The Experience of Financial Markets Regulation in the Southern African Region

26.07.2020

State of financial markets in the South African region

By the end of 1994, there were 14 stock exchanges throughout the African continent. These were Cairo (Egypt), Casablanca (Morocco), Tunis (Tunisia) in North Africa; Abidjan (Cote d'Ivoire), Accra (Ghana), and Lagos (Nigeria) in West Africa and Nairobi (Kenya) in East Africa. In the Southern African region, they were Windhoek (Namibia), Gaborone (Botswana), Johannesburg (South Africa), Port Louis (Mauritius), Lusaka (Zambia), Harare (Zimbabwe and Mbabane (Swaziland). In 2005, most of Southern Africa Other countries have developed their own stock exchange markets. They are Maputo (Mozambique), Dar-es-Salaam (Tanzania) and Luanda (Angola).

With the exception of the Johannesburg Stock Exchange, and on a different level, the Zimbabwe Stock Exchange and the Namibia Stock Exchange, these markets are much smaller than developed markets in Europe and North America, and also in other emerging markets in Asia. Latin America. At the end of 1994, there were approximately 1150 listed companies in the African markets. The market capitalization of listed companies was $ 240 billion for South Africa and about $ 25 billion for other African countries.

In the countries under review, the stock markets are particularly small compared to their economies - with capital to market capitalization ratio of 17.3 percent on average. The limited supply of securities in the markets and the current buying and holding attitude of most investors have also contributed to lower trading volumes and turnover ratios. Turnover is poor on most stock exchanges with less than 10 percent market capitalization annually. The low capitalization, low trading volume, and turnover would suggest the embryonic nature of most stock markets in the region.

We have collected considerable information about the current state of financial markets in Africa in general, and due to a limited time frame, it was not possible to consolidate, analyze, and reconcile them. The format of this article may not allow all figures to be taken into account. From the latest information, it becomes clear that with the ongoing reforms within the financial sectors in the countries under investigation, much progress has been made in terms of regulatory and institutional capacity building. We can expect more results with the promotion of more open investment rules, which can lead to greater financial flows in the region.

Experience regulating financial markets in Southern African countries

The financial systems of southern African countries are characterized by a high ownership structure, resulting in oligopolistic practices that create privileged access to credit for large firms but limited access to small and emerging companies. The regulatory framework must take into account all the distinctive features of these systems, and at the same time keep the general approach inherent to every regulatory instrument.

Financial systems in Southern Africa are also known for their adaptations. Some systems, such as Mozambique, Angola, and Tanzania were for a long period, mainly government-owned, consisting mostly of central banks and very few commercial banks. To date, Angola has not developed money and capital market, and informal money markets are used extensively. Other systems had mixed ownership with central banks, public, domestic, private, and foreign private financial institutions. These can be further subdivided with rich varieties of institutions such as South Africa, Mauritius, and Zimbabwe, and with other limited institutions, such as those found in Malawi, Zambia, Swaziland, etc.

Regulatory authorities in these countries adopted a policy of financial sector intervention in the hope of promoting economic growth over the years. Control of interest rates, loans directed to priority sectors, and acquiring bank loans below-market interest rates to finance their activities, later turned out to weaken the financial system rather than promote economic growth.

For example, low lending rates encouraged less productive investment and discouraged savers from holding household financial assets. Credits directed to priority sectors often deliberately default on the belief that no court action can be taken against defaulters. In some cases, concessional loans rarely reached their intended beneficiaries.

There was also a tendency to concentrate on formal financial institutions in urban areas, which made it difficult to provide loans to people in rural areas. In some countries, there was a considerable rush of private sector borrowing by public sector lending. Small firms often had great difficulty obtaining funding for finance businesses from formal financial institutions. Finally, the tendency of governments in the region to incur losses through the creation of the public sector resulted not only in inflation but also in negative real interest rates on deposits. These factors had adverse consequences for the financial sector. First, savers found it uncontrolled to invest in financial assets. Second, it generated a flight of capital among those who were unable or unwilling to invest in real property, thereby limiting the financial resources that were made available for financial intermediation. African countries were coupled with a dwindling influx of resources since the 1980s.

A viable financial market can serve to make the financial system more competitive and efficient. Without equity markets, companies have to depend on internal finance through retained earnings. Large and well-established enterprises, especially local branches of multinationals, are in a privileged position, as they can invest from retained earnings and bank lending while new indigenous companies do not have easy access to finance. Without being subject to market scrutiny, large firms grow up.

