Regional Snapshot ofRegional Snapshot ofGovernment Bond Markets in Africa Government Bond Markets in Africa

and Challenges of developing and Challenges of developing active bond marketsactive bond markets

Mauritius, December11, 2003

Sunil Benimadhu

The Stock Exchange of Mauritius

Presentation OutlinePresentation Outline

Statistical overview of the evolution of capital markets in Africa, with a particular focus on Government Bond Markets

Prerequisites to the development of an active market for Government securities

Potential benefits of an active market to Sub-Saharan African economies

Capital markets environment in Capital markets environment in Africa has undergone a major Africa has undergone a major change in recent years due to:change in recent years due to:Implementation of structural adjustment

programmesPursuit of market oriented policies by

African Leaders

Statistical Data on African Stock Statistical Data on African Stock Markets(Ex South Africa)Markets(Ex South Africa)

1988 1997 2002

No of stock exchanges 6 14 19

Market capitalisation of African Stock Market

(US$Billion)

5.5 49 66

Value traded(US$Billion)

0.16 8.6 6.5

No of listed companies 788 1180 1760

Indicators of stock market Indicators of stock market development(1997-2002 mean values, development(1997-2002 mean values,

End of period)End of period)

Countries No of Listed Cos MCAP/GDP

(%)

TVT/MCAP

(%)

Botswana 15 20.81 5.25

Ghana 22 13.30 3.23

Mauritius 40 38 7

Zimbabwe 69 71.95 16.48

Kenya 23 13.80 4.23

Egypt 980 29.46 23.85

Thailand 422 30.78 84.82

Brazil 471 28.70 55.14

Turkey 288 32.35 148.95

Poland 205 15.63 37.73

Malaysia 778 135.54 48.48

Size of Bond markets Size of Bond markets Wide disparity in size of markets in the regionWide disparity in size of markets in the region

Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001

0

10

20

30

40

50

60

South

Afr

ica

Nig

eria

Ghana

Zam

bia

Kenya

Tanzania

Uganda

Mauritius

Nam

ibia

Bots

wana

Sw

azila

nd

US

$b

illio

n

External debt Domestic government securities Other debt

Size of the market Size of the market Most countries in the region rely on external debtMost countries in the region rely on external debt

Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001

0

50

100

150

200

250

Zam

bia

Ghana

Uganda

Nig

eria

Tanzania

Kenya

Mauritius

South

Afr

ica

Sw

azila

nd

Nam

ibia

Bots

wana

Aggre

gate

% o

f G

DP

Domestic debt External debt

Size of the market Size of the market Reliance on external debt still widespreadReliance on external debt still widespread

Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001- 2003

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

MENA SSA LAC EAP ECA

% o

f G

DP

External debt Domestic debt

Domestic GS compositionDomestic GS compositionLimited non-marketable GSLimited non-marketable GS

Non-marketable securities consist of : Tanzania – Government stocks ;Ghana –Tema Oil Refinery bonds (stocks not included) ; South Africa – Former Homeland Bonds ; Nigeria T-bonds

-

20

40

60

80

100

Tanzania

Nig

eria

Ghana

South

Afr

ica

Kenya

Mauritiu

s

Zam

bia

Nam

ibia

Bots

wana

Sw

azila

nd

Uganda

Marketable securities Non marketable securities

Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001

Domestic marketable GS Domestic marketable GS T-bills are dominantT-bills are dominant

0% 20% 40% 60% 80% 100%

Botsw ana

Sw aziland

South Africa

Kenya

Zambia

Namibia

Tanzania

Mauritius

Ghana

Uganda

Nigeria

Simple average

Fixed

T-bills & otherdiscountpaperIndexed

Variable

Domestic GS compositionDomestic GS compositionFixed rate securities dominant in EAP and MENAFixed rate securities dominant in EAP and MENA

0%

20%

40%

60%

80%

100%

EAP MENA LAC SSA ECA

Fixed T-bills & other discount paper Variable Indexed

Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 2001-2003. LAC T-bill breakdown unavailable.

Domestic GS by tenorShort term securities dominant

Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001

0% 20% 40% 60% 80% 100%

Uganda

Nigeria

Ghana

Tanzania

Zambia

Namibia

Kenya

Sw aziland

Mauritius

South Africa

Botsw ana

Simple average

< 1 year

1-5 years

> 5 years

Domestic GS by tenorDomestic GS by tenorLonger term securities most common in EAPLonger term securities most common in EAP

0%

20%

40%

60%

80%

100%

ECA SSA MENA LAC EAP

<1 year 1-5 years >5 years

Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001-2003

Summary-Secondary marketSummary-Secondary market

Banks are dominant holders of GS, as well as public sector.

Securities to retail investors issued in Botswana, planned in South Africa & Nigeria

Secondary market liquidity still shallowRepo markets are active in most countries

Investor BaseInvestor BaseBanks are the primary holders of GS in the Banks are the primary holders of GS in the

regionregion

Note: Kenya includes government stocks (mainly held by “Other”), Swaziland – Other holders are primarily institutional investors

0%

20%

40%

60%

80%

100%

Uganda

Zam

bia

Sw

azila

nd

Tanzania

Mauritiu

s

Kenya

Nig

eria

Ghana

South

Afr

ica

Other

Insurance

Pension

NBFI

Central Bank &other publicinstitutionsCommercialbanks

Investor BaseInvestor BaseDirect and indirect requirements to hold GS are Direct and indirect requirements to hold GS are

commonplacecommonplace

0%10%

20%30%

40%

50%60%

70%

80%90%

100%

LAC SSA EAP MENA ECA

Banks Public sector Other

Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 -2003

Prerequisites for the development Prerequisites for the development of an active Government debt of an active Government debt

market market Broadening the investor base Developing active money markets Developing benchmarks Mark to market practice Broadening the range of instruments Market transparency Clearing and Settlement System Existence of a trading culture and of traders well-

versed in fixed-income trading techniques

Potential benefitsPotential benefits

Benefits to the investorMicro-economic & Sectoral

BenefitsMacro-economic benefits

Benefits to the investorBenefits to the investorBroadening of the range of instruments

availableLiquidity of instrumentsAbility to trade instruments in an efficient

and transparent mannerSwitching opportunities available

depending on investor’s rating of different instruments

Efficient Price discovery mechanism

Micro Economic & Sectoral Micro Economic & Sectoral BenefitsBenefits

Improve financial intermediation and promote competition and development of related products & Services

Change financial system from a primarily bank oriented to a multi-layered system where capital markets can complement bank financing

Facilitate emergence of corporate bond market Reduce cost of funds for companies

Macro-economic BenefitsMacro-economic Benefits

Strengthen the transmission and implementation of monetary policy

Enable the use of market based indirect monetary policy

Develop a benchmark yield curve which become the guiding reference for other instruments and institutions

Set the stage for an effective integration of different subsectors of the economy

Reduction of debt-service costs for government

Thank youThank you