Capital Flows and Development Capital Flows and Development of African Economies: Towards of African Economies: Towards an Action Plan for Financing an Action Plan for Financing

Investment in AfricaInvestment in Africa

Zanzibar, TanzaniaZanzibar, Tanzania

24-25 April 200724-25 April 2007

Objective of the meetingObjective of the meeting

Come up with concrete Come up with concrete proposals and proposals and recommendations to recommendations to promote financing of promote financing of investment in Africainvestment in Africa

Summary of issues - Summary of issues - backgroundbackground

The mobilization of domestic and external The mobilization of domestic and external resources is fundamental to meet the MDGsresources is fundamental to meet the MDGs

Despite some improvements in ODA and FDI, Despite some improvements in ODA and FDI, domestic resource mobilization is still too lowdomestic resource mobilization is still too low

In response, need to In response, need to Improve governance and public financial Improve governance and public financial

managementmanagement Expand & improve the efficiency of the financial Expand & improve the efficiency of the financial

system and dissemination of information system and dissemination of information Undertake pension reformUndertake pension reform Develop capital markets including stock Develop capital markets including stock

exchanges and bond markets exchanges and bond markets

Summary of issues - Summary of issues - backgroundbackground

Recalled NairobiRecalled Nairobi Most African capital markets are small and Most African capital markets are small and

shallow. One solution to this situation is the shallow. One solution to this situation is the regional integration regional integration

There are various approaches to regional There are various approaches to regional integration integration

Information dissemination and education Information dissemination and education campaigns are essential & must be campaigns are essential & must be underpinned by research underpinned by research

All partners have a role to play in pushing All partners have a role to play in pushing the agenda forwardthe agenda forward

Overview of Overview of presentationspresentations

1.1. Financing Development in Africa: Review of Financing Development in Africa: Review of Progress and ChallengesProgress and Challenges

2.2. Capital market developmentCapital market development Regional integrationRegional integration

3.3. Supporting investmentSupporting investment Information and awarenessInformation and awareness International initiatives – APF processInternational initiatives – APF process

4.4. Trends in other forms of financing Trends in other forms of financing investmentinvestment

Venture capital/private equityVenture capital/private equity Financing SMEsFinancing SMEs MicrofinanceMicrofinance Pension reform (in absentia) Pension reform (in absentia)

Financing Development in Financing Development in Africa - PresentationAfrica - Presentation

Key declarations and commitmentsKey declarations and commitments The Monterrey Consensus The Monterrey Consensus Key policy challengesKey policy challenges Finding an solution to the external Finding an solution to the external

debt crisisdebt crisis How is ECA organized to respond to How is ECA organized to respond to

these challengesthese challenges

Financing Development in Financing Development in Africa - DiscussionAfrica - Discussion

The impact of transaction costsThe impact of transaction costs Importance of remittancesImportance of remittances Problems of utlizing existing resources & Problems of utlizing existing resources &

how to ensure that the resources are used how to ensure that the resources are used productively to finance investmentproductively to finance investment

The need for the media to raise awarenessThe need for the media to raise awareness Identifying the agents of changeIdentifying the agents of change To attract investment, infrastructure and To attract investment, infrastructure and

the right regulatory/institutional the right regulatory/institutional frameworks are keyframeworks are key

Capital market Capital market development – Regional development – Regional

integrationintegration Different approaches to regional Different approaches to regional

integrationintegration Capital market integration in AfricaCapital market integration in Africa A practical approach to capital A practical approach to capital

market integration in Africamarket integration in Africa Action plan for committee at the Action plan for committee at the

REC levelREC level

Capital market Capital market development - Regional development - Regional

integrationintegration RECOMMENDATION 1:RECOMMENDATION 1:

Bring the RECs on boardBring the RECs on board Stock exchanges, market operators, Stock exchanges, market operators,

regulators, and policy makers in regulators, and policy makers in RECs RECs must must come together under a come together under a committee or committee or working groupworking group to deliberate on options for to deliberate on options for integration and the way forwardintegration and the way forward

The establishment of The establishment of committees/task committees/task forces at the REC levelforces at the REC level would build on the would build on the work of EASRA and SADC Committee of work of EASRA and SADC Committee of Stock Exchanges Stock Exchanges

Capital market Capital market development - Regional development - Regional

integrationintegration RECOMMENDATION 2:RECOMMENDATION 2:

