for example, through joint ventures with foreign investors. To the
extent possible, they would also like to have a wide dispersal of
shareholding in major privatized enterprises. Thus, before the
government of Ghana floated its remaining shares in the Ashanti
Goldfields company on the London Stock Exchange early in 1994, it
reserved almost 2 per cent of the shares for the workers. In
Ethiopia, the government chose to break up the assets of the
state-owned transport corporation into three shareholding companies to be
wholly transferred to the workers in the form of a loan equal to the
value of the transferred assets. Progress was also made in 1994 in
other areas; notably, market and tax reforms geared towards the improvement of the investment climate for domestic and foreign investors.
33. It is increasingly clear that the prospects for resource mobilization in support of the development process in Africa would depend largely on the success of the reforms which are in progress in the financial sector in the region. In a few countries, in 1994, the institutional, legal and operational framework of domestic capital markets has been revamped and strengthened with a view to generating greater confidence in the financial intermediation process among the investing pUblic. The aim, clearly, is to establish the basis for the developmEmt of a sound financial sector for effective mobilization of domestic savings and improved allocation of investment through more efficient intermediation. Some countries, for example, Ethiopia and Morocco, have geared up for expanding the scope of private participation in the financial sector, either through whole sale or partial privatization of state-owned financial institutions, or by allowing the establishment of privately-owned financial institutions. In Ethiopia, the first private banks and insurance companies since 1974 were established wholly on private initiative, following the promulgation of a comprehensive new law governing the registrai:ion of financial enterprises.
34. It is realized also that measures for the mobilization of domestic savings should involve not only the expansion in the number of financial institutions but also their wide geographical dispersion. Despite the abundance and relative vitality of informal financial institutions in many African countries, their potential for enhancing the development process has not been effectively harnessed.
Efforts so far exerted by central banks to bring about a closer relationship between the formal and informal financial institutions have been grossly inadequate. And the commercial banks have shied away for too long from financing smallholder agriculture and micro-enterprises, pleading the high transaction costs. Hence attempts were made in some countries in 1994 to develop rural financial markets in order to tap the full potential of production-oriented programmes in rural areas, and to increase the ability of households to save and to build up bases of productive assets.
35. The capital markets also continued to undergo significant developments in some African countries in 1994, due in part to the progressive deregulation of the financial sector, and efforts at emphasizing the role of non-debt creating institutions as a means of mobilizing and allocating resources. In addition t.o developing appropriate regulatory frameworks for stock markets, new financial instruments have emerged as an alternative to commercial bank savings and credit. The result was that stock markets in Africa were one of the best performers in the emerging markets sector in 1994, pushed up largely by local investors in anticipation of inflows of funds from foreign investors"
36. In Morocco, the Casablanca stock Exchange has made substantial progress as a major source of financial resources, both to the government and the private sector. The index of the 25 leading shares rose by 45 per cent in 1994. Market capitalization has grown
10
to more than US$5 billion and the annual turnover surpassed US$850 million in 1994. In a bid to encourage flow of funds to the market, taxes on share earnings were reduced from 15 per cent to 10 per cent.
37. In Zimbabwe sharp gains were also recorded on the stock exchange as the capital market has turned into the most important source of government finance. In 1994, the government raised more than Z$2.2 billion through the floatation of bonds. Company stocks are traded both over the counter and through the regular channels.
stock ownership is open to foreign participation up to a maximum of 25 per cent, as a result of which external resource inflow for portfolio investment has been on the increase. The government is constantly reforming the Zimbabwe stock exchange. The pricing of shares is to shift from the historical value base to price/earnings ratio, and is being sUbjected to a more open and competitive market.
38. The Tunisian stock exchange, which opened in 1990, is currently capitalized at US$1.3 billion with an annual turnover of US$200 million in 1994. The stock exchange has been privatized and a new regulatory body established to protect investors.
39. In Egypt, the capital markets regulation adopted in 1993 is impacting significantly on the stock markets in Cairo and Alexandria.