The availability of reliable information will help investors compare companies' performance and long-term prospects; Corporation for better investment and strategic decision making; And provide better figures for economic policymakers. Although efficient equity markets force corporations to compete for investors' funds on an equal basis, they favor large companies, suffering high volatility and focusing on short-term financial returns rather than long-term economic returns. Can be blamed for

In various countries where domestic bond markets exist, these typically dominate government treasury funding, which is necessary for private sector fixed interest rate financing. With minor exceptions, international fixed-rate bond markets have closed to African corporations. Thus the development of an active market for equity may provide an alternative to the banking system.

The development of financial markets can help strengthen the corporate capital structure and an efficient and competitive financial system. The capital structure of firms in southern African countries where there are no viable equity markets is usually characterized by a heavy reliance on internal finance and bank lending to increase the debt/equity ratio. The undercapitalization of firms with high debt/equity ratios reduces the viability and solvency of both the corporate sector and the banking system, especially during economic downturns.

A case study in select countries of South Africa

In all the countries under study, both the historical background, the level of development of the financial system and the importance of structuring and operating financial markets have significantly influenced the nature of the regulatory framework. However, there are some countries whose objectives of financial market liberalization were the basis for the development of modern regulatory systems. Mauritius and Botswana are examples that together with South Africa and Zimbabwe have arranged some of the most developed and diversified financial markets in sub-Saharan Africa. There is no doubt that the economic and financial conditions of the economies of individual Southern African countries have played an important role in shaping the regulatory framework of their financial markets.

1. Financial Markets in Botswana

An informal stock market was established in 1989, managed, and operated by a private stockbroking firm (Stockbroker Botswana Limited). In 1995 a formal stock exchange was established under the Botswana Stock Exchange Act. BSE performed remarkably in terms of the level of capitalization, the value of shares, and the return in shares. BSE contributed to promoting Botswana as a destination for international investment.

In 2004, the number of listed domestic companies was 18, while listed foreign companies were 7, and two in the venture capital market. The Bank of Botswana introduced its own paper, BoBCs, since 1991 for liquidity management purposes, and there is a growing secondary market for the instrument. In 1999, the Central Bank introduced Repos (Re-Purchase Agreements) and National Savings Certificates, another instrument intended to develop the local money market and encourage savings. In 1998, the International Financial Services Center (IFSC) was established to promote world quality financial services.

2. Financial Markets in Mauritius

The Government of Mauritius has decided as a priority to modernize and upgrade the financial system of Mauritius and recently took measures to strengthen the financial sector and integrate it with both the domestic economy and the global financial market. Huh.

Thanks to a well-developed network of commercial domestic banks, offshore banks, non-financial institutions, and financial institutions, the financial system is one of the most vibrant in the Southern African region.

The Stock Exchange of Mauritius (SEM) began its operations in 1989, with only five listed companies. In 2004, more than 44 companies were listed, and the range of activities has expanded, with cutting-edge technology being used in the deal.

In September 2001, the settlement cycle on SEM was reduced from five to three days to correspond with the major international stock markets. The short settlement cycle has since helped improve market liquidity and turnover as investors are able to sell their securities three days after purchase, thus reducing risk and through strict adherence to international standards to global markets. Bring better integration.

3. Financial Market in Mozambique

In 1978, all private banks operating in Mozambique were nationalized and merged into two state-owned institutions, Banco de Moçambique (Central Bank) and Banco Popular de Desenvolivo (BPD). After adopting a new economic orientation in 1992, the government implemented an economic reform program, including reforms in the financial sector. Foreign banks were allowed to invest in Mozambique and the regulatory and commercial activities of the Central Bank BDM were set aside. The Banco de Moçambique Central Bank assumed the ceremony, while the Banco Comercial de Moçambique BCM led the commercial banking sector.

The financial sector liberalization policy allowed new institutions. In addition to the already operated Standard Bank, liquidation of new banks or existing institutions charged since 1992 resulted in the Banco Intéritorial de Moçambique, Banco Comérial de Investimentos, Banco de Fomento, Banco Australia, African Banking Corporation ABC, BMI, UCB, ICB Are included. , Novo Banks, etc. Investment banks, leasing companies, and credit cooperatives are also there. This increased the number of financial and non-financial institutions, resulting in the development of an active financial sector.

In October 1999, the stock market of Mozambique (Bolsa de Valores de Moambique BVM) was inaugurated. Its regulatory agency is Central Bank BDM and its operations are still limited. With technical support from the Johannesburg Securities Exchange JSE and the Lisbon Stock Exchange, plans are underway to develop a state-of-the-art financial information center, including state-of-the-art information technology systems.

