J-CAP is a new WBG initiative to reinforce its commitment to the development of local capital markets. For a selected number of focus countries, J-CAP will bring together WB and IFC teams to sequence advisory services with demonstration transactions, using an ecosystem approach to capital markets development. In WAEMU, J-CAP is supporting reforms, among others, to strengthen the protection for investors, modernize the legal and regulatory framework for public offerings and introduce new instruments to crowd-in new issuers. A first success is the issuance of a SME loan securitization with the help of the IFC
Over the past 20 years, WAEMU’s capital markets have mobilized about USD 17 billion to the region’s economy. This dynamism shows great potential – a potential, however, that can only be realized if three roadblocks are being resolved. How can the investor base be enlarged and diversified? How can the financial markets industry be professionalized? How do we make the market more attractive for issuers ?
While each capital market develops in a unique way, with no script to follow, there are certain preconditions and policies that are common to more mature markets. What are those preconditions ? And what does that mean for policymakers and business leaders looking to actively promote their capital market ?
The sovereign debt market is the largest and most active market segment in WAEMU’s capital markets. It has played a key role in raising the resources needed to fund the region’s economic development policies at a reasonable cost. At times, however, the goal of raising funding cheaply may not always well align with the one to develop local capital markets. How can this trade-off be balanced ? What policies are important to further the development of the local sovereign debt markets and the overall capital markets ? How did other countries manage those challenges ?
WAEMU’s domestic investor base is dominated by commercial banks, as a result of which financing at the domestic capital markets remains short-term. Pension funds could provide a good source of long-term investments. But although growing in size, their role in the domestic capital markets has yet to be established. How could that be done? What are the mechanisms to allow pension funds to work together and co-invest ? What innovative solutions are available to further grow the asset base ?
With 70 per cent of Africa’s population under the age 35, the continent is fertile ground for fintech. Yet, the application of fintech solutions in capital markets development has been marginal. Where are the opportunities? And how can we unlock them?
Investment funds are instrument to capital markets development as they reduce the cost of diversifying risk and allow retail investors to easily access professional asset management services. But how does such an industry develop?
To differentiate risks between assets and instruments, well- functioning capital markets imply that quality information is available and a transparent price discovery mechanism in place. How does WAEMU’s credit culture look like, and what can be learned from other country experiences?
Foreign investors can play an important role in diversifying the investor base. However, their participation in WAEMU’s domestic markets is small compared to peer countries with a similar level of economic development and credit ratings. What are the reasons behind it ? In what way do those reasons vary across different market segments ? How did other countries overcome those hurdles and attract more foreign investors into their domestic markets ?