Companies raising more than half of their capital through public subscription are granted tax brakes. Restrictions on bond trading has been relaxed, and issue of bearer shareG allowed to boost the secondary markets. Turnover increased from US$175 million in 1993 to US$500 million in 1994.
40. In Nigeria, the capital market has been further enhanced to encourage efficiency and resource flows to the productive sectors of the economy. Open market operations have been elevated to the status of the major instrument of monetary management. In Kenya, the Nairobi Stock Exchange recovered from the sluggish trading of the previous year; capitalization increased by 10 per cent in 1994, while turnover was up by 30 per cent. The overall gain on the exchange rose by 107.5 per cent in dollar terms.
41. Despite these encouraging developments, the stock markets in Africa have remained small and fragile, and most of them have indeed suffered declines since the beginning of 1995. The main factors inhibiting their further development and deepening include inflation and high interest rates, fledging investors confidence, uncertainty about future government policies, and lack of information.
42. In the area of African economic integration and cooperation, the most significant event in 1994 was the coming into effect of the Abuja Treaty for the establishment of the African Economic Community (AEC). The first stage of the Treaty, which covers the first five years of its operation, aims at strengthening existing sUbregional Economic Communities. It is also expected that the protocols to be drawn up under the Treaty will contribute to the harmonization of sectoral policies at the SUbregional level, as a stepping stone to policy harmonization at the continental level. In the meantime, significant changes were underway in several subregional organizations during the last year, although not all of these can be
perceived as direct responses to the Abuja initiative.
43. In spite of 1:he above developments, regional economic cooperation and integration in Africa continue to be beset by numerous problems, i.n particular inadequate transport and communication networks, weak production systems with virtually no inter-sectoral and inter-country links, tariff and non-tariff obstacles to intra-regional trade; and lack of convergence of national economic policies. POlicies and programmes to address these problems have been proposed in the Lagos Plan of Action and the Final Act of Lagos, as well as in the African Alternative Framework for structural Adjustment Programmes for Socio-Economic Recovery and Transformation (AAF-SAP). More recently they have found expression in various subregional efforts and in the Abuja Treaty itself. What is urgently required is implementation. As part of the efforts for promoting effective eocncm.i.c integration in Africa, there has recently been increased discussion on how to bring into consonance economic integration strategies and structural adjustment policies and programmes.
D. Outlook for 1995-1996
44. The economic prospects for the Africa region in 1995 appear quite favourable, as the year opens, although there can be little certainty as to what the final out-turn might be, given the fragility of African economies and the deficient information base used for the forecasts. What is certain is that the overall economic performance in Africa in 1995 will, as in the past, depend heavily on developments in the region's external sector as well as on climatic conditions. Progress towards the resolution of the civil wars and ethnic tensions and conflicts that have had and continue to have a damaging impact and re,percussions on the domestic economy and the population at large ~lill no doubt have a favourable impact on performance in 1995.
45. While the overall outlook for commodity prices is bright for 1995, the situation remains mixed. A strengthening in international coffee prices is expected because of the stock retention programme being implemented and possible production declines, but cocoa prices may not change significantly owing to uncertain demand situation and the sluggish consumption in North America and Europe, and little or no sign of recovery in the former USSR. Reduced stocks of rubber, together with the slowing down of supplies of synthetic rubber, is expected to result in a tight global market in 1995. There are indications also that the rise in metal and non-oil mineral prices in the world markets may persist well into 1995. The expected surge in copper prices is related to signs of economic recovery in the USA and Europe, and expectations of sustained growth in some developing countries. As for tin and lead, prices are expected to increase, based on a rising trend in consumption.
46. As for the oil market, the prospects are rather shrouded in uncertainties in 1995. Since demand is projected to increase at a meagre rate of less than 1 per cent per annum to the end of the decade, future movements in oil price would depend very much on the behaviour of producing countries. If, as has been the case in the