4. Financial Markets in Namibia

The Namibian Stock Exchange NSX is governed by the Stock Exchange Control Act of 1985. Amendments to the Act have recently been adopted to bring national laws in line with international standards.

NSX was founded in October 1992 and is the most technologically advanced bounce in Africa, and one of the few self-regulated financial markets in Southern Africa. The Namibian Stock Exchange Association, a self-regulatory, non-profit organization, is the custodian of the license to operate NSX. It approves listing applications, licenses stockbrokers, and conducts trading, clearing, and settlement of the exchange. Since 1998, NSX has used the most technologically advanced management tools available on the continent, enabling improved monitoring and enhanced customer security.

5. Financial Markets in South Africa

The South African financial market system is most sophisticated and complex with the vibrant Johannesburg Securities Exchange (JSE), the South African Bond Exchange (BESA) and the South Africa Futures Exchange (SAFEX).

The Johannesburg Stock Exchange JSE was established in November 1887. Currently, it is governed by the Stock Exchange Control Act of 1985 [amended in 1998 and 2001]. The JSE is Africa's largest stock exchange and has a combined market capitalization of over 10 times that of all other African markets. The JSE provides technical support and capacity building, skills, and information to the following exchanges in the region: in Namibia, Mozambique, Mauritius, Tanzania and Africa (Nigeria, Ghana, Egypt, Uganda, and Kenya). Since 1999, the JSE has harmonized its listing requirements with the stock markets of Botswana, Malawi, Namibia, Zambia, and Zimbabwe.

In May 1996, BESA was charged under the Financial Markets Control Act of 1989 [as amended in 1998], and SAFEX was established in 2001 as the Financial Derivatives Markets and Agricultural Products Division of the JSE.

In June 1996, the JSE introduced a fully automated electronic trading system known as Johannesburg Equities Trading (JET) and has been using the Stock Exchange Trading System (SETS) since May 2002.

6. Financial Markets in Swaziland

The Swaziland Stock Market (SSX) was established in 1990 to promote local investment opportunities. In 2002, five companies were listed. SSX has developed new listing requirements in line with new international regulatory standards. A new security bill has been approved in 2002 and should be in force by now. This will allow licensing and regulation of all securities markets, operations, and participants.

7. Financial Markets in Tanzania

The Dar-es-Salaam Stock Exchange (DSE) was incorporated in September 1996 under the Capital Markets and Securities Act 1994. Although its operations did not begin until April 1998, with the listing of the first company. In October 2002, foreign companies were allowed to operate on DSE. Its regulatory agency is the Capital Markets and Securities Authority (CMSA). Plans are underway to secure increased financial resources from global markets.

8. Financial Markets in Zambia

The Lusaka Stock Exchange (LuSE) was created in February 1994 under the Securities Act of 1993. It is regulated by the Securities and Exchange Commission (SEC). Its operations were boosted by the successful issue of Zambian Breweries, which raised up to the US $ 8.5 million for secured loans for the acquisition of Northern Breweries in 1998. Most of the listings were the result of the country's privatization program.

After the liberalization of prices of agricultural commodities, a commodity exchange, the Agricultural Credit Exchange, was also established in 1994, as an initiative of the Zambia National Farmers Union. The exchange provides a centralized trading facility for buyers and sellers of commodities and inputs. It provides updated prices and some market information for both local and international markets.

9. Financial Markets in Zimbabwe

The Zimbabwe Stock Exchange ZSE is one of the oldest and most vibrant stock exchanges in Africa. It was established in 1890, but by 1946 sporadic trade took place. In 2002, it had 76 listed companies. The ZSE operates under the Stock Exchange Act, which is being revised to take into account new technical requirements and align its contents with international standards (in protecting stock trading, transparency, central depository systems, etc. improvement).

The ZSE is open to foreign investors, who can buy up to 40 percent of the listed company's equity, with a single investor buying a maximum of 10 percent of the shares on offer. Foreign investors can invest in the local bond market for a maximum of 25 percent per government bond and stock, and a single investor can acquire a maximum of 5 percent. Foreign investors, however, are not allowed to purchase from the secondary market. These investments are eligible for a 100 percent dividend and interest remittances.

Financial Market Regulation in Southern Africa: Which Way Ahead?

The major issue in financial market regulation lies in the fact that the legal and institutional structures of most countries are still insufficient to support modern financial processes. Examples of such inadequacies include outdated legal systems, which lead to poor enforcement of laws. The following challenges are very interesting for further research opportunities.

