DG Welcome Remarks Africa Regional Market Development Conference by pHIXRdKl


									                Africa Regional Market Development Conference, 2009
Towards Effective Regulation and Development of an Efficient Capital Market in Africa

                                                                                           September 14- 18

                                                                                  La Palm Royal Beach Hotel

                                                                                                Accra, Ghana

                                             Welcome Remarks

                                                Nii K. Sowa
                                             Director General
                               Securities and Exchange Commission, Ghana

Dear participants, invited guests, ladies and gentlemen, you are all cordially welcome to this important
training session involving members of the securities industry. For those of you visiting Ghana for the
first time, we say “Akwaaba” and encourage you, time and programme permitting, to sample the
proverbial Ghanaian hospitality while you are here.

This training session is the fourth in a series, and probably the last (I hope not!), initiated in 2005 by the
United States Securities and Exchange Commission, with support from the United States Agency for
International Development, to enhance knowledge in securities market regulation in Africa. The
Securities and Exchange Commission in Ghana is very happy to partner the US-SEC in this laudable
venture. It is our hope that this will begin a relationship of cooperation between the two sister
institutions to the mutual benefit of our markets.

The theme for this workshop, “Towards Effective Regulation and Development of an Efficient Capital
Market in Africa”, encapsulates the challenges faced by most regulatory agencies in Africa. Low levels of
financial literacy and the shallowness of our financial markets mean that the regulator must be
ambidextrous, and tackle with equal measure the issue of developing the market as well as regulating it.
This task can be daunting and can sometimes lead to conflict. In an attempt to create a fair and level
play-ground for investors and capital market operators, a regulator can be accused of stifling the
development of the market. Thus, it is not unusual for a regulator to be accused of heavy-handedness in
the application of the law, when in fact all she or he is enforcing is just basic principles to keep a market
clean. On the other hand, a lax regulatory regime engenders issues of moral hazard. Market infractions
soon become the norm, a la Gresham’s Law, if regulators turn a blind eye. Clearly, striking the right
balance between market development and regulation is essential for the creation of an efficient capital
market. Proper training is essential in this venture and hence the importance of this workshop.

Ladies and gentlemen, the securities industry has come under intense pressure over the last couple of
years. This started with some failures in the US mortgage industry, spread to Wall Street, then over to
the financial markets in the advanced economies, which then spread its devastating career around the
globe by infecting almost all economies everywhere. We in Africa felt insulated from the first round of
the crisis because of an apparent decoupling of our financial market from the rest of the world on
account of its smallness. It is now evident that we cannot escape the second round impact.

The fact of the financial crisis having led to serious recession in most developed economies meant that

       Our exports would suffer, as demand from the developed countries slowed down
       Our remittances would suffer, as some of our compatriots resident abroad are laid-off
       Our international inflows would suffer, as our multilateral donors now have to spread the
        limited resources around a larger number of needy countries.

These will certainly impact on resource mobilization in our countries and by extension, our capital
market activity will suffer. We must be ready to devise new ways of rejuvenating our markets and at the
same time be vigilant in regulating the markets.

Since the crisis, there have been calls for tougher regulatory enforcement mechanisms. But we can only
enforce the rules and regulation if we ourselves not only know and understand the rules but even more
importantly appreciate the spirit of the law. Why were the rules made; and who, or what do they
protect? An appreciation of the spirit of the law brings out clearly the ethics which must guide operators
in this sensitive industry. This can lead to the development of a peer-monitoring process in which no one
is allowed to take any action that weakens the underlying confidence so essential to the operations in
the financial sector. Ladies and gentlemen, compliance is best when it becomes an ethical issue. This
appreciation of the spirit of the law that guides our operations can come through training and refresher
courses such as the one taking place here.

For us in Africa training sessions such as this hold an even more important agenda – the creation of an
efficient regulatory framework to support pro-poor growth.

Africa’s growth record is at best mediocre. While other regions have shown promise of strong growth
prospects, Africa struggles to get out of the doldrums. Real per capita GDP growth rates have been
declining in Africa since the 1960s or probably earlier. For the last two decades, the growth rate of real
per capita output for Africa has been negative, while other regions have been showing strong positive
growth rates. Although such generalization obliterates important regional and country differences, in
the main, a common feature across the continent remains the general impoverishment of its population.

This poor performance is in spite of nature’s generous bequest to Africa. Gold, diamonds, copper, and
oil abound on the continent, as well as more than half of the world’s cobalt and manganese, one third of
bauxite and more than 80% percent of platinum and chromium. The rich vegetation and water bodies
on most part of the continent provide the basis for good agricultural produce. So why is Africa poor?

Most African countries have reformed their systems of economic management and modified their
political system, yet these are far from yielding growth rates high enough to cause dramatic reduction in
the incidence of poverty on the continent.

A school of thought that is gaining currency argues that the missing ingredient is an appropriate
regulatory framework. By regulatory framework we mean the elements of the development apparatus
that support a well-functioning market. The term is sometimes used loosely to refer to the institutional
endowment of a country, and includes formal constraints – such as constitutions, laws and rules – and
informal constraints such as conventions, customs and norms of behaviour. The regulatory framework
sets the parameters within which production and distribution must take place. Thus with a proper
regulatory framework, property rights are well defined, information asymmetry is minimized, social
justice is ensured and productivity is set to the optimum.

A good regulatory framework must have explicit statements of goals, principles and rules that control
behaviour, procedures for explicating and enforcement, procedures for the adjudication of disputes,
capacity building on regulatory issues and strong consumer organizations to strengthen advocacy roles.
The key determinant of regulatory efficiency, ladies and gentlemen, is clarity and coherence in
legislation and policy. These factors are essential for the formulation of a sound regulatory framework.

As argued by Hernando de Soto, without a proper framework to define property rights, the capital which
the poor already own are “dead”. By extension, without proper regulatory framework, the nature
endowed resources of Africa are dead. Any asset whose economic and social aspects are not fixed in a
formal property system is extremely hard to move within a market economy. Capital is the force that
raises the productivity of labour and creates the wealth of nations. But capital works only when it has
qualities such as title, security, contract and other such legal representations in writing. The formal
property representation provides information, references, rules and enforcement mechanisms and
therefore functions as the tool to produce surplus value over and above the physical asset.

Thus, by developing laws and regulations that govern property rights, the “dead” assets the poor already
own are turned into productive assets. On the other hand, if we fail to develop the regulatory
framework that can unleash the full potential of capital, those who labour, as it were, do so in vain. And
Africa will continue to be poor.

It is our hope and belief that this training session will offer us the tools for solidifying our regulatory
framework in finance to enable African countries create more wealth and grow out of poverty.

Once again let me welcome you to Ghana. Have fun and establish networks.

Thank you.


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