27 Nov 2019

-  The development of capital markets is an important component of the financial sector as it supplements the banking system in economic development. Acting secretary of Economic and Financial Policy in the Ministry of Finance and Economic Development, Ms Elaina Gonsalves said this at the 23rd annual African Securities Exchanges Association (ASEA) conference in Kasane on Tuesday.

Ms Gonsalves said capital markets assisted in price recovery, liquidity provision, reduction transaction costs and risk transfer, further noting that they reduced information cost through generation and dissemination of information. She said well-developed securities markets were a backbone of any financial system and all systems in Africa, adding that apart from providing means or channeling funds for investment purposes and pricing of assets, they served as a barometer of financial health of the economy.

She said however Africa faced numerous developmental deficits estimated at US$107.5 billion per year, according to the African Development Bank.

Ms Gonsalves said other challenges included slow development of capital markets and challenges of attracting Foreign Investment, adding that capital markets were well positioned to drive Africa’s growth given their mandatory role of fostering capital formation and enabling efficient allocation of capital resources.

She cited that security exchanges played a pivotal role as platforms for mobilising long term savings for efficient deployment in various sectors of the economy.

Ms Gonsalves said the continued reforms in the continent’s industry and the growing commitment to creating an enabling regulatory environment had been some of the major factors that helped unleash Africa’s vast institutional financial capacity so as optimized growth.

In Botswana, she said, there was an established regulatory impact authority in order not to draft any new legislation unless an assessment on the negative possible impact it could have on the industries that were being regulated had been done.

She noted that the capital markets bridged the SMMEs financial gap, adding that statistics from the World Bank revealed that SMMEs provided about 45 per cent of the jobs and contributed 33 per cent of GDP in emerging economies.

Despite the important role they play in the economies, SMMEs face significant constraints such as access to finance, she added. She said the World Bank further suggested that 70 per cent of SMMEs in emerging markets struggle with access to credit, noting that in a way ministries of finance, central banks and intelligence units were responsible for the struggle in that the requirements set were so strong and many SMMEs owners did not have fixed addresses and could not open bank accounts.

She said after the realisation of the struggle some governments set up development financial institutions to fund SMMEs with appropriate terms and conditions. ENDS