ECAECA should should Call for status reports on regional Call for status reports on regional

integrationintegration Involve policymakers in discussionInvolve policymakers in discussion Meet with the RECs and support them in Meet with the RECs and support them in

terms of capacity and coordinationterms of capacity and coordination

RECOMMENDATION 3:RECOMMENDATION 3: ASEAASEA to monitor ongoing regional to monitor ongoing regional

integration initiativesintegration initiatives

Capital market Capital market development – Internet development – Internet

tradingtrading Stock exchange of Mauritius - Stock exchange of Mauritius -

internet based trading system (i-net)internet based trading system (i-net) Proposed modelProposed model Essential set up and requirementsEssential set up and requirements Costs and benefitsCosts and benefits

Capital market Capital market development – Discussiondevelopment – Discussion

Regional integration should be seen as an ends Regional integration should be seen as an ends not a means and be business friendlynot a means and be business friendly

Stock exchanges are businessesStock exchanges are businesses Regional integration must address the need of Regional integration must address the need of

countriescountries The impact of demutualization on regional The impact of demutualization on regional

integrationintegration The goal should be a pan-African stock The goal should be a pan-African stock

exchange – faces difficultiesexchange – faces difficulties Start at Start at

Sovereignity issuesSovereignity issues

Supporting investment – Supporting investment – Africa InvestorAfrica Investor

Africa Investor activities and productsAfrica Investor activities and products The need to change the image of The need to change the image of

Africa as an investment locationAfrica as an investment location Africa’s stock markets are among the Africa’s stock markets are among the

best performers in the worldbest performers in the world Emerging market investment funds Emerging market investment funds

are mainly investing in South Africaare mainly investing in South Africa There are signs that interest in Africa There are signs that interest in Africa

regional equity funds is revivingregional equity funds is reviving

Supporting investment – Supporting investment – Africa InvestorAfrica Investor

Challenges for frontier marketsChallenges for frontier markets Markets are too small and illiquidMarkets are too small and illiquid Lack of assetsLack of assets Investing is not easyInvesting is not easy Currency riskCurrency risk Access to informationAccess to information

Supporting investment – Supporting investment – Africa InvestorAfrica Investor

RECOMMENDATIONS: We need RECOMMENDATIONS: We need to improve the effectiveness of to improve the effectiveness of investor communications in Africainvestor communications in Africa

1.1. With the assistance of partners, we should With the assistance of partners, we should establish a programme to raise the profile establish a programme to raise the profile of African stock exchangesof African stock exchanges

2.2. Programme should include capacity Programme should include capacity building for communications/investor building for communications/investor relations expertise in exchanges and listed relations expertise in exchanges and listed companiescompanies

3.3. Stock exchanges should encourage Stock exchanges should encourage increase frequency and quality of reportingincrease frequency and quality of reporting

4.4. Programme should also address issues Programme should also address issues around data and sharing of informationaround data and sharing of information

Supporting investment – Supporting investment – APF paperAPF paper

APF process and development of joint APF process and development of joint NEPAD/APF Support Unit paper on investment NEPAD/APF Support Unit paper on investment in Africain Africa

Recommendations in paperRecommendations in paper1.1. Develop financial marketsDevelop financial markets

Efficient financial sectors and broadening access for SMEs is Efficient financial sectors and broadening access for SMEs is keykey

Emphasis must be on poverty reductionEmphasis must be on poverty reduction New financing facility to address this gap and more New financing facility to address this gap and more

resources for ICFresources for ICF

2.2. Invest in infrastructureInvest in infrastructure Financing facility to build capacity in RECsFinancing facility to build capacity in RECs Support developing project development Support developing project development

documents/proposalsdocuments/proposals Need to reinforce investment promotion at the REC levelNeed to reinforce investment promotion at the REC level

Supporting investment – Supporting investment – APF paperAPF paper

3.3. Improve economic governanceImprove economic governance Need good regulatory environment and Need good regulatory environment and

fight corruptionfight corruption Symmetric responsibilitiesSymmetric responsibilities Use African Peer Review MechanismUse African Peer Review Mechanism

Supporting investment – Supporting investment – DiscussionDiscussion

Also improve information flows for local Also improve information flows for local investors not just foreign onesinvestors not just foreign ones

Problem of remuneration for provision of Problem of remuneration for provision of informationinformation

How to deal with uncertaintyHow to deal with uncertainty RECOMMENDATIONS: RECOMMENDATIONS:

Donors to finance stock exchanges to Donors to finance stock exchanges to provide investors with informationprovide investors with information

