The Experience of Financial Markets Regulation in the Southern African Region – Part Two –

The State of Financial Markets inside the Southern African Region

Up to the stop of 1994, there have been 14 stock exchanges in the entire African continent. These have been Cairo (Egypt), Casablanca (Morocco), Tunis (Tunisia) in North Africa; Abidjan (Côte d’Ivoire), Accra (Ghana), and Lagos (Nigeria) in West Africa and Nairobi (Kenya) in Eastern Africa. In the Southern African area, they had been Windhoeck (Namibia), Gaborone (Botswana), Johannesburg (South Africa), Port Louis (Mauritius), Lusaka (Zambia), Harare (Zimbabwe) and Mbabane (Swaziland). In 2005, most of different countries in Southern Africa have evolved their very own stocks exchange markets. They are Maputo (Mozambique), Dar-Es-Salam (Tanzania) and Luanda (Angola).

With the exception of the Johannesburg Stock Exchange, and at a distinctive degree, the Zimbabwe Stock Exchange and the Namibia Stock Exchange, these markets are too small in comparison to advanced markets in Europe and North America, and also to other emerging markets in Asia and Latin America. At the cease of 1994 there were about 1150 listed groups in the Africa markets prepare. The marketplace capitalization of the listed businesses amounted to $240 billion for South Africa and about $25 billion for different African countries, tax havens

In the international locations under assessment, inventory markets are particularly small in evaluation with their economies – with the ratio of market capitalization to GDP averaging 17.Three in step with cent. The confined deliver of securities in the markets and the prevailing buy and hold attitudes of maximum buyers have also contributed to low buying and selling extent and turnover ratio. Turnover is negative with much less than 10 percentage of market capitalization traded yearly on maximum stock exchanges. The low capitalization, low trading extent and turnover could suggest the embryonic nature of most inventory markets in the region.

We have amassed giant facts at the modern kingdom of financial markets in Africa in general, and due to a confined time frame, it became no longer feasible to collate, analyze and harmonize them. The layout of this article cannot permit to think about all of the data. From the brand new records, it will become clean that with the ongoing reforms in the economic sectors inside the countries below investigation, a number of development has been done in phrases of regulatory and institutional capability building. We ought to count on more outcomes with the advertising of more open investment regulations, allowing greater economic flows in the area.

The Experience of Financial Markets Regulation inside the Southern African Countries

The economic systems of Southern African nations are characterised by means of excessive possession structure ensuing in oligopolistic practices which create privileged access to credit for large organizations but restrained get entry to to smaller and emerging groups. The regulatory framework need to take into account all of the specific characteristics of these structures, and at the equal time preserve the general method inherent to each regulatory instrument.

Financial structures in Southern Africa are also cited for his or her marked versions. Some structures, together with the ones in Mozambique, Angola and Tanzania were for a long duration, dominantly government-owned, consisting basically of the imperative financial institution and only a few commercial banks. Up thus far, Angola has now not developed a cash and capital marketplace, and the informal money markets are used drastically. Other systems had mixed possession comprising valuable banks, public, home, private and overseas non-public financial establishments. These may be in addition sub-divided into people with wealthy sorts of institutions which includes are determined in South Africa, Mauritius and Zimbabwe, and others with restrained kinds of institutions as are discovered in Malawi, Zambia, Swaziland, and so forth.

Regulatory authorities in most of these international locations have, over time, adopted the policy of monetary zone intervention in the desire of selling monetary development. Interest price controls, directed credit score to precedence sectors, and securing financial institution loans at underneath market interest rates to finance their sports, later became out to undermine the financial system instead of selling financial boom.

For example, low lending rates encouraged less productive investments and discouraged savers from holding domestic monetary property. Directed credits to precedence sectors frequently ended in deliberate defaults on the belief that no courtroom movement may be taken against the defaulters. In a few cases, subsidized credit hardly ever reached their meant beneficiaries.

There become also tendency to concentrate formal monetary institutions in urban regions thereby making it tough to offer credit to people within the rural areas. In a few nations, non-public region borrowing changed into largely crowded-out by public region borrowing. Small corporations frequently had plenty trouble in obtaining price range from formal financial institutions to finance businesses. Finally, the tendency of governments of the place to finance public quarter deficits via money introduction resulted now not only in inflation however also in terrible real hobby quotes on deposits. These elements had destructive results for the monetary zone. First, savers found it unrewarding to spend money on financial assets. Second, it generated capital flight among those not able or unwilling to invest in actual belongings thereby limiting monetary sources that would have been made available for monetary intermediation. Coupled with this become the declining influx of assets to African nations since the Nineteen Eighties.

