of the individual for the economy;
(d) they provide a measure of confidence in the economy and serves as an important barometer for the economy;
(e) through the price mechanism, they provide industrial management with some idea of the current cost of capital and this can be important in determining the level and rate of investment;
(0 they act as reliable medium for broadening the ownership base from the erstwhile family dominated firms to public companies;
and
(g) capital markets, as demonstrated by the Latin American countries' experiences, facilitate the privatization of public enterprises: small investors have opportunities to buy shares in the privatized enterprises through , for example, the stock exchange.
Capital market operations and services.
37. Reference has been made to primary and secondary market operations on the capital markets. The operations of a stock exchange or capital market thus fall into two broad categories,namely, the Primary and Secondary Market The primary operations deal with new issues of securities/equity shares/stocks. This initial issue could be in the form of Offer for subscription; Offer for sale; By introduction and Rights issue,etc Offer for subscription comprise direct issues to the public by floating a number of shares or stocks. Offer for sale in an existing company can be made by existing shareholders. In this secondary market case the proceeds go to the vendors and not to the company.
The Exchange may permit its security to be introduced into and listed on the market where a company seeking quotation already has enough shares held by the public. In the case of introduction, no new or existing shares need to be sold to the public Should a company need additional finance to, for example, finance some assets or long-term investment, offers to buy more shares are first made to existing shareholders. These offers are referred to as rights issue.
38. It is worth noting that the primary and secondary markets are complementary. For example, the Secondary Market or outstanding securities market enhances the new issues market by providing the means by which investors can monitor the value of their shares. The secondary market may thus augment the supply of funds to the primary
markets. In effect^econdary markets enable investors to encash their investments and become liquid. This enables them to have funds for primary market transactions and thus augments the flow of funds into investment commitments.
39. Capital market services are of utmost importance to the functioning of primary and secondary markets. A number of firms and individuals are necessary to provide the services required by savers, borrowers and investors. Issuing houses are required to sell new shares to the public or to place them in institutions; stockbrokers are required to act as agents for those wanting to buy or sell existing shares or place orders with jobbers.who buy and sell shares on their own account In some countries, commercial banks act as issuing houses and also market existing shares. Underwriting services are also very important to ensure that a shortfall in issues does not frustrate the commencement of business by a company because of a shortage of funds. In developing countries, development banks may constitute both primary and secondary markets. Rating agencies provide investors with the market credit-worthiness rates of various markets and countries. This facilitates investment decisions vis-a-vis risk factors in various capital markets.
Review of current status of capital markets In Africa.
40. Information on capital markets in Africa is scanty. This is why one of the aims of this study,as already indicated, is to fill this very important gap. A database should be established to keep investors regularly informed about credit and capital market developments across the continent and linkages established with markets in other parts of the world.
41. Notwithstanding the current paucity of data, an attempt is made to review the status of credit and capital markets, bearing in mind the caveat on data availability. Virtually all African countries have short-term money markets centred on central and commercial banks. The quality of services, however, leaves much to be desired In most of these countries, the banks do not enjoy the confidence of the population nor that of foreign investors. Regrettably, most African countries do not allow foreigners to invest in the local economies. The banking system has, in some cases, collapsed under the weight of corruption and gross mismanagement Hopefully, studies like this one might
contribute in some form to the sensitization of the public, especially government authorities and leaders, regarding the importance of money and capital markets in national development
42. Today, there are fourteen1^ Stock Exchanges in Africa. The
Johannesburg, Republic of South Africa, is perhaps the largest and most active one in terms of listings, tempo of daily operations and transactions. Egypt and Nigeria (Lagos, Port Harcourt and Kaduna Exchanges) come second and third , respectively, to Johannesburg in stock exchange development Other stock exchanges in Africa include those in Ghana, Kenya, Coted'Ivoire, Zimbabwe, Morocco, and Tunisia.
This list is not exhaustive. Botswana, Namibia, Zambia and other African countries are in the process of establishing their own stock exchanges.
This study therefore becomes even more pertinent in the rircumstances.That capital markets (stock exchanges) already exist in several African countries underscores the fact that these countries are already aware of the significance of these markets in sustained development. The existing markets will serve as a guide to the establishment and development of capital markets in other African countries. Lessons of experience will enable the new and evolving markets to minimize mistakes and benefit from the strengths of the older markets.
43. At the regional (continental) level, Article 45 of the 1991 Abuja Treaty for the establishment of the African Economic Community (AEC) explicitly includes provision for ensuring that there is free movement of capital among member States. The African Export-Import Bank (Afrexim-bank) has been established to facilitate intra-African trade and to boost the region's share in worid trade. The bank includes 30 African countries. It will provide short-term credit to finance trade of nontraditional goods and imports of capital goods, such as machinery and equipment for infrastructure and rural projects.
44. At the international (inter-regional/intercontinental) level, it is reported
20/ that the market creditworthiness ratings of some African countries
are on the increase. The Institutional Investor's regional rating rose by 0.4 point to 20.9 (excluding four newcomers). Of 29 countries, 11 showed a significant increase and seven a significant decline. The biggest improvements were Botswana (up 3.6 points), Mauritius (2.6 points),
Swaziland (2.3 points), and Ghana (1.8 points). All these gains partly reflect economic reform efforts,improved economic performance, prospects and investors' perception of the business climate. Better prospects for Tunisia and Morocco also pushed up their ratings_by 1.5 and 1.2 points, respectively. Kenya saw the biggest fall (1.7 points) and South Africa was down (1.6 points), because of political uncertainty.
Similarly, Sudan and Nigeria were down by 1.3 and 1.2 points, respectively.
45. It is worth noting that some African countries have entered the international credit and capital markets. For instance, in August 1993 a $20 million Near Eastern Fund investing in equity securities of Egypt, Jordan, Morocco, Pakistan, Tunisia and Turkey was established. The management of the Fund has been entrusted to Fiduciary Trust Company International and the International Finance Corporation (IFC) to provide
$5 million in equity investment in the Fund21/ It is also reported 22/
that the Ashanti Goldfields Corporation (ACC) of Ghana was ready for flotation in the London Stock Exchange in 1994. Two intermediaries involved in the flotation were Morgan Gren&ll, the Merchant Bank, and James Capel, the Stockbroker. The Govett Commonwv\lth Privatisation Fund with a minimum capitalisation of US$50 milltin which was conceived by the Commonwealth Secretariat and endorsed by Finance Ministers is expected to commence in early 1994. The aim of die Fund is to invest in profitable opportunities in Commonwealth countries. There is also the Africa Emerging Markets Fund which raised US$30 million in a private placement with professional investors in Europe and the US as well as with the IFC The Fund will be targeting 13 securities traded in the stock markets of Africa. Credits and bonds for developing countries include term loan of US$52 million to SONATRACH (Algeria) and US$38 million to Merchant Bank of Central