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Association of African Stock Exchanges Johannesburg September 20, 2006 Alison Harwood International Finance Corporation Agenda What is ESMID? ESMID and Regionalization Partnerships and Alliances Comments and Reactions ESMID: What Is It? “Efficient Securities Market Institutional Development” 3 year, $5 million program to strengthen securities markets and products in Africa Partnership of SIDA, IFC, World Bank, OMX Promotes long term local currency financing to support mainly housing and infrastructure development Improves securities markets and facilitates individual transactions The ability to do a transaction is the beacon guiding ESMID’s operations Need for Securities Markets/Products Rising with Economic Growth The demand for housing and infrastructure is rising rapidly in EMCs from economic growth Infrastructure alone requires an estimated 5.5% of EMC annual GDP (over $.5 billion per year). Public sector financing only covers 2-4% of GDP. Significant additional funding is needed. Much of this funding in industrialized countries comes from securities markets--bonds, structured finance, equity—which provide long term, local currency funding. Most African’s securities markets/products need to be significantly strengthened to meet these rising demands Domestic Government Securities Short Term Maturities Dominate Simple average Botsw ana South Af rica Mauritius Sw aziland < 1 year Kenya Namibia 1-5 years Zambia > 5 years Tanzania Ghana Nigeria Uganda 0% 20% 40% 60% 80% 100% Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001 Investor Base Banks are the primary holders of GS in the region 100% Other 80% Insurance 60% Pension 40% NBFI 20% South Africa Ghana Nigeria Kenya Mauritius Tanzania Swaziland Zambia Uganda 0% Central Bank & other public institutions Commercial banks Note: Kenya includes government stocks (mainly held by “Other”), Swaziland – Other holders are primarily institutional investors Building Markets, Facilitating Transactions What does ESMID Do? Regulators Government Market Infrastructure Rating Agencies Marketplace (trading, clearing, depository) Issuers Market Participants Investors Securities Firms Direct: Indirect: Facilitate Transactions Build Securities Markets Provide TA to: • Create enabling environments • Build market Infrastructure • Strengthen market participants Markets to be supported: • Primary – public, private • Secondary + Provide $ to create workable, replicable transactions • Structuring • Documentation • Ratings • Legal fees Transactions examples: • Bonds: straight, covered • Securitization/Structured finance • Government / non-government How ESMID Operates Project Selection - Country Diagnostics Programs Projects Outside proposals that fit ESMID’s strategic focus and goals Key Guidelines - Focus on few targets with high potential impact Create long term, integrated programs of reinforcing activity Build strong local partnerships and alliances Complement related efforts of others. No redundancies. The goal: have a small number of high impact projects that demonstrate possibilities and are replicable ESMID Operating Structure Advisory Group Steering Committee Strategic Focus Governance PEP- Africa • Overall supervision • Back office PROGRAM MANAGER Manages all program operations Country Program/ Project team • • • • • IFC/ WB specialists IFC/ WB regional staff Partner staff Technical Country Staff Consultants Technical Country Staff • • • • Support country projects Prepare materials for SC Maintain Consultants Info Coordinate Donor/Info Success Factors: Inputs, Approach, Impact • World Class Expertise • • • • • • Industry and Government Practitioners Global Product Specialists Global Emerging Market Experience Global Alliances (Exchanges, etc.) Local Knowledge Presence Local Alliances • Integrated, Comprehensive Programs • Longterm Commitment • Practical • Transaction Geared Improved ability to finance Infrastructure and housing + through securities markets and products Regionalization Regionalization and integration are key operating themes for ESMID Though not exclusively, ESMID will largely work with clusters of countries where changes have the potential to reverberate across several nations, i.e. East Africa, West Africa CFA Regionalization remains a difficult task but seems more probable today, largely due to changes in technology and attitude We will seek out the most appropriate form of regionalization for the work underway: Cross-listings Linking local brokers electronically to facilitate cross-border trading Sharing operating platforms and retaining local regulation over areas such as issuing securities and licensing intermediaries Designing transactions that suit the needs of a sub-region Etc. Local Alliances One Point: Local alliances and partnerships are critical to ESMID’s success: • Industry Associations • Development Banks • Government Regulators Current Status Currently setting up core field team First Steering Committee Meeting tomorrow Identifying first group of target countries to begin East Africa? Nigeria? Other End We welcome your comments and suggestions. Thank you very much!