A feasible financial marketplace can serve to make the financial system greater aggressive and efficient. Without fairness markets, companies should depend upon internal finance thru retained profits. Large and properly installed businesses, especially the nearby branches of multinationals, are in a privileged role due to the fact they are able to invest from retained income and bank borrowing even as new indigenous organizations do no longer have easy get admission to to finance. Without being subjected to the scrutiny of the marketplace, massive companies get bigger.

The availability of dependable facts would assist traders to make comparisons of the performance and long time prospects of organizations; organizations to make higher investments and strategic selections; and offer higher statistics for monetary policy makers. Although efficient equity markets force businesses to compete on an same foundation for the price range of buyers, they can be blamed for favouring big firms, be afflicted by high volatility, and consciousness on brief time period monetary go back in preference to lengthy-term economic return.

In various international locations where domestic bond markets exist, these are generally dominated via authorities treasury investment which crowds out the non-public area wishes for fixed interest price funding. With minor exceptions, the worldwide fixed charge bond markets had been closed to African companies. Thus the development of an energetic marketplace for equities may want to offer an opportunity to the banking device.

The improvement of monetary markets may want to assist to strengthen company capital structure and green and aggressive financial machine. The capital shape of corporations in Southern African countries wherein there are not any feasible equity markets are generally characterized through heavy reliance on internal finance and bank borrowings which generally tend to elevate the debt/fairness ratios. The undercapitalization of firms with excessive debt/equity ratios has a tendency to lower the viability and solvency of both the company area and the banking machine specifically at some point of economic downturn.

Case research in selected international locations of Southern Africa

In all international locations beneath have a look at, both the historical historical past, the level of monetary gadget improvement and the significance of financial markets shape and operations have significantly affected the nature of the regulatory framework. However, there are few countries whose goals of economic marketplace liberalization had been the idea for the development of a present day regulatory gadget. Mauritius and Botswana are examples which, collectively with South Africa and Zimbabwe, have developed some of the most developed and diverse financial markets systems in Sub-Saharan Africa. There is not any doubt that financial and monetary conditions of the economies of individual Southern African nations have played huge roles in shaping their financial marketplace’s regulatory framework.

1. Financial Markets in Botswana

An informal stock marketplace become established in 1989, managed and operated through a personal stockbroking company (Stockbrokers Botswana confined). In 1995, a proper inventory trade become established beneath the Botswana Stock Exchange Act. The BSE done remarkably nicely in terms of the extent of capitalization, the price of the shares and the returns to the shares. The BSE contributed to the promoting of Botswana as a vacation spot for international investment.

In 2004, the wide variety of domestic groups listed became 18 while foreign companies indexed had been 7, and in the project capital marketplace. The Bank of Botswana introduced its personal paper, BoBCs, since 1991, for liquidity control functions, and there is a growing secondary marketplace for the device. In 1999, the Central Bank brought an different contraptions, the Repos (Re-buy Agreements) and the National Saving Certificates with the goal to expand local money marketplace and to encouraging savings. In 1998, the International financial Services Centre (IFSC) became installed to promote international satisfactory financial services.

2. Financial Markets in Mauritius

The Government of Mauritius has determined as a concern, to modernize and upgrading the financial gadget of Mauritius and recently took measures to bolster the economic quarter and to further combine it with both the home economic system and the global financial market.
Thanks to a well evolved community of industrial home banks, offshore banks, non economic institutions and financial establishments, the financial system is one of the maximum vibrant inside the Southern African location.

The Stock Exchange of Mauritius (SEM) started out its operations in 1989, with handiest five listed companies. In 2004, extra than 44 organizations were listed, and the variety of activities has expanded, country-of-art technology is being used in the dealings.

In September 2001, the agreement cycle at the SEM become decreased from five to three days, to be in keeping with important international stock markets. The quick agreement cycle has because helped to improve liquidity and turnover on the market as traders are capable of sell their securities three business days after shopping for the, for this reason reducing dangers and bringing better integration to international markets thru strict adherence to international requirements.