Stock exchanges, organizations (ASEA, Stock exchanges, organizations (ASEA, AVCA) need to compile informationAVCA) need to compile information

Trends in alternative Trends in alternative sources of financing – sources of financing – venture capital - AVCAventure capital - AVCA

What is venture capitalWhat is venture capital The role of VC in developmentThe role of VC in development Overview of African venture capital Overview of African venture capital

industryindustry The dynamics of VC industryThe dynamics of VC industry Key requirements for growth and Key requirements for growth and

success of VC success of VC UNIDO/AVCA Technical Assistance UNIDO/AVCA Technical Assistance

FundFund

Venture capital - AVCAVenture capital - AVCA

Need to develop Need to develop African Fund of Funds targeting local African Fund of Funds targeting local

and international investorsand international investors Technical Assistance Fund for SMEsTechnical Assistance Fund for SMEs Tax and regulatory incentivesTax and regulatory incentives Financial support for industry Financial support for industry

associationassociation

Venture capital - AVCAVenture capital - AVCA

RECOMMENDATIONS: RECOMMENDATIONS: Active interaction between capital Active interaction between capital

markets and VC/PE industrymarkets and VC/PE industry Attend and speak at conferencesAttend and speak at conferences SE’s actively encourage VC/PE portfolio SE’s actively encourage VC/PE portfolio

companies Seek financial support from companies Seek financial support from governmentsgovernments

Hold forums for continued Hold forums for continued engagement between public sector, engagement between public sector, private sector and civil society private sector and civil society (through media)(through media)

Trends in alternative Trends in alternative sources of financing – SMEs sources of financing – SMEs

financingfinancing Strategic overview and investment Strategic overview and investment

guidelinesguidelines Key issues in financing SMEsKey issues in financing SMEs

Access to capital not a problem, rather Access to capital not a problem, rather lack of lack of projectsprojects

Lack of proper financial recordsLack of proper financial records Inadequate business planInadequate business plan Insufficient management capacity/skillsInsufficient management capacity/skills Poor management of fundsPoor management of funds Under capitalizationUnder capitalization Insufficient assets for security/collateralInsufficient assets for security/collateral No corporate governance structuresNo corporate governance structures

Trends in alternative Trends in alternative sources of financing – SME sources of financing – SME

financingfinancing Advantages and disadvantages of private Advantages and disadvantages of private

equityequity SSA private equity industrySSA private equity industry SSA governments and private equitySSA governments and private equity PotholesPotholes Case studiesCase studies Recommendations:Recommendations:

Use partnerships to enable financing – Use partnerships to enable financing – governments and international partnersgovernments and international partners

Financial support, technical assistance funds, tax Financial support, technical assistance funds, tax breaksbreaks

Trends in alternative Trends in alternative sources of financing – sources of financing –

MicrofinanceMicrofinance Role of Micro-finance in investment Role of Micro-finance in investment MF role in savings mobilizationMF role in savings mobilization Challenges facing Challenges facing micro financemicro finance in in

AfricaAfrica Accelerating MF for investment and Accelerating MF for investment and

savings: recommendationssavings: recommendations Way forwardWay forward

Trends in alternative Trends in alternative sources of financing – sources of financing –

MicrofinanceMicrofinance Recommendations:Recommendations:

Governments should                 Governments should                  Deepen and integrate the financial sector Deepen and integrate the financial sector Review the existing legal and regulatory Review the existing legal and regulatory

framework to mainstream microfinance framework to mainstream microfinance into the country’s financial systeminto the country’s financial system

Provide incentives for MFIs to target the Provide incentives for MFIs to target the poorpoor

Build institutional capacity for Build institutional capacity for supervision and monitoring and supervision and monitoring and eenforcement of microfinance regulationsnforcement of microfinance regulations

Invest in rural infrastructureInvest in rural infrastructure

Trends in alternative Trends in alternative sources of financing – sources of financing –

MicrofinanceMicrofinance Recommendations:Recommendations:

MFIs should                 MFIs should                  Develop and match the products and Develop and match the products and

delivery methodologies to the diverse delivery methodologies to the diverse needs of different clientsneeds of different clients

Enhance networking & development of Enhance networking & development of strategic alliances and information strategic alliances and information sharing and transparencysharing and transparency

Bigger MFIs to support and build the Bigger MFIs to support and build the capacity of the young upcoming onescapacity of the young upcoming ones

Broaden the range of their products, Broaden the range of their products, services and delivery systemsservices and delivery systems

Trends in alternative Trends in alternative sources of financing – sources of financing –

