Exchange)

P. O. BOX 74016 – 00200 NAIROBI, KENYATEL: 254 – 20 – 2870000FAX: 254 – 20 - 2224327

EMAIL: [email protected]: www.suntra.co.ke

28TH – 30th OCTOBER 2007

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WHO IS SUNTRA?:

Suntra is an investment bank licensed by the Capital Markets Authority and offers a wide range of investment banking products and services.

Specializes in:

1. Capital Raising in the market through:a) Initial Public offers

b) Private Placements

c) Corporate bond programmes

d) Loan syndications

Contd….

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WHO IS SUNTRA?:

2. Is an active player in Kenya Government bonds programme

3. Manages Unit Trusts and Mutual Funds

4. Offers a wide range of investment advisory services

5. Provides both in-house and open workshops seminars and diversified training programmes

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RECENT DEVELOPMENT IN AFRICAN CAPITAL MARKETS

KEY OBSERVATIONS:

Third world countries are generally poor: -

1. Not because they do not have resources but because the resources they have are so poorly structured that they do not help those countries

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2. Because of poor attitudes towards the following:

• Ethics, as a basic principle

• Integrity

• Responsibility

• Respect to the laws and rules

• Respect to the rights of other citizens

• Work loving

• Strive for saving and investments

• Will of super action

• Punctuality

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General observations of African Capital Markets:

The past has been characterized by the dominance of commercial banks as source of all types financing. Unfortunately this dominance has been one of the biggest obstacles to the development of the capital markets in Africa

The collapse of Development Banks removed the only source of source of long term funds.

3. Fortunately this is slowly changing across African capital markets as players start seeing the significance of the capital markets as alternative source of long term financing e.g. Kenya, Nigeria, Tanzania, S.A, Egypt, Ghana and Botswana and a few others.

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RECENT DEVELOPMENTS IN AFRICAN CAPITAL MARKET

What is helping the growth of capital markets?

1. Maintenance of a macro-economic stability characterized by: Low and stable interest rate Low level of inflation Stable and sustainable exchange rates

2. Growth and reforms in the retirement benefits industry – boosted the capitals markets e.g. in Uganda,Nigeria,Kenya,Tanzania,Ghana,Zambia & Botswana etc by providing long term funds. There is now a need for the segregation & funding of Govt. employees retirements benefit schemes.

3. Stable and predictable political environment

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4. Great awareness realized through taking knowledge to the people

5. Growth and development in ICT and mobile telephony

6. Reforms in the insurance sector

7. Reforms in the banking sector

8. Government privatization programs

9. Growth of rating agencies – crucial for the development of the debt market

10. Development and strengthening of regulatory frameworks

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RECENT DEVELOPMENTS IN AFRICA CAPITAL MARKETS

Some key observations:

1. A successful government bond program is a pre-requisite for successful corporate bond program because it provides a yield curve which is a useful benchmark for structuring corporate bonds.

2. The collapse and irrelevance of development banks in most African countries that used to provide long-term finance has not helped and funding in foreign currency was not attractive.

3. Universal banking has not translated into availability of long-term funding since sources of funds are still short-term in tenor.

4. Inability and inefficiency of local banks to provide long term finance is slowly leading to the growth of the capital markets to bridge the gap.

Contd….

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5. There is a strong need for tapping funds for financing infrastructure i.e. roads, railways, electricity, airports etc through the capital market

6. Absence of locally based venture capital funds is a hindrance to development of African capital markets- there are no funds for promising initiatives.

7. The few foreign venture funds provide financing in foreign currency in a mixture of loans and equity but very stringent terms – currency risk exposure is a major disincentive.

8. There is need to encourage locally based venture capital funds – they would understand local business environment and lend in local currency.

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9. Emergence of units trusts & mutual funds as alternative vehicles for mobilizing savings and investments i.e. Kenya, Uganda, Nigeria, Tanzania is encouraging. It is worth to note that units trust always existed but in disorganized forms i.e. land buying companies, informal groups, co-operatives investment groups.

10. There has been a limited development of rating agencies-which is supporting capital markets – there is need for sovereign ratings of the respective countries to internationalize the ratings. Rating agencies are essential particularly for the fund income market.

11. There is an urgent need for the development of over the counter market (OTC) to encourage private placements, private equity capital raising, debt raising, by providing exit mechanisms.

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Products offered in some African Capital markets:

1. Equities

2. Fixed income securities

3. Derivatives

4. Securitization transactions

5. Structured Medium Term Notes(MTNs)

6. Structured finance

7. Subordinated debts

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8. Inflation linked products i.e. inflation linked bonds for countries with history for high inflation.

9. Islamic banking products

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CHALLENGES FACING AFRICAN CAPITAL MARKETS

1. Lack of legal and regulatory frameworks for issuance of innovative products i.e. asset backed securities, securitized products, venture capital etc.

2. Dominance by commercial banks as a source of financing has crowded out capital markets

3. Issues of efficiency & real-time availability of market information

4. Weak corporate governance structures, information reporting and transparency

5. Lack of capacity, skills, expertise.

Contd…..

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CHALLENGE RECENT DEVELOPMENTS IN AFRICAN CAPITAL MARKETS S FACING

AFRICAN CAPITAL MARKETS

CHALLENGES FACING AFRICAN CAPITAL MARKETS

6. Liquidity issues

7. Globalization

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FUTURE SOURCES OF FINANCING FOR AFRICAN CAPITAL MARKETS

There is need to link with the international financial markets. However corporate governance and disclosure standards demanded are much higher

Debt markets: Securitization of export receivables International syndicated loans Eurobonds issues International Bonds

Equity Markets International & cross border listing.

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END

THANK YOU

ASEA CONFERENCE IN ACCRA TOPIC: RECENT DEVELOPMENTS IN AFRICAN CAPITAL MARKETS 28 th – 30 th...

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