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ASEA CONFERENCE IN GHANA Presentation- James Murigu

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					   ASEA CONFERENCE IN ACCRA

             TOPIC:

RECENT DEVELOPMENTS IN AFRICAN
       CAPITAL MARKETS

     28th – 30th OCTOBER 2007
           PRESENTED BY

           JAMES MURIGU

       MANAGING DIRECTOR

  SUNTRA INVESTMENT BANK LTD
  (Members of Nairobi Stock Exchange)

P. O. BOX 74016 – 00200 NAIROBI, KENYA
         TEL: 254 – 20 – 2870000
         FAX: 254 – 20 - 2224327
        EMAIL: info@suntra.co.ke
        website: www.suntra.co.ke

       28TH – 30th OCTOBER 2007          2
                          WHO IS SUNTRA?:


Suntra is an investment bank licensed by the Capital Markets Authority and offers a
      wide range of investment banking products and services.

Specializes in:

1.    Capital Raising in the market through:
     a)   Initial Public offers
     b)   Private Placements
     c)   Corporate bond programmes
     d)   Loan syndications


Contd….


                                                                                      3
                        WHO IS SUNTRA?:

2.   Is an active player in Kenya Government bonds programme

3.   Manages Unit Trusts and Mutual Funds

4.   Offers a wide range of investment advisory services

5.   Provides both in-house and open workshops seminars and diversified training
     programmes




                                                                                   4
      RECENT DEVELOPMENT IN AFRICAN
             CAPITAL MARKETS


KEY OBSERVATIONS:

Third world countries are generally poor: -

1.   Not because they do not have resources but because the
     resources they have are so poorly structured that they do not
     help those countries



                                                                     5
       RECENT DEVELOPMENT IN AFRICAN
              CAPITAL MARKETS

2. Because of poor attitudes towards the following:

•     Ethics, as a basic principle
•     Integrity
•     Responsibility
•     Respect to the laws and rules
•     Respect to the rights of other citizens
•     Work loving
•     Strive for saving and investments
•     Will of super action
•     Punctuality




                                                      6
RECENT DEVELOPMENT IN AFRICAN
       CAPITAL MARKETS
 General observations of African Capital Markets:

     The past has been characterized by the dominance of
      commercial banks as source of all types financing.
      Unfortunately this dominance has been one of the biggest
      obstacles to the development of the capital markets in Africa

     The collapse of Development Banks removed the only source of
      source of long term funds.

 3.   Fortunately this is slowly changing across African capital
      markets as players start seeing the significance of the capital
      markets as alternative source of long term financing e.g. Kenya,
      Nigeria, Tanzania, S.A, Egypt, Ghana and Botswana and a few
      others.




                                                                         7
      RECENT DEVELOPMENTS IN AFRICAN
              CAPITAL MARKET

What is helping the growth of capital markets?

1.    Maintenance of a macro-economic stability characterized by:
           Low and stable interest rate
           Low level of inflation
           Stable and sustainable exchange rates

2.    Growth and reforms in the retirement benefits industry – boosted the capitals
      markets e.g. in Uganda,Nigeria,Kenya,Tanzania,Ghana,Zambia & Botswana etc
      by providing long term funds. There is now a need for the segregation &
      funding of Govt. employees retirements benefit schemes.

3.    Stable and predictable political environment



                                                                                      8
      RECENT DEVELOPMENTS IN AFRICAN
              CAPITAL MARKET
4.    Great awareness realized through taking knowledge to the people

5.    Growth and development in ICT and mobile telephony

6.    Reforms in the insurance sector

7.    Reforms in the banking sector

8.    Government privatization programs

9.    Growth of rating agencies – crucial for the development of the debt market

10.   Development and strengthening of regulatory frameworks

                                                                                   9
          RECENT DEVELOPMENTS IN AFRICA
               CAPITAL MARKETS
Some key observations:

1.    A successful government bond program is a pre-requisite for successful
      corporate bond program because it provides a yield curve which is a useful
      benchmark for structuring corporate bonds.

2.    The collapse and irrelevance of development banks in most African
      countries that used to provide long-term finance has not helped and
      funding in foreign currency was not attractive.

3.    Universal banking has not translated into availability of long-term funding
      since sources of funds are still short-term in tenor.

4.    Inability and inefficiency of local banks to provide long term finance is
      slowly leading to the growth of the capital markets to bridge the gap.

Contd….

                                                                                    10
     RECENT DEVELOPMENTS IN AFRICAN
             CAPITAL MARKET
5.   There is a strong need for tapping funds for financing infrastructure i.e. roads,
     railways, electricity, airports etc through the capital market

6.   Absence of locally based venture capital funds is a hindrance to development
     of African capital markets- there are no funds for promising initiatives.

7.   The few foreign venture funds provide financing in foreign currency in a
     mixture of loans and equity but very stringent terms – currency risk exposure
     is a major disincentive.

8.   There is need to encourage locally based venture capital funds – they would
     understand local business environment and lend in local currency.




                                                                                     11
 RECENT DEVELOPMENTS IN AFRICAN
         CAPITAL MARKET
9.    Emergence of units trusts & mutual funds as alternative vehicles for
      mobilizing savings and investments i.e. Kenya, Uganda, Nigeria, Tanzania is
      encouraging. It is worth to note that units trust always existed but in
      disorganized forms i.e. land buying companies, informal groups, co-operatives
      investment groups.

10.   There has been a limited development of rating agencies-which is supporting
      capital markets – there is need for sovereign ratings of the respective countries
      to internationalize the ratings. Rating agencies are essential particularly for the
      fund income market.

11.   There is an urgent need for the development of over the counter market (OTC)
      to encourage private placements, private equity capital raising, debt raising, by
      providing exit mechanisms.


                                                                                       12
        RECENT DEVELOPMENTS IN AFRICAN
               CAPITAL MARKETS
Products offered in some African Capital markets:

1.    Equities

2.    Fixed income securities

3.    Derivatives

4.    Securitization transactions

5.    Structured Medium Term Notes(MTNs)

6.    Structured finance

7.    Subordinated debts

                                                    13
     RECENT DEVELOPMENTS IN AFRICAN
            CAPITAL MARKETS

8.   Inflation linked products i.e. inflation linked bonds for countries with history for
     high inflation.

9.   Islamic banking products




                                                                                       14
RECENT DEVELOPMENTS IN AFRICAN
       CAPITAL MARKETS
 CHALLENGES FACING AFRICAN CAPITAL MARKETS


 1.   Lack of legal and regulatory frameworks for issuance of innovative products i.e. asset
      backed securities, securitized products, venture capital etc.

 2.   Dominance by commercial banks as a source of financing has crowded out capital
      markets

 3.   Issues of efficiency & real-time availability of market information

 4.   Weak corporate governance structures, information reporting and transparency

 5.   Lack of capacity, skills, expertise.

 Contd…..


                                                                                          15
CHALLENGE RECENT DEVELOPMENTS IN
 AFRICAN CAPITAL MARKETS S FACING
      AFRICAN CAPITAL MARKETS

CHALLENGES FACING AFRICAN CAPITAL MARKETS


6.   Liquidity issues

7.   Globalization




                                            16
  FUTURE SOURCES OF FINANCING FOR
     AFRICAN CAPITAL MARKETS

There is need to link with the international financial markets. However
      corporate governance and disclosure standards demanded are much
      higher

Debt markets:
    Securitization of export receivables
    International syndicated loans
    Eurobonds issues
    International Bonds

Equity Markets
     International & cross border listing.



                                                                          17
   END



THANK YOU



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