MicrofinanceMicrofinance Recommendations:Recommendations:

AU/ECA/AfDB should:AU/ECA/AfDB should: Fully integrate microfinance in their Fully integrate microfinance in their

programmes including the NEPADprogrammes including the NEPAD Review the policies, strategies and legal Review the policies, strategies and legal

frameworks of member countries with a view to frameworks of member countries with a view to harmonization in collaboration with RECsharmonization in collaboration with RECs

Encourage the adoption of best practice in Encourage the adoption of best practice in microfinance services and systems by member microfinance services and systems by member countries of the AUcountries of the AU

Work towards the development and integration Work towards the development and integration of microfinance infrastructure in Africaof microfinance infrastructure in Africa

Carry out an assessment of the UN 2005 Year for Carry out an assessment of the UN 2005 Year for Microcredit - What measures were taken and Microcredit - What measures were taken and what are the outcomes?what are the outcomes?

Trends in alternative Trends in alternative sources of financing – sources of financing –

DiscussionDiscussion Do venture capital funds exist for agriculture?Do venture capital funds exist for agriculture? Role of development banks – AfDB and sub-Role of development banks – AfDB and sub-

regional banksregional banks Absorptive capacity – come to Central Africa Absorptive capacity – come to Central Africa

regionregion Problem of IPOs and small stock exchangesProblem of IPOs and small stock exchanges Encourage pension funds to invest in other Encourage pension funds to invest in other

instruments besides treasury billsinstruments besides treasury bills Need to fund to assist and educate Need to fund to assist and educate

entrepreneursentrepreneurs How South Africa can support other countriesHow South Africa can support other countries Must have a clear message:Must have a clear message:

Lack of funds and lack of bankable projectsLack of funds and lack of bankable projects

Summary of Summary of recommendationsrecommendations

1.1. Promote regional integrationPromote regional integration Set up committee at REC levelSet up committee at REC level ASEAASEA to monitor ongoing regional to monitor ongoing regional

integration initiativesintegration initiatives ECAECA to call for status reports on to call for status reports on

regional integration; involve regional integration; involve policymakers in discussion; and policymakers in discussion; and support RECssupport RECs

Summary of Summary of recommendationsrecommendations

2.2. Improve collection and dissemination of Improve collection and dissemination of information and capacityinformation and capacity

Seek donor support to finance stock Seek donor support to finance stock exchanges to provide investors with exchanges to provide investors with information and establish a programme to information and establish a programme to raise the profile of African stock exchangesraise the profile of African stock exchanges

Stock exchanges and organizations (ASEA, Stock exchanges and organizations (ASEA, AVCA) need to compile information & AVCA) need to compile information & increase frequency and quality of reportingincrease frequency and quality of reporting

Capacity building for Capacity building for communications/investor relations communications/investor relations expertise in exchanges and listed companiesexpertise in exchanges and listed companies

Summary of Summary of recommendationsrecommendations

3.3. Support development of VC and Support development of VC and financing of SMEsfinancing of SMEs

Promote interaction between capital Promote interaction between capital markets and VC/PE industrymarkets and VC/PE industry

Hold forums for continued engagement Hold forums for continued engagement between public sector, private sector between public sector, private sector and civil society (through media)and civil society (through media)

Use partnerships to enable financing – Use partnerships to enable financing – governments and international partnersgovernments and international partners

Financial support, technical assistance funds, Financial support, technical assistance funds, tax breakstax breaks

Summary of Summary of recommendationsrecommendations

4.4. Expand access to microfinanceExpand access to microfinance Role of governments and MFIsRole of governments and MFIs AUC/ECA/AfDB collaborate to AUC/ECA/AfDB collaborate to

support the development of support the development of microfinancemicrofinance

Way forwardWay forward Forum on Financing Development in Forum on Financing Development in

AfricaAfrica A joint initiative of ECA, AUC, AfDB, NEPAD, A joint initiative of ECA, AUC, AfDB, NEPAD,

OECD, RECs together with Africa Investor, OECD, RECs together with Africa Investor, ICFICF

Meet 1-2 per yearMeet 1-2 per year Expand constituency to include Expand constituency to include

policymakers, central bankers, regulators – policymakers, central bankers, regulators – but remain at the expert levelbut remain at the expert level

Advocacy tool - feed into high-level fora Advocacy tool - feed into high-level fora such as AU/ECA ministerial meetings and such as AU/ECA ministerial meetings and G8/OECD gatheringsG8/OECD gatherings