3. Financial Markets in Mozambique

In 1978, all non-public banks operating in Mozambique have been nationalized and merged into two state owned establishments, the Banco de Moçambique (Central Bank) and the Banco Popular de Desenvolvimento (BPD). After the adoption of a brand new monetary orientation in 1992, the Government applied an financial reform programme inclusive of the monetary zone reform. Foreign banks were allowed to put money into Mozambique and the regulatory and commercial activities of the Central Bank BDM were separated. Banco de Moçambique assumed the Central Bank function at the same time as Banco Comercial de Moçambique BCM led the economic banking zone.

The monetary region liberalisation coverage allowed new establishments. Apart from the already operating Standard Bank, new banks licensed since 1992 or because of liquidation of present institutions encompass the Banco Internacional de Moçambique, the Banco Comercial de investimentos, Banco de Fomento, Banco Austral, African Banking Corporation ABC, BMI, UCB, ICB, Novo Banco, and many others. There also are investment banks, leasing businesses and credit score cooperatives. This multiplied variety of economic and non economic institutions resulted within the development of an active financial region.

In October 1999, the inventory market of Mozambique (Bolsa de Valores de Moçambique BVM) changed into inaugurated. Its regulatory business enterprise is the Central Bank BDM and its operations are nevertheless restricted. With the technical assist of the Johannesburg Securities Exchange JSE and the Lisbon Stock Exchange, plans are underway to broaden an global monetary services centre, which includes a kingdom-of-the artwork information technology gadget.

Four. Financial Markets in Namibia

The Namibian Stock exchange NSX is governed via the Stock Exchange Control Act of 1985. Amendments to the Act had been recently adopted so one can convey the country wide legal guidelines in step with global requirements.

The NSX become mounted in October 1992 and is the maximum technically superior bourses in Africa, and additionally considered one of few self regulated monetary markets in Southern Africa. The Namibian Stock trade Association, a self regulatory, non profit organisation, is the custodian of the license to perform the NSX. It approves list applications, licenses stockbrokers and operates the buying and selling, clearing and agreement of the change. Since 1998, the NSX has used the maximum technically advanced management tools available at the continent, which permit higher surveillance and designated client safety.

Five. Financial Markets in South Africa

The South African Financial Markets machine is the most state-of-the-art and complex with the vibrant Johannesburg Securities Exchange (JSE), the Bond Exchange of South Africa (BESA) and the and the South Africa Futures Exchange (SAFEX).

The Johannesburg Stock Exchange JSE changed into established in November 1887. Currently, it’s miles ruled by using the Stock Exchanges Control Act of 1985 [amended in 1998 and 2001]. The JSE is the biggest stock trade in Africa and has a marketplace capitalization of extra than 10 instances that of all the different African markets blended. The JSE provides technical support and ability building, competencies and information to the following exchanges within the area: Namibia, Mozambique, Mauritius, Tanzania and others in Africa (Nigeria, Ghana, Egypt, Uganda and Kenya). Since 1999, the JSE harmonized its list necessities with the inventory markets of Botswana, Malawi, Namibia, Zambia and Zimbabwe.

The BESA was certified in may additionally 1996 underneath the Financial Markets Control Act of 1989 [amended in 1998], and the SAFEX became mounted in 2001 as a Financial Derivatives Market and agricultural Products division of the JSE.

In June 1996, the JSE added the completely computerized digital buying and selling machine called Johannesburg Equities Trading (JET) and on the grounds that May 2002, is the use of the Stock Exchange Trading System (SETS).

6. Financial Markets in Swaziland

The Swaziland Stock Market (SSX) was hooked up in 1990 to sell local funding possibilities. In 2002, 5 companies were indexed. The SSX has evolved new listing requirements in step with new international regulatory requirements. A new safety Bill has been approved in 2002, and must be in pressure through now. It will permit the licensing and regulation of all securities markets, operations and contributors.

7. Financial Markets in Tanzania

The Dar-Es-Salaam Stock Exchange (DSE) become incorporated in September 1996 below the Capital Markets and Securities Act of 1994. Its operations however did now not start till April 1998 with the listing of the primary organisation. In October 2002, overseas businesses were allowed to perform at the DSE. Its regulatory business enterprise is the Capital markets and securities Authority (CMSA). Plans are underway to facilitate the securing of accelerated monetary assets from international markets.

8. Financial Markets in Zambia

The Lusaka Stock Exchange (LuSE) changed into created in February 1994 beneath the 1993 securities Act. It is controlled via the Securities and Exchanges Commission (SEC). Its operations were boosted by way of the a success issue of the Zambian Breweries, which raised as much as US $ 8.Five million to refinance a mortgage secured for the purchase of the Northern Breweries in 1998. Most of the listings have been the end result of the u . S .’s privatization application.

