performance and the first three variables in the table are positive. Of
aQ the variables, per capita income and the volume of transactions are
most significant This means that the influence of the rate of inflation and degree of regulation on capital markets performance are minimal as compared with the more significant factors.
66. Lessons from the African experiences in capital markets development over the past two decades could be distilled from a few key developments which were evident in the international financial system over this time period. These key developments include:
(a) increasing reforms and liberalisation of financial markets;
(b) growing intemationalisation of capital markets;
(c) changing institutional structures of financial markets;
(d) tightening of prudential regulation of financial systems;
(e) general inhibiting factors which are more prevalent in Africa vis-a-vis other countries;
(f) promotional programmes for capital markets through the education of the public;
(g) privatization of public enterprises and capital markets development;
(h) mobilization of foreign direct investment (FDI) resources through capital markets; and
(i) debt conversion schemes such as debt-equity swaps and the intemationalisation of securities.
67. Financial reforms and liberalisation are globally on the ascendancy.
They were implemented in developed countries and to some extent in some developing and emerging economies especially in the mid 1970s and 1980s. For example, in the US the Securities Act Amendments of 1975 deregulated commission rates on stock transactions and fostered a national network in securities; similar deregulation was effected in Canada (1983), Australia (1984) whilst with the 1986 "Big Bang' the U.K. prompted major reforms involving market structure, competition, liberalisation of commission rates, trading and foreign participation in the U.K. financial system. Comparatively, reform, especially the liberalisation, of capital markets in Africa has been insignificant Some
progress has, nevertheless, been made in /orexampMimbabwe, Nigeria, Botswana, and Kenya.
68. The growing intemalisation of capital markets is another lesson for African countries. The 1980s and the 1990s have witnessed significant
acceleration in the intemalisation of capital markets, both debt and equities. This development has been prompted largely by improved communication technology especially the computer, the realisation by national markets that the widening resource gaps could be filled fromoutside national borders through capital markets, domestic restructuring
and liberalization efforts in many economies, and the freeing up of previously existing constraints on investments by normationals indomestic economies. According to IFC, in 1991, in particular, Korean, Indonesian, Thai, Malaysian and several Latin American countries floated
new issues of bonds and equity on international capital markets, as in recent years. At least 10 international funds for Latin America were organized during this year, raising some US$635 mfllion. This was over and above another 6 country funds raising another US$400 million, being a small part of the same 15 new closed-end and several open-endfunds most of which were floated internationally. Reasons for this
tremendous success will have to be more systematically studied by African countries. It is evident that the reasons hinge on the creation of a conducive political and business climate but the costs and benefits must be determined from (he perspective of African countries.69. The USA's ratification of the North American Free Trade Area (NAFTA) agreement gave a fillip to share prices in Latin America. At the end
of January 1994 the combined capitalisation of markets in Brazil,
Argentina, Chile and Mexico was some US$450 billion. Though East Asia and Latin America are expected to be the fastest-growing in the world, shares are cheaper and better yielding in Latin America. Investors expect more gains in the latter in view of the feet that, except for Chile, most countries' stock markets are still smaB relative to their economies as measured by the ratio of the market value of shares togross domestic product (GDP)29/. For example,the market value of all
the shares quoted on the Argentinian stock market was only 13% of
the country's GDP at the end of 1993; and Brazil's market capitalisation
was just 21% of its output (GDP); compared with 98% for Chile's stock market and 313% for Malaysia's. In Africa out of some 12 stock marketsof some significance, only one had any true international issues between 1980 and 1991 contrary to the trend in more developed countries and other emerging markets. This poor performance of African countries in the intemalisatton of their markets could be attributed partly to the continued prevalence of financial repression, inward looking, almost protectionist concerns about the indigenisation of local markets and in some cases the lack of the necessary infrastructure for capital markets development As noted earlier, the market creditworthiness rating of several African countries have improved since 1991. Similarly more and more equity funds involving African countries are being established at the international level. The prospects for the intemationalisation of African capital market securities are therefore good
70. Changing institutional structures of financial markets have become evident in the institutional structures of financial intermediaries in developed countries. Between 1970 and 1990 it has been observed that the composition of financial markets in the developed economies has changed somewhat, with bank-based institutions playing less of a role than earlier. In Africa , on the other hand, banking systems have continued to dominate the financial system and limit institutional change.
Although in recent years the growth of institutional investors has been quite significant in Nigeria, Botswana, Zimbabwe and South Africa it is also significant to note that unit trusts, for instance, still continue to be non-existent in Zimbabwe, Kenya, Cote d'ivoire, Egypt, Tunisia, Botswana and Morocco.
71. As the process of capital market reforms, especially restructuring and liberalisation take root in an economy.the tightening of prudential regulations tends to be imperative. Because of the sensitivity of capital markets to questionable developments and the far-reaching negative impact on the economy, an efficient system of prudential regulation and supervision becomes necessary at all times. The disastrous bankruptcy of the Bank of Commerce and Credit International (BCCI) is a case in point The experience of prudential regulation of capital markets in Africa has been mixed. A number of factors continue to constrain the structuring of adequate regulatory systems for African capital markets, especially the securities segments of these markets.
These bottlencks include the continued involvement by regulatory authorities in pricing new issues (Nigeria), excessive bias in favour of
credit institutions relative to securities institutions and relatively high rates of taxation of equity instruments (15% on avergae for capital gains tax versus 11% and 6% for Latin America and Asia, respectively).
72. General factorswhich tend to inhibit Hie development of capital markets in Africa idude inadequate training and development of relevant human skills;lack of tiqwdityjpoor information disclosure; high level of capital gains; taxes; imperfect market protection; questionable pricing formula;
dominance of family businesses; low savings level; excessive inflation;
market concentration; political instability; prevailing rigid exchange control regimes and the overwhelming invohwnentofgovetnments.lt is instructive to note that, insplte of the foregoing bottlenecks, several African countries have continued to prepare the foundation for the establishment and develoment of capital markets. What should be dooe to speed up the process ut the subject matter of the concluding chapter of this study.
73. The Ghanaian experience includes the establishment of a Marketing