The proactive approach to using contracts requires a coherent and comprehensive legal framework that clearly defines the rights and obligations of all intervening operators. Such a framework should encourage discipline and timely enforcement of contracts, promoting responsibility, and prudent behavior on both sides of financial transactions. Prudent and efficient financial intermediaries cannot operate without reliable information on borrowers, and some legislation on accounting and auditing standards, which also ensures honesty on behalf of financial institutions, is likewise developed efficiently for a national financial market And to operate, the law must be fully incorporated. Business, arbitration, information disclosure, take-over, and merger rules.

Due to the role of financial institutions and markets in the development of a sound financial system, additional legislation is required for their operation to complement company law. These are prudential rules, particularly for banks and similar financial institutions that hold a significant part of the money supply, making money and intermediate between savings and investment. Company law is an example of the type of law required. It not only controls the operation of commercial enterprises but also protects the interests of the company's stakeholders. Thus, public disclosure about the activities of the company on the Companies Act should be made mandatory on company management in the appropriate section of the Companies Act. Such information, particularly that relating to finance and accounting, should also be statutorily verified later and verified by auditors.

Such issues as prudential rule entry (listing), capital adequacy standards, asset diversification, credit limits on individuals, permissible limits of activities, asset classification and provision, portfolio concentration and enforcement powers, special accounting, audit, and description standards. Let's cover. To meet the needs of banks to ensure timely availability of accurate financial information and transparency. The objective is to increase the security and soundness of the financial system.

There is a real need for important legislation related to financial markets that require not only favorable policies but also the legal and institutional infrastructure to support their operations, prevent abuses, and protect investors. The confidence of investors is important for the development of markets. Brokers, underwriters, and other middlemen operating in these markets have to follow the code of conduct embodied in the law applicable in institutions such as finance and insurance companies, mutual funds, and pension funds.

Another important issue is the independence of the regulatory authority, their number and the option to establish a self-regulatory agency. All these aspects must also take into account the objectives and principles defined by the government, and the specific development needs in the financial system.

A major challenge concerning the financial market in the Southern African region is the harmonization of national financial regulation and compliance with international requirements, including SADC norms and standards set by international organizations such as the Securities Commissions (IOSCO). , International Accounting Standards Committee (IASC), Basel Committee on Banking Supervision (BCBS), and obligations arising from the World Trade Organization Agreement on Financial Services (GATS). These major international instruments are beginning to be implemented and individual countries have to keep up to date with the rules of their financial markets and upgrade the technical skills of their employees in charge of regulatory and supervisory operations.

List of holy books

For, A.P. Overview of the South African Financial System in Securities Markets, Johannesburg, Securities Research, No. 3, 1987
Dougall, H.E. [19 Mark], Capital Markets and Institutions, 2nd ed., New Jersey, Prentice-Hall;
Farnes, E.L. [19 An2] An introduction to Financial Economics, Henninmann, London.
Smith, P.F. [19–1], Economics of Financial Institutions and Markets, Illinois, Irvine;
Peltier, F. [19és] Marchis Financiers at the Detroit Commune, Banke Editor, Paris;
Club W. R, and Rodriguez J. R. [194], Financial Institutions and Markets, Second Edition, Blackwell Publishers;
Matt out, J. P. [1996] Drona Bunkare International, Banke Editor, 2nd ed., Paris;
Midget R H and Rinkler A. [1999], Building Financial Institutions in Developing Countries, Working Paper Series, Finance and Development no. 45, JW Goethe University, Frankfurt am Main;
Falken h. Bumper r. Belleville d. And store t. [2001], Financial Regulation in South Africa, SA Financial Sector Forum, 2D ed., Rivonia;
Miskin, F.S. [2004], The Economics of Money, Banking and Financial Markets, seventh edition, Addison-Wesley, Boston, MA
Fanelli`J.M. And Medhora R. [1998], Financial Reforms in Developing Countries, IDRC Mc Milne Press Limited, Hampshire;
Banco de Mozambique [2005], Annual Report, May 2005.-ADC [2004], Official SADC Trade, Industry and Investment Review, 8th ed., SADC Secretariat, Gaborone;

The author, a lecturer and an international consultant in trade and investment is a director of Interconsult Mozambique and a representative of Emerging Markets Focus (Pty) in Mozambique. The purpose of this insight paper is to advise investors and traders involved in international trade by providing accurate legal data on the institutional and legal framework of the Mozambique and South African region.