A Commodity Exchange, the Agricultural Credit Exchange changed into additionally established in 1994, as an initiative of the Zambia National Farmers’ Union, after the liberalization of the expenses of agricultural commodities. The Exchange provides a centralized buying and selling facility for buyers and sellers of commodities and inputs. It gives also up to date fees and a few marketplace records for each nearby and global markets.

Nine. Financial Markets in Zimbabwe

The Zimbabwe Stock Exchange ZSE, is one of the oldest and most colourful inventory exchanges in Africa. It was set up in 1890, however had sporadic trading till 1946. In 2002, it had 76 indexed businesses. The ZSE operates under the Stock exchanges act, that is being amended to take into consideration new technological necessities and to align its contents with international standards (enhance the security of percentage trading, transparency, critical depository system, and many others.).

The ZSE is open to overseas traders, who should buy as much as forty percent of the equity of indexed organization, a single investor can purchase a most of 10 percent of the shares on provide. Foreign buyers can make investments at the neighborhood cash market up to a maximum of 25 percent per number one difficulty of government bonds and stocks, and a single investor can gather a maximum of five percentage. Foreign traders are but not allowed to purchase from the secondary market. These investments qualify for 100 percent dividend and interest remittance.

Financial Markets Regulation in Southern Africa: which manner in advance ?

The most important issue in monetary market regulation lies inside the truth that the criminal and institutional framework of most countries continues to be insufficient to guide present day financial procedures. Examples of such inadequacy consist of old prison structures leading to terrible enforcement of laws. The following challenges are very exciting for in addition research opportunities.

A cohesive and complete criminal framework is needed below the proactive approach that allows you to use the contracts that clearly outline the rights and responsibilities of all intervening operators. Such a framework should encourage field and well timed enforcement of contracts, fostering responsibility and prudent conduct on both sides of the financial transactions. Prudent and efficient financial intermediation can not perform with out dependable statistics on debtors, and some legislation on accounting and auditing standards, which additionally ensures honesty at the a part of financial establishments, Similarly, for a rustic’s financial markets to develop and function successfully, law need to fully contain policies of buying and selling, intermediation, records disclosure, take-overs and mergers.

Because of the function of financial establishments and markets inside the improvement of a sound financial gadget, additional rules is commonly wished for his or her operations to supplement enterprise regulation. These are prudential regulations, particularly for banks and comparable monetary establishments that hold an crucial a part of the cash deliver, create money and intermediate among savings and investment. Company law is an example of the form of regulation wished. It now not most effective governs the operations of commercial enterprise organisations but additionally protects the interests of company stakeholders. Thus, public disclosure of facts at the employer’s sports must be made obligatory on organization control in the best segment of the Companies Act. Such information, especially that referring to finance and accounting, need to additionally be statutorily required to be eventually confirmed and attested to through auditors.

Prudential guidelines cowl such problems as criteria for access (listings), capital adequacy wellknown, asset diversification, limits on loans to people, permissible range of sports, asset type and provisioning, portfolio awareness and enforcement powers, unique accounting, auditing and disclosure requirements tailored to the wishes of the banks to ensure timely availability of correct monetary facts and transparency. The goal is to decorate the safety and soundness of the economic machine.

There is real need for an important rules relating to economic markets which require not most effective favorable rules but also criminal and institutional infrastructure to support their operations, prevent abuses and defend investors. Investors’ self belief is essential to the development of the markets. Brokers, underwriters, and different intermediaries who perform in these markets consequently have to follow laid down expert codes of behavior embodied in the rules applicable to such establishments as finance and insurance agencies, mutual budget and pension price range.

An different important trouble is the independence of regulatory authority, their range and the choice to set up self-regulatory employer. All these factors ought to bear in mind the targets and ideas defined via the government, and additionally the specific development needs within the monetary machine.

A fundamental task concerning the Financial Markets in the Southern African location is the harmonization of the country wide financial law and the compliance with global requirements, together with the SADC criteria and the international standards set via global agencies consisting of the International Organization of securities Commissions (IOSCO), the International Accounting Standards Committee (IASC), the Basel Committee on Banking Supervision (BCBS) and the obligations as a result of the WTO Agreement on financial Services (GATS). These key international contraptions are beginning to be enforced and character countries have to preserve updating their financial markets regulations and upgrade the technical competencies of their staff in rate of regulatory and supervisory operations.